Guy v. COM. LIFE INS. CO., DC86-98-S-O.

• Decision Date: 10 November 1988
• Docket Number: No. DC86-98-S-O.,DC86-98-S-O.
• Citation: 698 F. Supp. 1305
• Parties: Thomas R. GUY, Administrator of the Estate of Vicki R. Guy, Deceased, Plaintiff, v. COMMONWEALTH LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

698 F. Supp. 1305

Thomas R. GUY, Administrator of the Estate of Vicki R. Guy, Deceased, Plaintiff, v. COMMONWEALTH LIFE INSURANCE COMPANY, Defendant.

No. DC86-98-S-O.

United States District Court, N.D. Mississippi, Delta Division.

November 10, 1988.

COPYRIGHT MATERIAL OMITTED

Michael B. McMahan, McMahan and McMahan, Hattiesburg, Miss., Percy L. Lynchard, Jr., Hernando, Miss., for plaintiff.

Dan T. Bing, Luckett Law Firm, Memphis, Tenn., for defendant.

OPINION

SENTER, Chief Judge.

The plaintiff in this cause seeks contractual and punitive damages for a tortious breach of an insurance contract. This cause was duly tried before the court at a bench trial. The court herein sets forth its findings of fact and conclusions of law. For the reasons set forth below, the court finds that defendant tortiously breached its contract and awards the plaintiff $2,614.00 in contractual damages and $141,000.00 in punitive damages.

FINDINGS OF FACTS

Vicki R. Guy, plaintiff's decedent, hereinafter referred to as "Guy", was for many years a regular patient of Dr. Henry Wadsworth, Sr., of Hernando, Mississippi. From 1977 through and including April of 1981, Guy used Dr. Wadsworth, Sr., as her regular physician.

The medical records of the Wadsworth Clinic reveal that Vicki Guy saw Dr. Henry Wadsworth, Sr., on April 23, 1981. Her blood pressure was 120/90, her pulse was 82, her temperature was normal. She had pain in the right upper quadrant of her abdomen. He checked her; she was tender over the gallbladder, and her weight was 177 pounds. Dr. Wadsworth made a clinical diagnosis of cholecystitis. He gave her a prescription of Phenobarbitol with Beladonna, fifty (50) pills, to be taken one (1) tablet three times a day. He also gave her a prescription for Tylenol # 2, fifteen (15) pills. He put her on a gallbladder diet.

Dr. Henry Wadsworth, Sr., died in August of 1983.

Application and Issuance of the Policy

Prior to October of 1984, Vicki Guy sought a health insurance policy. She discussed this with Tim Ball, an agent for Farm Bureau Insurance Company, and with Tim Walton, the agent for Commonwealth. She had known Tim Walton all of his life. She chose the Commonwealth policy because there was no deductible and for the benefits that it paid.

Walton started with Commonwealth approximately two months before taking Vicki Guy's application on October 8, 1984. He received no training, no schooling, and no instructions from Commonwealth, but did receive some type of product manual to learn about the products offered by Commonwealth. Walton was paid strictly on commission. He was to receive approximately 40 percent of annual premiums collected as his pay. If no sales were made, he would receive no pay.

On October 8, 1984, Walton contacted Vicki Guy at her place of business for the purpose of selling her an insurance policy. This was the first time in her life that she had ever applied for an insurance policy for either medical or life insurance. Guy testified that Walton, during the taking of her application, only asked her address, social security number, date of birth, and nothing else. Guy testified further that Walton filled out the remainder of the application without asking her another question. Guy signed the application after Walton filled it out, but claims she never read it.

The application needs to be discussed in detail. On page 2 of the application, there are a number of questions that are to be answered by marking boxes labeled "yes" or by marking boxes labeled "no." Question C was the following: In the past five years, have you consulted or been treated or examined by any physician or practitioner:

(1) not named below?

(2) for any cause not recorded above.

Neither the "yes" box nor the "no" box was marked.

Page 3 of the application contains a section "AGENTS REPORT — EACH QUESTION TO BE ANSWERED FULLY BY THE AGENT." Under that heading are questions to be answered by marking either a "yes" box or a "no" box. The first question contained two subparts asking whether the agent had requested an x-ray of the proposed insured and whether the agent had requested an EKG of the proposed insured. Neither of these questions was answered by marking either the "yes" box or the "no" box on each question.

Question 4 under this section asked:

Did you give the applicant:

a. Buyer's Guide

b. Medical information Bureau and Consumer Report Notices.

Although the "yes" box was marked for the (a.) question, Walton admitted that he did not leave a Buyer's Guide with Guy. Walton admitted he was not even sure that he knew what a Buyer's Guide was. The subpart (b.) question was not answered by marking either the "yes" box or the "no" box. Exhibit P1-B. The claims file indicated that on October 15, 1984, the application was sent back to Walton because question "H. INSURANCE IN FORCE" had not been answered, but Walton had no recollection of not answering question "H."

The application listed Vicki Guy's weight as 142 pounds, but in a telephone interview two weeks later, Guy gave her weight as 180 pounds. Walton could not remember asking the weight question. Walton had no recollection as to why these various questions were either unanswered or answered inaccurately.

Vicki Guy testified in her deposition that if in October of 1984 she had been asked whether she had ever had an indication of or had been treated for a disorder of the gallbladder, she would have answered that she had not been treated for a disorder of the gallbladder, but had known indications of a gallbladder problem.

Walton testified that it was his normal habit or routine, developed over the years, to ask the health questions. He stated that he could think of no reason why he would not have asked Vicki Guy those questions, but had no specific recollection of taking this application. The court finds that the incomplete application and Walton's lack of recall show that Tim Walton did not ask any health questions of Vicki Guy when he took her application, but that he undertook to answer such questions himself.

Walton testified that he gave a receipt to Vicki Guy for the first month's premium payment made by her. The receipt was a printed form attached to the application. On the back of the receipt were notices regarding an "investigative Consumer Report" and the "Medical Information Bureau."

Walton forwarded the application to Commonwealth. Someone at Commonwealth noticed that question "H" on the application relating to insurance in force had not been filled out and returned it to Walton to be completed. "None" was written in this section, and the application was returned to Commonwealth. The application was then examined by an underwriter at Commonwealth who noticed that questions C1 and C2 of the application relating to prior medical visits in the past five years had not been answered. The underwriter requested a health questionnaire interview. In accordance with this request, Kelly Bishop, of Commonwealth, made a telephone call to Vicki Guy, which Guy admits receiving. Guy states that during the telephone interview, she answered questions regarding her health. The questionnaire reflects that Guy advised Bishop that she had last seen Dr. Wadsworth approximately three years before for a "cold." The questionnaire does not mention any problem of the gallbladder. Guy testified that she told the caller that she could not remember exactly why she had gone to the doctor, but she thought it was for a cold. The questionnaire records the response to the question: "Have you had an illness or medical condition in the past ten years requiring you to consult a doctor?", as being no. This answer is inconsistent with that to the preceding question concerning Guy's last visit to a doctor. Guy testified that she was not asked this question. See pages 43-48 of Guy Deposition.

The policy was issued by Commonwealth and delivered to Guy with the application attached. The telephone questionnaire was not attached to the policy. This court has held that the failure to attach the telephone questionnaire means that Guy was not bound by any statements contained therein. See Order Denying Motion to Reconsider and Allowing Amendment of Answer, August 11, 1988. See also Miss.Code Ann. § 83-9-11(1).

The first page of the policy contained a notice which states:

We issue your policy on the basis that the information on your application is correct and complete. Check this information carefully. If it is not correct and complete or if any past medical history has been left out, write it to our home office.

The undisputed testimony in this case is that Commonwealth utilizes the Lincoln National Underwriting Manual as a guideline for the evaluation of underwriting policies. However, the underwriter is not bound by the recommendations of the manual, but uses it together with his own judgment of the circumstances in underwriting any policies in the event an insured suffers from cholecystitis. The manual recommends either: (1) to rate the policy; (2) to issue a waiver or rider; or (3) to not issue the policy, depending on the circumstances. If the episode occurred from two to five years prior to issuance of the policy, then the recommendation is for a 50 percent premium increase, although this is within the discretion of the underwriter. In this case, David Banks, vice-president of Commonwealth and manager of the underwriting department, stated that if he had been aware in 1984 that Vicki Guy had been diagnosed as having Cholecystitis in 1981, he would have issued a waiver excluding coverage for any gallbladder problems. Sonja Overbee, an underwriter for American General Insurance Company, testified that under the circumstances, American General would not have issued a policy under their standards although they also use the Lincoln National Underwriting Manual and their policy was less liberal than Commonwealth's policy. Neither David Banks nor Sonja Overbee was involved in the decision to issue the...