Henson v. Celtic Life Ins. Co.

• Decision Date: 04 June 1993
• Citation: 621 So.2d 1268
• Parties: Kerri L. HENSON v. CELTIC LIFE INSURANCE COMPANY, et al. 1910941.
• Court: Alabama Supreme Court

Page 1268

621 So.2d 1268

Kerri L. HENSON v. CELTIC LIFE INSURANCE COMPANY, et al.

1910941.

Supreme Court of Alabama.

June 4, 1993.

R. Wayne Wolfe of Wolfe, Jones & Boswell, Huntsville, for appellant.

H. Harold Stephens of Lanier Ford Shaver & Payne, P.C., Huntsville, for appellees.

PER CURIAM.

The plaintiff, Kerri L. Henson, appeals from a summary judgment in favor of the defendants, Celtic Life Insurance Company ("Celtic"), Celtic's claims adjusters Dun & Bradstreet Plan Services and Plan Services, Inc. ¹ ("Dun & Bradstreet"), and Celtic's agent Belton Jones III.

On April 4, 1990, Henson brought an action alleging breach of an insurance contract, bad faith refusal to pay an insurance claim, and fraud, misrepresentation, and deceit. ² On June 6, 1990, Henson amended her complaint to add a claim alleging negligence and/or wantonness on the part of Jones in procuring an insurance contract. On July 26, 1990, Henson again amended her complaint to add a claim alleging fraudulent suppression of a material fact, against all the defendants. The defendants subsequently moved for a summary judgment; the Madison County Circuit Court entered a summary judgment for all defendants. The issues presented require us to consider whether the trial court erred in holding that there was no substantial evidence that: 1) the defendants were guilty of fraud by virtue of Jones's representation to Henson's mother that he would write a health insurance policy for Henson that excluded only Henson's epilepsy; 2) the defendants suppressed a material fact by not disclosing to Henson that employment was a condition of her insurance coverage; 3) the defendants acted negligently and/or wantonly in failing to procure health insurance for Henson after they had promised to do so; 4) Celtic breached the insurance contract by failing to pay the claim at issue here; and 5) Celtic, assuming that it otherwise would have been justified in refusing to pay the claim, nevertheless waived its right to refuse payment on the claim by its actions while reviewing the claim.

The applicable standard for our review of a summary judgment is the "substantial evidence" rule. Under this rule, once the movant has shown, prima facie, that there is no genuine issue as to any material fact and that he is entitled to a judgment as a matter of law, the nonmovant must introduce "substantial evidence" to rebut this showing. "Substantial evidence" has been defined as "evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989); Ala.Code 1975, § 12-21-12(d). Also, all reasonable doubts concerning the existence of a genuine issue of fact must be resolved in favor of the nonmoving party. Hanners v. Balfour Guthrie, Inc., 564 So.2d 412 (Ala.1990).

The facts of this dispute, viewed most favorably to the nonmovant, Henson, are as follows: Defendant Jones was approached by Kerri Henson's father regarding the purchase of health insurance for his daughter Kerri. After a discussion of the matter, Henson's father advised Jones to contact Henson's mother regarding the particulars of the policy. Jones did seek out Henson's mother, who told him that she was looking for health insurance for her daughter Kerri Henson, and that such insurance was difficult to obtain because the daughter had an epileptic condition. Jones allegedly responded that he would "write a policy for Kerri, excluding the epilepsy." This statement is the basis for Henson's allegation of fraud. Jones subsequently located a suitable policy at Celtic and gave a policy application to Henson's mother for Henson to fill out.

Henson's mother took the policy application home for Henson to fill out on September 23, 1987; Henson completed the policy application that day and gave it to her mother, who then returned it to Jones. It is undisputed that Jones never explained the policy to her, as he was required to do by the Celtic employee handbook; in fact, he had no direct dealings with Henson at all and communicated with her only through her mother.

The policy application required the applicant to give certain employment information. Celtic viewed this information as crucial, because, according to the testimony of Thomas Stead, the vice-president of Celtic's claims department, one of the eligibility requirements was that all applicants be employed at least 30 hours per week. In the application, Henson represented that she was employed as a ticket salesperson/cashier at the Von Braun Civic Center; in response to a question concerning the number of hours she worked per week, Henson wrote "35 ?". Henson had in fact not received a paycheck from the Von Braun Civic Center since July 3, and the undisputed testimony shows that her last actual day of work was June 27, 1987. Also, the evidence shows that Henson had been fired from her job at the Civic Center on September 21; Henson asserts that she did not know of her termination at the time she filled out the policy application, and that she was only apprised of it on March 18, 1988, when she received notice of termination from Von Braun Civic Center. ³

Henson was subsequently hospitalized for a depressive condition at Charter Peachford Hospital in Atlanta from January 23 to February 4, 1989, and incurred medical bills of approximately $4,500. Dun & Bradstreet initially denied the claim because it believed the hospitalization was due to Henson's epileptic condition, which was expressly excluded from coverage in a rider to the policy. A review committee at Dun & Bradstreet later reversed the denial, and Celtic agreed with the decision of its claims administrator to pay the claim; Celtic's decision is memorialized in an internal memorandum dated August 14, 1989.

Celtic, upon further review and at a time not explicitly disclosed by the record, ⁴ refused to pay the claim because it determined that Henson was unemployed. Celtic had, however, paid claims submitted by Henson both before and after the hospitalization at Charter Peachford during the period January 23-February 4, 1989. ⁵ Moreover, the bill submitted by Charter Peachford on or before February 9, 1989, for Henson's hospitalization indicated that she was unemployed. There is also evidence that an employee in the cost management department at Celtic, Robin Moss, became aware of Henson's employment status on or before February 7, 1989, and wrote a computer bulletin indicating this status, which was available to Dun & Bradstreet. Celtic maintains that it had attempted to procure employment records from Henson on several occasions both before and after it denied the Charter Peachford claim, and that Henson had not responded to its requests. Celtic contends that as soon as it learned of Henson's unemployed status it denied coverage under the policy.

Henson first contends that the trial court erred in entering the summary judgment on her claim of fraud or misrepresentation, because, she says, there were factual issues to be determined by the jury on this claim. The defendants counter by asserting that Jones cannot be held liable for fraud or misrepresentation, because he did not say anything directly to Henson. They cite Ames v. Pardue, 389 So.2d 927 (Ala.1980), as support for this proposition; the trial court also cited Ames in its summary judgment on the fraud/misrepresentation count.

Ames involved an action by a mortgagor against a mortgagee to set aside a sale of the mortgaged property to a third person. One of the plaintiff Pardue's allegations was that the mortgagee had committed fraud by quoting the mortgage balance to the third party, Ames, as less than it actually was. In holding that Pardue had not proved fraud by the bank that would support an action for misrepresentation, this Court stated:

"It is fundamental that the representee who relied on the defendant's misstatement and the plaintiff who was injured must be one and the same. The representee must have relied on and have been deceived and damaged by the statement. Ansley v. Bank of Piedmont, 113 Ala. 467, 21 So. 59 (1896). Recovery cannot be had unless plaintiff relied on the fraudulent representations of the defendant. Jordan v. Pickett, 78 Ala. 331 (1884). In this case, the representee, Ames, relied on the bank's statement but has not been injured as a result, and plaintiff Pardue did not rely on the misrepresentation."

Ames, 389 So.2d at 931.

This statement, although a correct statement of the law, does not support the theory that direct communication between the representee and the one making the fraudulent statement is an absolute prerequisite to an action for fraud. In Ames, the communication, although perhaps intended to benefit the bank at Pardue's expense, was not directed toward him in the sense that the bank intended Pardue to act upon it. In the present situation, however, it is undisputed that Jones intended and expected Henson's mother to pass his statements on to Henson. In such a situation, Henson was entitled to rely on any statements ultimately directed to her, and it is immaterial that the statements were not made to her personally or by correspondence directed to her personally. See National States Ins. Co. v. Jones, 393 So.2d 1361 (Ala.1980); 37 C.J.S. Fraud § 60 (1944).

Henson relies heavily on Hicks v. Globe Life & Accident Ins. Co., 584 So.2d 458 (Ala.1991), for support for her fraud claim. That case is factually distinguishable from the present situation, however, and thus affords Henson no support. In Hicks, the plaintiff was approached by an insurance agent who persuaded her to relinquish the health insurance policy she then held in favor of a policy written by the agent's company. The agent accomplished this by representing to the plaintiff that his policy would cover 80% of her hospitalization costs, with no deductible, and that his...