Independent Life & Acc. Ins. Co. v. Peavy

• Citation: 528 So.2d 1112
• Decision Date: 04 May 1988
• Docket Number: No. 56043,56043
• Court: United States State Supreme Court of Mississippi
• Parties: INDEPENDENT LIFE & ACCIDENT INSURANCE COMPANY, et al. v. George R. PEAVY.

Page 1112

528 So.2d 1112

INDEPENDENT LIFE & ACCIDENT INSURANCE COMPANY, et al. v. George R. PEAVY.

No. 56043.

Supreme Court of Mississippi.

May 4, 1988.

Rehearing Denied Aug. 17, 1988.

Thomas H. Suttle, Jr., Daniel, Coker, Horton & Bell, Jackson, for appellants.

J. Hal Ross, Brandon, Ronald S. Cochran, Denton, Persons, Dornan & Bilbo, Biloxi, for appellee.

EN BANC.

DAN M. LEE, Presiding Justice, for the Court:

George R. Peavy filed suit in the Circuit Court of Rankin County, Mississippi, against Independent Life & Accident Insurance Company, and against its agents George F. Watson and John Lowell Davis, for tortious breach of contract, breach of fiduciary duties, and fraud in the inducement. After the two individual defendants were dismissed on Peavy's motion, the jury returned a verdict against Independent Life and awarded Peavy $412.20 in actual damages and $250,000.00 in punitive damages. From that verdict Independent Life has appealed, assigning four errors. We affirm.

On March 16, 1968, Independent Life & Accident Insurance Company (Independent Life) issued a $10,000.00 life insurance policy covering George Randell Peavy. The provisions of the policy included waiver of premium in case of disability, and double indemnity in case of accidental death.

Approximately eleven years later, while the policy was in effect, Peavy was injured while working for Pearl Steel Erectors. The injury occurred when a 3,500-pound steel beam fell on Peavy's leg, resulting in a lengthy period (26 months) of total disability. Medical testimony indicated that Peavy's total disability ended February 1, 1982, after which he was partially disabled for an unspecified time. This date at which total disability ended is a key factor, because the waiver of premium provision required that the insured, in order to obtain the benefit, notify the company in writing of his disability during the period of total disability. The provision reads as follows:

NOTICE OF CLAIM. No claim for benefits hereunder shall be valid unless total disability is established as provided elsewhere herein and written notice thereof is given to and received by the Company during the lifetime of the Insured and during the continuance of total disability. Failure to give such notice within such time shall not invalidate any claim if it shall be shown that it was not reasonably possible to give it within such time and that such notice was given as soon as was reasonably possible. If such disability commenced within the grace period for payment of a premium in default, the Insured shall be liable to the Company for such premium with interest at 6% a year, compounded annually, which amount; if not paid shall be deducted from any amount payable under the Policy.

The waiver of premium provision also contains the following definition of total disability:

TOTAL DISABILITY DEFINED. Total disability as used herein is defined as:

1. Incapacity to engage in any occupation for remuneration or profit, which incapacity is the result of bodily injury or disease suffered or contracted after the date of this disability provision; or

2. The loss by severance of both hands at or above the wrist, of both feet at or above the ankle, or of one hand and one foot at or above the wrist and ankle respectively; or

3. The permanent loss of sight of both eyes.

In the summer of 1980, Peavy told his insurance agent, George Watson, that he wanted to file a claim for waiver of premium because of his disability. Watson provided a form, which Peavy completed and returned to Watson, who then submitted it to Independent Life. Subsequently, Independent Life returned the form to Watson, indicating that it was the wrong form and enclosing the correct form. Watson left the correct form with Peavy, who completed it, or partially completed it. Shortly thereafter, Watson and his manager John Lowell Davis visited Peavy at the latter's residence. According to the testimony of Peavy and his wife, Watson and Davis, during that visit, persuaded them not to file for the waiver of premium at that time. They informed Peavy that by filing for the waiver of premium, he would forfeit the double indemnity provision of his policy. (The policy expressly provides for this forfeiture.) Furthermore, Watson or Lowell or both told Peavy that if, at any time, he felt he could not pay the premiums, then he need only submit the claim form, and the company would begin paying the premium and would reimburse him for premiums he had paid since the time he became disabled. At trial Watson and Lowell denied telling Peavy he could wait to submit the claim.

In April of 1982, Peavy, feeling that he was no longer financially able to pay the premium, submitted a claim. Again, Independent Life returned the claim, indicating it was not submitted on the correct form. Then Peavy completed and submitted the correct form, dated May 28, 1982. Because Peavy did not submit the claim during the period of total disability, Independent Life denied the claim. Oddly enough, this correct-but-submitted-too-late form is identical to the submitted-on-time-but-incorrect form which Peavy had first completed and forwarded to Independent Life. Watson told Peavy that the claim had been denied and that he would "do what he could to help," but there is no evidence of any further action by him on Peavy's behalf. Peavy then retained an attorney who, after initial correspondence proved unfruitful, filed suit against Independent Life, Watson and Davis.

At trial Peavy put on evidence, over defense counsel's objections, of other allegedly wrongful acts by Independent Life, and the trial court allowed Peavy to amend his pleadings to conform to this proof. These alleged actions on the part of Independent Life included the following: 1) using, in the policy, a definition of total disability which Peavy argues is contrary to Mississippi law, 2) requiring Peavy to choose between waiver of premium and double indemnity, and 3) billing Peavy for a lapsed premium instead of allowing the automatic premium loan to take effect. The trial court's action in allowing the proof and the amendment of the pleadings is one of the assigned errors.

Peavy's motion to dismiss the two individual defendants was granted, and the jury returned a verdict for Peavy against Independent Life. Peavy was awarded $412.00 in actual damages and $250,000.00 in punitive damages. Independent Life has appealed, assigning four (4) errors.

I. DID THE TRIAL COURT ERR IN ALLOWING THE JURY TO CONSIDER THE QUESTION OF PUNITIVE DAMAGES AND IN NOT REMITTING ALL OF THE PUNITIVE DAMAGES ON INDEPENDENT LIFE'S POST-TRIAL MOTION?

Punitive damages are assessed as an example and warning to others, and are to be allowed with caution, Consolidated American Life v. Toche, 410 So.2d 1303, 1304 (Miss.1982), and only in extreme cases, Gardner v. Jones, 464 So.2d 1144, 1148 (Miss.1985). In an action for breach of contract, punitive damages are appropriate only where the breach is "attended by intentional wrong, insult, abuse or such gross negligence as to consist of an independent tort." Fedders Corp. v. Boatright, 493 So.2d 301, 311 (Miss.1986), quoting Progressive Casualty Insurance Co. v. Keys, 317 So.2d 396, 398 (Miss.1975).

When an insurance company is sued for refusing to pay a claim, the existence of an arguable reason for that refusal renders inappropriate any assessment of punitive damages. State Farm Fire and Cas. Co. v. Simpson, 477 So.2d 242 (Miss.1985); Progressive Casualty Insurance Co. v. Keys, 317 So.2d 396 (Miss.1975). The absence of an arguable reason does not, however, mandate the assessment of punitive damages. Only when the insurer acted with malice or gross negligence or reckless disregard for the insured's rights is the imposition of punitive damages appropriate. Aetna Cas. & Sur. Co. v. Day, 487 So.2d 830 (Miss.1986).

Technically, Independent Life had an arguable reason for refusing to waive Peavy's premium: he had not filed written notice of disability, on the proper form, during the time he was totally disabled. Because notice within that time was expressly required by the policy, Independent Life's duty to waive the premium never arose.

The conduct on the part of Independent Life which warranted the assessment of punitive damages was not the actual denial of the claim, but the course of conduct through which Independent Life caused Peavy not to file the required notice. Although the testimony is conflicting, there is evidence that Watson and Davis persuaded Peavy not to file the notice by making two representations, one accurate and the other inaccurate. First, they told Peavy that by filing for waiver of premium he would forfeit double indemnity. This statement was an accurate explanation of the policy provisions. Second, they told Peavy that if, in the future, he was unable to pay the premium, he need only submit the form and Independent Life would begin paying the premium and would reimburse him in a lump sum for the premiums he had paid during the period of his disability. Peavy's testimony, and that of his wife, indicated that they were told he could file "at any time" or "any time before he came out from under the doctor's care." This testimony is corroborated by a memo from Watson to the company stating that Peavy did not want to lose his double indemnity and would "inform the company later of his decision." Peavy gave notice, although on the wrong form, within three (3) months after the end of a twenty-six (26) month period of total disability. At the time he filed, he was still partially disabled and was still under a physician's care.

If, as the jury apparently believed, Watson and Davis indeed made these statements to Peavy, then these misrepresentations lulled Peavy into believing his benefits would remain available. By thus "sandbagging" Peavy, Watson and Davis effectively manufactured the arguable reason which Independent Life would later use to deny Peavy's claim....