Independent Life and Acc. Ins. Co. v. Harrington

• Decision Date: 05 August 1994
• Citation: 658 So.2d 892
• Parties: The INDEPENDENT LIFE AND ACCIDENT INSURANCE COMPANY v. Maggie Lou HARRINGTON, as administratrix of the Estate of Vonnie Casey, deceased. 1921093.
• Court: Alabama Supreme Court

Page 892

658 So.2d 892

The INDEPENDENT LIFE AND ACCIDENT INSURANCE COMPANY v. Maggie Lou HARRINGTON, as administratrix of the Estate of Vonnie Casey, deceased.

1921093.

Supreme Court of Alabama.

Aug. 5, 1994.

Rehearing Denied March 24, 1995.

Thomas R. Elliott, Jr., Richard W. Lewis and J. Flint Liddon III of London, Yancey, Elliott & Burgess, Birmingham, for appellant.

William H. Atkinson and Wm. Todd Atkinson of Fite, Davis and Atkinson, P.C., John H. Bentley, Jerry Guyton of Vinson & Guyton, Hamilton, for appellee.

PER CURIAM.

The defendant, Independent Life and Accident Insurance Company ("Independent Life"), appeals from a judgment based on a jury verdict in favor of the plaintiff, Maggie Harrington, in a fraudulent suppression action. We affirm conditionally.

I. Facts

Independent Life is a home service insurance company that markets various health and hospitalization policies. These policies have different age termination provisions; certain types of policies terminate when the insured reaches age 65 or becomes eligible for Medicare, while others reduce benefits by half when the insured reaches age 65 and then terminate benefits altogether when the insured reaches age 70.

In 1964, Independent Life decided to waive the termination provisions in some of its existing and newly issued hospitalization policies so as to allow the policies to remain in effect even after they were due to terminate because of the insured's age, as long as the insured continued to pay the premiums. The company drafted "Form 910," a written endorsement document that provided:

"Any reference, contained in the Policy to which this is attached, to a reduction of Benefits at Age 65 and/or cancellation at Age 70 is herewith deleted.

"IN WITNESS WHEREOF, the Independent Life and Accident Insurance Company has caused this Endorsement to be signed by its Secretary-Treasurer at its Home office in Jacksonville, Florida."

Independent Life filed Form 910 with the Alabama Insurance Department and thereafter directed all agents to send issued policies containing an age termination provision to the home office; if the policy was eligible for the endorsement, Independent Life would attach a separate copy of Form 910 to the policy and send it to the insured.

After 1973, Independent Life endorsed its policies by stamping a computer-generated endorsement across the face of the policy document, above the age termination provision. The computer endorsement stated: "The Termination of Policy clause below is hereby voided." Independent Life, however, failed to paper-endorse a substantial number of qualified policies it had issued before 1973 and failed to computer-endorse a substantial number of policies it issued during and after 1973. Insureds who had unendorsed policies would often continue to pay premiums even after they reached the age of 65 or became eligible for Medicare, oblivious to the termination provision, and Independent Life would maintain their policies. In some instances, however, insureds eventually noticed the termination provision in their policies and were alarmed to think that they had been paying premiums on a policy that, for all they knew, had terminated. If an insured then wrote a letter to the Independent Life home office and requested a refund of premiums paid after the time the policy supposedly terminated, Independent Life would issue the refund even though the company had maintained the policy. If the insured requested the refund from his Independent Life agent, however, the company usually did not refund the premiums; instead, the agent would explain that the policy should have had an endorsement and would remain in force as long as the premiums were paid.

In March 1975, Vonnie Casey bought a "Plan 859 Hospital and Surgical Indemnity Insurance Policy" from Independent Life. Casey, a functionally illiterate domestic worker, already owned a number of Independent Life policies insuring her life and the lives of her husband and her five children. Plan 859 was particularly suited to Casey because it was an "industrial" policy; such a policy features small premiums, which are collected weekly or every two weeks by Independent Life agents, and provide modest coverage for people who cannot afford a lump-sum, annual premium or who work in jobs that do not offer them group insurance.

Casey's Plan 859 policy contained the following termination provision:

"All coverage under this Policy shall automatically terminate on the day before the date that the Insured first becomes eligible for coverage under Title XVIII of the Social Security Act (commonly called 'Medicare') as amended or as hereinafter [sic] amended."

Although it was issued after 1973, Casey's policy was not computer-endorsed with a waiver of this termination provision, nor did she ever receive a Form 910 paper endorsement.

Casey's Independent Life agent visited her weekly to collect premiums on her policies and collected premiums for the Plan 859 policy every two weeks. In 1985, D.C. Chaffin became her debit agent and regularly collected the premiums due on her various policies. Chaffin never saw Casey's Plan 859 policy and did not know that it contained a termination provision or that the policy was supposed to be endorsed with a waiver of this provision. In 1982, Casey reached age 65 and applied for Supplemental Security Income ("S.S.I."). As a result of receiving S.S.I., Casey enrolled in the Medicaid program and Part B of the Medicare program. (The Medicaid program would cover inpatient hospital care, and Part B of the Medicare program would cover outpatient care.) Although her Plan 859 policy had never been computer- or paper-endorsed, Casey continued to pay her weekly premiums to Chaffin.

In 1990, H.E. Sorrells replaced Chaffin as Casey's collecting agent. Like Chaffin, Sorrells never saw Casey's policy and knew nothing of the termination provision or of the endorsement that waived it. He did not know Casey's age. He also did not know that she was covered by Medicare and Medicaid programs and that these programs had a bearing on the effectiveness of Casey's policy coverage.

In early 1991, Casey was hospitalized for 32 days, suffering from heart disease. After she was released from the hospital, Casey asked Sorrells to gather her bills from the hospital so that she could compile them and file a claim for benefits under her Plan 859 policy. When Sorrells went to the hospital to collect the bills, he learned for the first time that Casey was eligible for Medicaid and Medicare. The hospital, unaware that Casey had insurance, had already submitted her bills to Medicaid; it noted on her record that any future payments made to the hospital from Independent Life would be assigned to Medicaid as reimbursement.

On his next weekly visit to Casey, Sorrells informed her that Medicaid had paid her hospital bills and that any policy benefits she would receive from Independent Life would be assigned directly to the Medicaid agency as reimbursement. Sorrells did not know, however, that Medicaid covers only 14 days of hospital care annually. On Sorrells's advice, Casey decided that it would be pointless to file a claim for benefits that would not be paid to her and to maintain a hospitalization policy that would only duplicate the benefits she now expected to receive from Medicaid. Sorrells advised Casey not to file a claim and to cancel her Plan 859 policy, and she followed his advice.

Medicaid thereafter paid for 14 days of Casey's hospital care, but denied payment for the remaining 18 days. Casey was hospitalized again in late 1991 and twice in early 1992, but Medicaid denied Casey's claims for the expenses incurred for these hospital stays. It is undisputed that Casey's Plan 859 insurance policy would have paid these expenses if Casey had not canceled it after her first hospital stay.

On March 24, 1991, Vonnie Casey sued Independent Life and its agents, alleging fraudulent suppression. Specifically, she alleged that Independent Life had suppressed the following facts: (1) that she could have received a refund of her premiums paid since reaching age 65 if she had made a request to the home office of Independent Life, (2) that her policy would not pay benefits to her if she was hospitalized, and (3) that endorsements had been prepared by Independent Life, for attachment to her policy, waiving the termination of benefits provision of her policy. She claims that the suppression of these facts induced her to purchase and maintain premiums upon a hospitalization policy that afforded her no coverage.

Casey died while the case was pending, and Maggie Lou Harrington, as administratrix of Casey's estate, was substituted as the plaintiff. The jury returned a verdict in favor of Chaffin and Sorrells, the agents. However, it returned a general verdict against Independent Life and awarded Harrington damages of $6,230,000. Independent Life moved for a J.N.O.V., a new trial, or a remittitur, arguing that the evidence did not support Harrington's claims. The trial court denied the J.N.O.V. motion and the new trial motion and, after a hearing pursuant to this Court's directive in Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.1986), denied the motion for a remittitur. Independent Life appeals, raising 12 issues.

II. Issues

Issue 1: The denial of a J.N.O.V.

Independent Life contends that it was entitled to a J.N.O.V. because, it argues, Casey did not present sufficient evidence to support her claim of fraudulent suppression. In Industrial Chemical & Fiberglass Corp. v Chandler, 547 So.2d 812, 820 (Ala.1988), this Court stated:

"The standard of review applicable to a motion for JNOV is identical to the standard used by the trial court in granting or denying the motion initially. Turner v. Peoples Bank of Pell City, 378 So.2d 706 (Ala.1979). Thus, when reviewing the trial court's ruling on the motion, we determine whether there is sufficient evidence below to produce a...