Kewin v. Massachusetts Mut. Life Ins. Co.

• Decision Date: 01 October 1980
• Docket Number: 60757,Docket Nos. 60756,No. 14,14
• Citation: 409 Mich. 401,295 N.W.2d 50
• Parties: Harland J. KEWIN, Plaintiff-Appellee, v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellant. Harland J. KEWIN, Plaintiff-Appellant, v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellee, Calendar
• Court: Michigan Supreme Court

Page 50

295 N.W.2d 50

409 Mich. 401

Harland J. KEWIN, Plaintiff-Appellee, v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellant.

Harland J. KEWIN, Plaintiff-Appellant, v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellee,

Docket Nos. 60756, 60757.

Calendar No. 14.

Supreme Court of Michigan.

Submitted Jan. 11, 1979.

Decided Aug. 5, 1980.

Rehearing Denied Oct. 1, 1980.

Renee J. Ortlieb, Flint, for plaintiff (appellee-cross appellant).

David Melkus, Flint, of counsel for plaintiff (appellee-cross appellant).

Rubenstein, Pruchnicki & Chittle by Thomas E. Chittle, Flint, for defendant (appellant-cross appellee).

Bacalis & Associates, P. C. by Jesse R. Bacalis, Christopher J. Wiggins, Willis W. Snyder, Detroit, amicus curiae brief on behalf of policyholders.

Fred W. Freeman, John E. S. Scott, Robert S. Krause, Kenneth J. McIntyre, Dickinson, Wright, McKean, Cudlip & Moon, Detroit, for amici curiae, American Counsel of Life Ins. and the Health Ins. Ass'n. of America.

KAVANAGH, Justice.

This dispute arises out of non-payment of benefits alleged to be due under insurance policies issued to the plaintiff by the defendant. The defendant appealed from a jury verdict rendered on March 29, 1976, in Genesee Circuit Court. The Court of Appeals affirmed in part and reversed in part. 79 Mich.App. 639, 263 N.W.2d 258 (1977). This Court granted leave to appeal and cross appeal limited to the following issues:

"(1) What causes of action and damage remedies are available to an insured who alleges that he has suffered mental anguish as a result of his insurance company's bad-faith refusal to honor a valid claim; (and)

"(2) What causes of action and elements of damage were properly pled by the plaintiff"?

On September 15, 1972, the defendant, Massachusetts Mutual Life Insurance Company, issued two policies of insurance to the plaintiff, Harland Kewin. One policy provided for disability income protection insurance and the other for life insurance. It is the alleged breach of the former policy that is of concern in this appeal. Under the terms of the policy, the plaintiff was entitled to benefits of $500 per month, after a thirty-day waiting period, if he became disabled from performing substantially all of the duties of his usual occupation.

On December 2, 1972, the plaintiff suffered a severe injury to his right knee when he was involved in a motorcycle accident in Florida. After the plaintiff filed a claim for benefits based on this injury, the defendant informed him of the need for a monthly doctor's report substantiating the disability. To facilitate the procedure and to minimize the inconvenience to the plaintiff, it was suggested by Mr. Pemberton, a claims representative employed by the defendant, that the plaintiff visit a local doctor at the defendant's expense. Thereafter, the plaintiff visited Dr. Harris, who forwarded a monthly report to the defendant beginning in March of 1973.

Prior to this conversation between Mr. Pemberton and the plaintiff, the defendant engaged Retail Credit Corporation on January 3, 1973, to do an investigation and report concerning the leg injury claim. That report was received by the defendant on January 15, 1973, and was followed by others which detailed the employment and other activities engaged in by the plaintiff. The report indicated that the plaintiff walked on crutches but was anticipating full-time employment at a Flint realty company as soon as he was able.

The defendant began payment of the monthly benefits due the plaintiff on February 9, 1973, which payment was for the month of January. Late payments for the months of February and March followed. On May 2, 1973, the plaintiff talked on the telephone with Mr. Pemberton and one other representative of the defendant concerning a possible settlement of the plaintiff's claim.

It was agreed during this conversation that the plaintiff would accept $500 for the April benefit payment already due him, plus an advance payment of $1,000, the equivalent of two months' benefits. In exchange the plaintiff agreed to waive any rights to further benefits until October 1, 1973, and further, waive his rights under the policy to forego payment of premiums during that period. Pursuant to this conversation, the defendant prepared two checks, one for $500 and the other for $1,000, and sent them to the plaintiff along with a letter detailing the agreement. The plaintiff negotiated each check.

The plaintiff, in November of 1973, requested and was sent additional claim forms, but never returned them to the defendant. No further correspondence was had between the parties until the plaintiff filed suit in August of 1974.

A jury trial was held, and a verdict in favor of the plaintiff was returned. The jury awarded $16,500 in benefits under the disability insurance contract; $798.40 as agreed cash value of the related life insurance policy; $75,000 for mental or emotional distress; and $50,000 for exemplary damages. The defendant's motions for a new trial, remittitur, and judgment notwithstanding the verdict were denied, and a claim of appeal was filed in the Court of Appeals.

On November 21, 1977, the Court of Appeals held that a disability insurance contract is a contract involving matters of mental concern and solicitude and that, upon proper pleading and proof, mental distress damages are recoverable for breach of the contract. The Court also held that the mental distress damages and exemplary damages awarded by the jury in this case were for the same mental anguish, and accordingly reversed the award of $75,000 for mental or emotional distress. Finally, the Court held that the plaintiff's complaint was insufficiently specific to support either a claim in tort for intentional infliction of emotional distress or a claim in contract for mental anguish damages, but that it did support a recovery of exemplary damages.

The parties do not dispute that a cause of action in contract arises upon a bad-faith breach of a disability insurance contract. Their positions differ sharply, however, on the question of whether and under what circumstances mental distress and exemplary damages are recoverable as a consequence of such a breach.

Under the rule of Hadley v. Baxendale, 9 Exch. 341; 156 Eng.Rep. 145 (1854), the damages recoverable for breach of contract are those that arise naturally from the breach or those that were in the contemplation of the parties at the time the contract was made. 5 Corbin, Contracts, § 1007. Application of this principle in the commercial contract situation generally results in a limitation of damages to the monetary value of the contract had the breaching party fully performed under it. Thus, it is generally held that damages for mental distress cannot be recovered in an action for breach of a contract.

There are exceptions ¹ to the general rule limiting the recovery for breach of contract. We are asked to apply an exception recognized in Stewart v. Rudner, 349 Mich. 459, 84 N.W.2d 816 (1957), to this case involving disability insurance. The plaintiff in Stewart brought suit on a breach of contract theory against the defendant doctor. The defendant had promised to deliver plaintiff's child by Caesarean section, but did not do so. It was asserted that as a result of the breach of the agreement, the plaintiff's child was stillborn.

In writing for four members of this Court, Justice Talbot Smith wrote to allow recovery for mental distress:

"When we have a contract concerned not with trade and commerce but with life and death, not with profit but with elements of personality, not with pecuniary aggrandizement but with matters of mental concern and solicitude, then a breach of duty with respect to such contracts will inevitably and necessarily result in mental anguish, pain and suffering. In such cases the parties may reasonably be said to have contracted with reference to the payment of damages therefor in event of breach. Far from being outside the contemplation of the parties they are an integral and inseparable part of it."

The nature and object of the agreement justified the treatment accorded it in Stewart. A contract to perform a Caesarean section is not a commercial contract in which pecuniary interests are most important. Rather, such a contract involves "rights we cherish, dignities we respect, emotions recognized by all as both sacred and personal." Stewart, 469, 84 N.W.2d 823. Where such interests are invaded by breach of a contract meant to secure their protection, mental distress is a particularly likely result. Flowing naturally from the breach, these injuries to the emotions are foreseeable and must be compensated despite the difficulty of monetary estimation.

Insurance contracts for disability income protection do not come within the reach of Stewart. Such contracts are commercial in nature; They are agreements to pay a sum of money upon the occurrence of a specified event, Secor v. Pioneer Foundry Co., 20 Mich.App. 30, 35, 173 N.W.2d 780 (1969); 14 MIchigan Law & Practice, Insurance, § 71, p. 50. The damage suffered upon the breach of the agreement is capable of adequate compensation by reference to the terms of the contract. We recognize that breach of the insurance contract, as with almost any agreement, results in some annoyance and vexation. But recovery for those consequences is generally not allowed, absent evidence that they were within the contemplation of the parties at the time the contract was made. 22 Am.Jur.2d, Damages, § 64, p. 97. See, also, Scottish Union & National Insurance Co. v. Bejcy, 201 F.2d 163, 166 (CA 6, 1953).

The plaintiff argues that apart from Stewart, supra, Miholevich v. Mid-West Mutual Auto Insurance Co., 261 Mich. 495, 246 N.W. 202 (1933), permits recovery for mental distress damages in breach of insurance contract cases. Miholevich involved an automobile collision liability insurance policy issued to the plaintiff by the defendant....