King v. National Foundation Life Ins. Co.

• Decision Date: 31 March 1989
• Citation: 541 So.2d 502
• Parties: Geraldine KING and John R. King v. NATIONAL FOUNDATION LIFE INSURANCE COMPANY. 87-1074.
• Court: Alabama Supreme Court

Page 502

541 So.2d 502

Geraldine KING and John R. King v. NATIONAL FOUNDATION LIFE INSURANCE COMPANY.

87-1074.

Supreme Court of Alabama.

March 31, 1989.

Lawrence B. Clark and Sally S. Reilly of Lange, Simpson, Robinson & Somerville, Birmingham, for appellants.

Cathy S. Wright and James M. Proctor II of Maynard, Cooper, Frierson & Gale, Birmingham, for appellee.

MADDOX, Justice.

The issue in this case is whether the trial court erred in entering summary judgment for National Foundation Life Insurance Company ("National") on the plaintiffs' claims for breach of contract, fraud, and bad faith.

This appeal involves a medical insurance policy. The evidence before the trial court tended to show the following: On March 24, 1983, the Kings applied to National for a policy of major medical health insurance through National's agent, Christopher R. Farrow. On the application, the Kings indicated that Geraldine King had received medical treatment for a prior pregnancy, but the Kings responded in the negative to a question about whether they had received any "other medical or surgical advice or treatment or operation." National issued a policy to the Kings, effective March 24, 1983. The policy provided as follows:

"Subject to all provisions, waiting periods, exclusions, exceptions and limitations contained herein, the Company will pay the benefits provided hereunder for loss by reason of certain hospital confinement expenses or other specified expenses incurred by an Insured Person which commences while this policy is in force for such person and which is a result of Injury (see page 2 definitions) or Sickness (see page 2 definitions)."

On page 2 of the policy, sickness is defined as "illness or disease of any Insured which first manifests itself thirty (30) days after the Effective Date of Insurance and while the policy is in force."

In September 1983, Geraldine had surgery to remove some cysts on her breast and face. On September 30, 1983, National received a claims submission from Geraldine's treating physician; on the claim form, the doctor had answered "no" to the question whether the patient had ever had the same or similar symptoms. National also received other documents related to the claim, including a discharge summary prepared by Geraldine's treating physician on September 21, 1983. This document stated "HISTORY OF PRESENT ILLNESS: The patient is a 30 year old female with six month history of cystic masses of the left breast and left nipple. She also has had chronic problems with cystic lesions of the face." Based upon this information indicating that the cysts had appeared before the end of the 30-day exclusion period of the policy, National denied coverage for this claim.

On January 9, 1984, Geraldine wrote National and told them that the cyst condition had not been a preexisting condition. National responded by stating that the claim was still denied, but National did invite Geraldine to submit additional information from her physician. The Kings denied receiving this letter. Apparently, this letter from National was incorrectly addressed and was not received by the Kings. The Kings and National had further communications, and in April 1984, Geraldine's physician sent National a letter stating that the breast cysts did not appear until July or August 1983. Based upon this letter, National decided to reopen the claim to review it further; National informed the Kings of this action in June 1984.

In addition to the treatment regarding the cysts, Geraldine was hospitalized in January 1984 for a miscarriage. The Kings filed a claim for this hospitalization, and National requested additional information, which arrived in April and May 1984. Before National could complete its review of the cyst and pregnancy claims, the Kings filed suit on both claims on June 20, 1984.

All benefits for both claims were paid by National in October 1984. The Kings introduced evidence of National's internal procedures and how National had not consistently followed these procedures in handling their claims. National introduced evidence that it had been in the process of moving its corporate headquarters from November 1983 until mid-1984 and that as a result of this move it had been required to hire an almost entirely new claims staff. National claimed that this change had created a backlog of claims and thus that those claims were not processed as quickly as they would have been under normal conditions.

I

Because this suit was filed prior to June 11, 1987, the effective date of Ala.Code 1975, § 12-21-12, the "scintilla rule" applies to the trial judge's ruling on National's summary judgment motion. Under that rule, "If there is any evidence supporting the position of the party against whom the motion is made, summary judgment cannot be granted." Boswell v. Coker, 519 So.2d 493, 495 (Ala.1987).

The Kings allege that National committed the tort of bad faith refusal to pay an insurance claim. In National Security Fire & Cas. Co. v. Bowen, 417 So.2d 179, 183 (Ala.1982), this Court held:

"[T]he plaintiff in a 'bad faith refusal' case has the burden of proving:

"(a) an insurance contract between the parties and a breach thereof by the defendant;

"(b) an intentional refusal to pay the insured's claim;

"(c) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason);

"(d) the insurer's actual knowledge of the absence of any legitimate or arguable reason;

"(e) if the intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.

"In short, plaintiff must go beyond a mere showing of nonpayment and prove a bad faith nonpayment, a nonpayment without any reasonable ground for dispute. Or, stated differently, the plaintiff must show that the insurance company had no legal or factual defense to the insurance claim." (Emphasis in original.)

This Court explained the breach of contract requirement in National Savings Life Ins. Co. v. Dutton, 419 So.2d 1357, 1362 (Ala.1982):

"In the normal case in order for a plaintiff to make out a prima facie case of bad faith refusal to pay an insurance claim, the proof offered must show that the plaintiff is entitled to a directed verdict on the contract claim and, thus, entitled to recover on the contract claim as a matter of law. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the claim and, thus, the legitimacy of the denial thereof, the tort claim must fail and should not be submitted to the jury."

The question of when a case is not...