Koral Industries, Inc. v. Security-Connecticut Life Ins. Co., SECURITY-CONNECTICUT
| Court | Court of Appeals of Texas |
| Citation | 788 S.W.2d 136 |
| Docket Number | No. 05-88-01348-CV,SECURITY-CONNECTICUT,05-88-01348-CV |
| Parties | KORAL INDUSTRIES, INC., Appellant, v.LIFE INSURANCE COMPANY, Appellee. |
| Decision Date | 23 March 1990 |
J. Kent Davenport, Leonard A. Epstein, Dallas, for appellant.
Robert W. Cantner, Dallas, Joe R. Greenhill, Austin, for appellee.
Before WHITHAM, ROWE and WHITTINGTON, JJ.
Koral Industries, Inc. contends on appeal that the jury findings and the applicable law entitle it to a more favorable judgment than that rendered by the trial court. Koral brought suit as the beneficiary of a life insurance policy issued by Security-Connecticut Life Insurance Company. The judgment awarded Koral the face amount of policy benefits, statutory penalties, postjudgment interest, attorney's fees, and actual damages proximately caused by settlement delay. In addition, however, Koral had sought other damages based upon breach of a duty of good faith and fair dealing, violation of the Deceptive Trade Practices Act (DTPA), and violation of the Insurance Code. The trial court disallowed these damages. Security-Connecticut contends by cross-appeal that Koral is entitled to no money damages. At trial, Security-Connecticut had asserted fraudulent inducement as a defense and had counterclaimed for a declaratory judgment rescinding the policy. We agree with Security-Connecticut's contentions that the jury findings effectively rescind the policy. Accordingly, we reverse the judgment of the trial court and render a take-nothing judgment against Koral. Further, we affirm that part of the trial court's judgment denying Security-Connecticut's request for attorney's fees.
In 1984, Koral sought to obtain a new key-man life insurance policy on the life of Lewis Lindsey, one of Koral's two key employees. Koral desired to replace its existing policy on Lindsey's life with a policy that offered lower premium rates. Pursuant to this desire, its insurance agent, Bill Cunningham, contacted Julie Hazard at Special Risk Underwriters, Inc., Security-Connecticut's marketing representative in the Dallas area. Finding that Security-Connecticut's rates were lower than those of Koral's then current insurer, Cunningham obtained Security-Connecticut application forms from Special Risk.
The record shows that Lindsey omitted several items of information concerning his medical history when he responded to the questions contained in the application forms. 1 Later investigation determined that Lindsey had not disclosed that he had been hospitalized in 1981, 1982, and 1983. He also failed to disclose that he had received counseling and treatment regarding depression and the excessive use of alcohol. There was conflicting evidence concerning the question of whether Lindsey's responses concerning cigarette smoking were truthful. Although Lindsey also failed to disclose that he had been treated for anxiety, Security-Connecticut was made aware of such treatment by information provided by Lindsey's attending physician. Security-Connecticut also learned from a reporting agency called the Medical Information Bureau that Lindsey had been treated for some kind of mental or nervous disorder during a two-year period from 1976 to 1978. Lindsey truthfully disclosed treatment for high blood pressure and hemorrhoids.
Security-Connecticut issued a $1,000,000 insurance policy on the life of Lindsey. Koral was the beneficiary. Koral allowed its previous insurance policy on Lindsey's life to lapse. Lindsey died in 1986, and Koral submitted a claim for payment of the policy proceeds. Security-Connecticut hired Roy Middleton of General American Life Insurance Company to investigate the claim. General American was a reinsurer on the policy and was liable for 13 percent of the risk. Middleton's investigation led to discovery of Lindsey's omissions and misrepresentations. Based on the omissions and misrepresentations that were allegedly material to Security-Connecticut's acceptance of the risk, Security-Connecticut notified Koral that the policy was null and void, refused to pay the policy proceeds, and tendered a refund of the premiums paid with interest from the date of Lindsey's death. Koral returned the check for refund of the premiums and demanded payment of the policy proceeds. Koral subsequently filed this lawsuit.
A number of questions were submitted to the jury. The trial court disregarded a number of the jury's answers. Because resolution of this appeal turns on the effect to be given to the jury's answers and because frequent reference to the questions and answers will be necessary, we quote the relevant questions and corresponding answers:
Do you find from a preponderance of the evidence that at the time SECURITY-CONNECTICUT denied the claim made under the policy issued on the life of Lewis Lindsey, SECURITY-CONNECTICUT had no reasonable basis for denying the claim, or, SECURITY-CONNECTICUT failed to determine whether there was any reasonable basis for its denial of the claim?
Check one under a. and check one under b.:
a-1. had no reasonable basis: X
a-2. had a reasonable basis:
b-1. failed to determine: X
b-2. did determine:
If you have checked either a-1 or b-1 or both, then answer Question No. 2; otherwise, do not answer Question No. 2.
Do you find from a preponderance of the evidence that SECURITY-CONNECTICUT's conduct inquired about in Question No. 1 proximately caused damage to KORAL?
Answer "yes" or "no".
Answer: YES
What sum of money, if paid now in cash, would compensate KORAL for its damage, if any, which resulted from the occurrence in question?
Answer in dollars and cents, if any, or none.
If you have answered Question No. 2 "yes", then answer Question No. 4; otherwise, do not answer Question No. 4.
Do you find from a preponderance of the evidence that SECURITY-CONNECTICUT's conduct inquired about in Question No. 1, was done willfully, wantonly, with a conscious indifference to KORAL's rights, or with an intent to harm KORAL?
You are instructed that "conscious indifference" means, in the face of an impending harm to another party, to care not about the consequences of the act which may ultimately lead to the harm.
Answer "yes" or "no".
Answer: NO
....
Do you find from a preponderance of the evidence that:
a. at the time SECURITY-CONNECTICUT denied the claim under the Lindsey policy, its liability under the Lindsey policy had become reasonably clear to SECURITY-CONNECTICUT?
Answer "yes" or "no".
b. if so, that SECURITY-CONNECTICUT failed to settle the claim under the Lindsey policy promptly, fairly and equitably?
Answer "yes" or "no".
Answer: YES
Do you find from a preponderance of the evidence that:
a. SECURITY-CONNECTICUT refused to pay KORAL's claim without conducting a reasonable investigation based upon all the available information?
Answer "yes" or "no".
b. if so, that SECURITY-CONNECTICUT's refusal to pay claims without conducting a reasonable investigation based upon all available information was committed or performed with such frequency as to indicate a general business practice?
Answer "yes" or "no".
If you have answered both parts a. and b. of Question No. 6 "yes", or both parts a. and b. of Question No. 7 "yes", then answer Question No. 8; otherwise, do not answer Question No. 8.
Do you find from a preponderance of the evidence that SECURITY-CONNECTICUT's conduct inquired about in Questions Nos. 1, 6 and/or 7 was a producing cause of damage, if any, to KORAL?
Answer "yes" or "no".
Answer: YES
What sum of money, if paid now in cash, would fairly and reasonably compensate KORAL for its damages, if any, as a result of SECURITY-CONNECTICUT's conduct inquired about in Questions Nos. 6 and/or 7?
Answer in dollars and cents, if any, or none.
Answer: $ 163,851.25
Do you find from a preponderance of the evidence that Lindsey made representations to SECURITY-CONNECTICUT which he knew were false when made material, relied upon by SECURITY-CONNECTICUT and were made by Lindsey with the intent to induce SECURITY-CONNECTICUT to issue the Lindsey policy?
You are instructed that a misrepresentation is "material" to the risk to be assumed of insuring Lindsey if the misrepresentation actually induced SECURITY-CONNECTICUT to assume the risk by issuing the Lindsey policy.
Answer "yes" or "no".
Answer: YES
Do you find from a preponderance of the evidence that SECURITY-CONNECTICUT knew facts which would have caused a prudent person to inquire of said facts and would an inquiry, made with reasonable diligence, have disclosed the omissions questioned by SECURITY-CONNECTICUT made by the deceased?
You are instructed that if SECURITY-CONNECTICUT, its agents or employees, knew of any false representations or misrepresentations or knew of such facts which would put a prudent person on inquiry and such inquiry, made with reasonable diligence, would have disclosed the falsity of the statements, then SECURITY-CONNECTICUT cannot assert the false answers to avoid the policy. Further, SECURITY-CONNECTICUT waives the right to assert only those false statements, if any, of which it knew or should have known.
Answer "yes" or "no".
Answer: YES
Do you find from a preponderance of the evidence that Lindsey smoked cigarettes in the twelve months prior to the date of the application, May 31, 1984?
Answer "yes" or "no".
Answer: NO
....
If you have answered Questions Nos. 2 and/or 8 "yes", answer Question No. 14; otherwise, do not answer Question No. 14.
Do you find that any of the acts or omissions you have found in answer to Questions Nos. 1, 6 and/or 7 were committed knowingly?
You are instructed that "knowingly" means actual awareness by SECURITY-CONNECTICUT of the...
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