Lewis v. Equity Nat. Life Ins. Co., 91-CA-00803

• Decision Date: 12 May 1994
• Docket Number: No. 91-CA-00803,91-CA-00803
• Citation: 637 So.2d 183
• Parties: Florence M. LEWIS v. EQUITY NATIONAL LIFE INSURANCE COMPANY and Ron Farmer.
• Court: Mississippi Supreme Court

Page 183

637 So.2d 183

Florence M. LEWIS v. EQUITY NATIONAL LIFE INSURANCE COMPANY and Ron Farmer.

No. 91-CA-00803.

Supreme Court of Mississippi.

May 12, 1994.

Michael T. Lewis, Lewis & Lewis, Nancy Allen Wegener, Clarksdale, for appellant.

Calvin L. Wells, Michael Farrell, Wells Moore, Simmons and Neeld, Jackson, for appellee.

Before PRATHER, P.J., and PITTMAN and McRAE, JJ.

McRAE, Justice, for the Court:

This appeal arises from a July 23, 1991, order of the Humphreys County Circuit Court granting Equity National Life Insurance Company's motion for partial summary judgment on the issue of punitive damages in a refusal to pay insurance benefits case. A jury found that Equity National and its agent, Ron Farmer, were liable to Florence Lewis for contractual damages in the amount of $200.00 after the insurer refused to pay benefits under an intensive care policy when she was injured in an automobile accident. Finding that the the circuit court erred in refusing to place the issue of punitive damages before the jury, we reverse and remand for proceedings consistent with this opinion.

I.

On April 18, 1989, Ron Farmer, an agent for Equity National Life Insurance Co., sold Mrs. Florence Lewis an individual intensive care policy which provided benefits of $200.00 per day. ¹ She was charged a $3.00 monthly premium, which she paid by bank draft. After Mrs. Lewis was injured in an automobile accident on March 3, 1990, and spent one night in the Intensive Care Unit of Baptist Memorial Hospital North in Oxford, Mississippi, Equity National refused to pay her claim and rescinded the policy. The insurer asserted that she had failed to reveal a pre-existing heart condition on her policy application by answering "no" to the question: "Has any person proposed for intensive care or heart attack insurance ever been diagnosed or treated as a victim of heart attack, heart condition, heart trouble or any abnormality of the heart?"

Mrs. Lewis testified that when Farmer solicited the policy, she had told him that she was a diabetic and previously had heart problems in 1983. She stated that she had given him the names of the physicians who had treated her, including Dr. J.S. Purdon who, in 1988, told her that her heart was "fine." She indicated that Farmer did not ask her any questions about her medical history while he filled out the policy application. Although she signed the application, she apparently did not read it.

When Equity National initially questioned Farmer about Mrs. Lewis' application, after the suit was filed in January 1991, he indicated that he had asked her the medical questions on the application and that she did not advise him of any prior heart problems. He acknowledged that he had no real memory of writing the policy, but assumed he had asked her the usual questions. He did recall that when asked, she denied any heart problems.

On March 3, 1990, Mrs. Lewis was injured in an automobile accident. Her injuries were limited to several broken ribs, a broken thumb and lacerations to her head. She was treated at Baptist Memorial Hospital, where she spent one night in the intensive care unit.

The hospital completed and sent a UB-82 form to Equity National, which the insurer received on May 21, 1990. Sandra D'Orzio, Assistant Vice President in the Claims Department of Aegon Insurance Company, the parent company of Equity National, testified that the UB-82 is a unified billing form, used by most larger hospitals to report claims.

On July 23, 1990, Mrs. Lewis wrote to Equity National to determine the status of her claim. The insurer responded by sending her a claimant's form and attending physician's statement on August 24, 1990. Mrs. Lewis completed the claimant's statement on September 12, 1990, indicating that she had not been "treated for, or diagnosed as having had a heart attack, heart trouble, or any other abnormal condition of the heart prior to the effective date of this policy." She testified that she answered the question negatively because two specialists had confirmed that there was no damage to her heart and moreover, the injuries suffered in the accident were totally unrelated to the condition of her heart. Dr. Michael L. King, who treated Mrs. Lewis' injuries, completed the attending physician's statement on September 24, 1990. He indicated that Mrs. Lewis had been treated for an "occulusion [sic] of the left coronary artery" in 1983.

On November 28, 1990, eight and one-half months after the claim was filed, Equity National wrote to Mrs. Lewis, informing her that its investigation was complete. The letter stated that because the insurer had learned that Mrs. Lewis was diagnosed with a heart condition prior to the issuance of the policy, the policy would be rescinded. A check for $57.00, which Mrs. Lewis had paid in premiums, was enclosed.

According to Ms. D'Orzio, Equity National's decision to rescind the policy was based solely on the information provided in Dr. King's statement. She admitted that no further investigation was undertaken beyond obtaining the claim form and submitting it to the underwriting department. No inquiries were made either to Farmer or Mrs. Lewis' physicians. Moreover, the insurer neither requested nor received any records pertaining to Mrs. Lewis' injuries or her alleged heart condition.

Mrs. Lewis filed suit against Equity National and Ron Farmer in the Humphreys County Circuit Court on January 17, 1991. She sought both compensatory and punitive damages. Equity National denied the allegations and raised the affirmative defense that Mrs. Lewis had made a material misrepresentation on her application, thus entitling it to rescind the policy pursuant to Miss.Code Ann. Sec. 83-9-11(3).

On June 3, 1991, Equity National and Farmer filed a motion for summary judgment, or in the alternative, a motion for partial summary judgment on the issue of punitive damages, based on the insurer's contention that it had an arguable reason to rescind the policy. Following a June 13, 1991 hearing, the circuit court granted Equity National's motion for partial summary judgment on the issue of punitive damages. A trial on the issue of actual damages was held on July 23, 1991, after which the jury returned a $200.00 verdict in favor of Mrs. Lewis.

II.

The circuit court granted the insurer's motion for partial summary judgment on the issue of punitive damages, finding that Equity National had an arguable basis for denying Mrs. Lewis' claim and that there was nothing to indicate that the insurer acted out of malice, gross negligence, or with wanton or reckless disregard for the claimant's rights. We are now asked to determine whether the issue of punitive damages also should have been presented to the jury.

In insurance contract cases, "[t]he trial court is responsible for reviewing all evidence before it in order to ascertain whether the jury should be permitted to decide the issues of punitive damages." Universal Life Insurance Co. v. Veasley, 610 So.2d 290, 293 (Miss.1992). Where there is a legitimate or arguable reason for denial of the claim, the issue should not be put to the jury. Id. In Veasley, we defined "arguable reason" as " 'nothing more than an expression indicating the act or acts of the alleged tortfeasor do not rise [the] heightened level of an independent tort.' " 610 So.2d at 293, quoting Pioneer Life Insurance Co. of Illinois v. Moss, 513 So.2d 927, 930 (Miss.1987). However, as we stated in Andrew Jackson Life Insurance Co. v. Williams, 566 So.2d 1172 (Miss.1990), "Mississippi law has evolved to a point of recognition that submission of the punitive-damages issue may be submitted--notwithstanding the presence of an arguable basis." Id. at 1186 (emphasis in original). In those cases where there is a question that the mishandling of a claim or the breach of an implied covenant of good faith and fair dealing may have reached the level of an independent tort--despite the possibility of an arguable basis for denying the claim, the Williams Court outlined the following procedure:

(1) the issue should be submitted to the jury for resolution; and (2) if the jury resolves the issue against the insurer; (3) the trial judge may upon post-verdict motion and upon reflection find: (a) that the evidence is not supportive of the verdict; (b) that issue should not have been submitted to the jury; and (c) that j.n.o.v. or a new trial should be granted.

Id. at 1187.

The Fifth Circuit, in Merchants National Bank v. Southeastern Fire Insurance Co., 751 F.2d 771 (1985), followed the three-part test set forth in Reserve Life Insurance v. McGee, 444 So.2d 803, 809-810 (Miss.1983), for determining when a punitive damage instruction should be presented to the jury in a bad faith case. The court explained:

Initially, the trial court should examine whether as a matter of law the insurer has a legitimate or arguable reason to deny the claim. Should the court find that there is a legitimate or arguable reason for the denial, a punitive damage instruction should not be given; if however, reasonable minds could differ as to whether there is a legitimate or arguable reason, the court must next consider whether there is evidence of gross negligence or intentional misconduct in the denial of the claim. If there is sufficient evidence to indicate that the insurer acted intentionally or was grossly negligent, a punitive damage instruction should be granted.

Merchants National Bank, 751 F.2d at 775 (footnote omitted) (citations omitted). The court further noted that requiring the trial judge to determine whether there is sufficient evidence of wrongdoing to place the issue of punitive damages before the jury "would often be superfluous since an insurer's failure to pay a claim without an arguable reason is usually tantamount to a wilful or grossly negligent refusal to pay." Id. at 775 n. 3. Moreover, as we explained in Mississippi Farm Bureau Mutual Insurance Co. v. Todd, 492 So.2d 919 (Miss.1986)...