Liberty Nat. Life Ins. Co. v. Allen

• Decision Date: 07 March 1997
• Parties: LIBERTY NATIONAL LIFE INSURANCE COMPANY v. Talmadge ALLEN. 1950679.
• Court: Alabama Supreme Court

Page 138

699 So.2d 138

LIBERTY NATIONAL LIFE INSURANCE COMPANY v. Talmadge ALLEN.

1950679.

Supreme Court of Alabama.

March 7, 1997.

Rehearing Denied July 11, 1997.

Edgar M. Elliott III, general counsel--litigation, Liberty National Life Insurance Company, Birmingham; and Deborah Alley Smith, Rhonda Pitts Chambers, and Sharon Donaldson Stuart of Rives & Peterson, Birmingham, for appellant.

Jonathan H. Waller of Campbell & Waller, L.L.C., Birmingham; and C. Crawford Williams, Jr., of Williams & Ledbetter, Birmingham, for appellee.

MADDOX, Justice.

Talmadge Allen, although he was receiving the benefits payable under a cancer policy issued by Liberty National Life Insurance Company, sued Liberty National, alleging fraud, fraudulent suppression, and bad faith failure to pay an insurance claim. His claims were based on an alleged misrepresentation made by an agent of the insurer that Medicare laws limited the amount of benefits he could receive. At trial, Allen dismissed the fraudulent suppression claim. The jury awarded Allen $40,000 in compensatory damages and $5.4 million in punitive damages. Following a remittitur, the court entered a judgment for the $40,000 and $2.7 million in punitive damages

Liberty National appeals, arguing that the trial judge erred in denying its motion for a summary judgment, its motion for a directed verdict, and then its motion for a judgment notwithstanding the verdict, on both the fraud claim and the bad faith claim. We agree. Reviewing the evidence most favorably to Allen and indulging all inferences that the jury was free to draw, we conclude that Allen did not present substantial evidence in support of his fraud and bad faith claims.

FACTS

Taken in the light most favorable to Allen, the evidence suggests the following facts: Allen holds a family cancer policy issued by Liberty National. He purchased the policy in 1986. In January 1992, he was diagnosed with prostate cancer. He underwent surgery in February 1992 and subsequently received chemotherapy treatments to combat the spread of the disease. Allen's policy covered his losses in the event he contracted cancer, and it allowed up to $500 per day for costs of radiation and chemotherapy treatments. After his chemotherapy treatments began, Allen submitted claims to Liberty National; these claim were promptly paid.

In August 1993, however, Liberty National instituted a new procedure governing the method by which claims on cancer policies like Allen's would be paid to Medicare recipients, and Allen was a Medicare recipient. This new procedure was called the "Medicare Allowable Claims Practice." Under this new procedure, the amount of benefits Liberty National would pay a Medicare participant covered by the cancer policy would be the maximum amount a medical provider was allowed to charge Medicare recipients for the particular treatment. ¹

In September 1993, a year and a half after his surgery, Allen submitted a claim to Liberty National for $2,000 for additional radiation treatments that he had received between July 29 and August 25, 1993. On September 14, 1993, Liberty National sent a letter to Allen explaining that pursuant to the new procedure implemented by Liberty National in August 1993, he needed to file an EOMB form with Liberty National so that it could process his claim. Allen filed the EOMB form with Liberty National on October 7, 1993. On October 12, 1993, Liberty National sent Allen a check for $723.44 and a letter explaining his benefits; this letter stated: "This service [radiation treatments] was covered by Medicare and this provider has agreed that the actual charges will not exceed the amount approved by Medicare." Although Mr. Allen cashed the check, he testified that he remained concerned that he was not receiving the full benefits of his cancer policy. He telephoned Liberty National's customer service line on October 18, 1993. He said that a claims representative, who he identified as "Angie," told him the Medicare Allowable Claims Practice was based on a new law. This representative did not know "which law" this practice was based on. The next day, October 19, Allen wrote Liberty National a letter requesting a detailed breakdown of how his benefits were calculated and a citation to the new law and the date the new law was passed. On October 26, Allen met with Mike Bryant, the claims manager, to discuss his claim and Liberty National's new procedure. At this meeting, Allen told Bryant that the sole reason for his visit was to get a copy of the new law that the Medicare Allowable Claims Practice was based on. Bryant told Allen that he did not have a copy of the new law but that the new procedure was not required by this law. Bryant said the policy was implemented as an interpretation of new Medicare laws.

On November 5, 1993, Liberty National reversed the use of the Medicare Allowable Claims Practice. According to Liberty National, the decision to discontinue this new procedure was based on an increased turn-around time in the payment of claims, administrative delays in processing claims, customer complaints, and a concern for the general litigation environment in Alabama and the cost of potential litigation. Following its reversal of this procedure, Liberty National, through Mike Bryant, wrote Allen a letter informing him of the decision to reverse it and enclosing a check to Allen for $1,334. This amount represented the difference between the $2,000 claim submitted by Allen and the $723.44 he had already received, plus interest. Allen cashed this check, but on May 18, 1994, he sued Liberty National in the Jefferson Circuit Court, alleging fraud, fraudulent suppression, and bad faith, all in relation to Liberty National's processing of his claim for radiation treatments.

At trial, Liberty National moved for a summary judgment on all claims asserted by Allen; the trial court denied its motion. After Allen had completed the presentation of his case, he voluntarily dismissed his claim of fraudulent suppression. Liberty National subsequently moved for a directed verdict on the fraud and bad faith claims; the court denied its motion. After Liberty National had presented its case, it again moved for a directed verdict on the fraud and bad faith claims. The trial judge again denied Liberty National's motion. The jury returned a verdict for Allen, awarding $40,000 in compensatory damages for emotional distress and $5.4 million in punitive damages. Liberty National moved for a JNOV or a new trial; the court denied both, but conditioned its denial of a new trial on Allen's filing a remittitur of $2.7 million. Allen filed the remittitur. The court entered a judgment, and Liberty National appealed.

I.

Liberty National first argues that, as to the fraud claim, the trial court erred by denying its motion for a directed verdict and then later its motion for a judgment notwithstanding the verdict. Allen claims that the alleged misrepresentation occurred when, he says, the claims representative, "Angie," told him that the Medicare Allowable Claims Practice was based on a new law. Liberty National contends that this statement was not actionable because, it says, the evidence clearly shows that Allen did not rely on this representation.

Initially, we note that a motion for a directed verdict is a procedural device by which one party tests the sufficiency of the other party's evidence. See, Rule 50(a), Ala. R. Civ. P.; Alabama Power Co. v. Williams, 570 So.2d 589 (Ala.1990); John R. Cowley & Bros., Inc. v. Brown, 569 So.2d 375, 376 (Ala.1990); J. Hoffman & S. Guin, Alabama Civil Procedure § 8.37 (1990). Similarly, a motion for a JNOV simply "permits the trial court to revisit its earlier ruling denying the motion for directed verdict." Alabama Power Co. v. Williams, supra, at 591. The ultimate question, of course, as to either motion, is whether the nonmovant has presented sufficient evidence to allow submission of the case or issue to the jury for a factual resolution. Hoffman & Guin, supra, at § 8.37. For actions filed after June 11, 1987, the standard of review applicable to a motion for a directed verdict or for a JNOV is the "substantial evidence rule." See, § 12-21-12(a), Ala.Code 1975; Koch v. State Farm Fire & Cas. Co., 565 So.2d 226, 228 (Ala.1990). Thus, in an action filed after June 11, 1987, a party presenting a claim or a defense must present "substantial evidence" ² supporting each element of the claim or defense in order to withstand a motion for a directed verdict or for a JNOV. This calls for "a purely objective determination of whether the party having the burden of proof has produced [sufficient] evidence [creating a factual dispute] requiring resolution by the jury." Ex parte Oliver, 532 So.2d 627, 628 (Ala.1988); see also, John R. Cowley & Bros., Inc. v. Brown, supra.

Additionally, in reviewing a motion for a directed verdict or a motion for a JNOV, this Court must view all the evidence in a light most favorable to the nonmovant and must entertain such reasonable evidentiary inferences as the jury would be free to draw. Williams v. Allstate Ins. Co., 591 So.2d 38 (Ala.1991).

As this Court has previously stated, "the elements of actionable fraud based on a misrepresentation are: (1) a duty to speak the truth; (2) a false representation of a material existing fact made intentionally, recklessly, or innocently; (3) action by the plaintiff in reliance upon the false representation; and (4) damage proximately resulting from the false representation." Smith v. MBL Life Assurance Corp., 589 So.2d 691, 696 (Ala.1991). See also Salter v. Alfa Ins. Co., 561 So.2d 1050 (Ala.1990). For Allen to sustain his fraud claim, he must show he relied on Liberty National's representation and that he acted on this reliance to his detriment.

What does the evidence show? It shows that on October 18, 1993, Allen telephoned Liberty National's claims representative requesting an explanation of his benefits payment....