McCann v. Gulf Nat. Life Ins. Co., Inc., 07-CA-59094

• Decision Date: 19 December 1990
• Docket Number: No. 07-CA-59094,07-CA-59094
• Citation: 574 So.2d 654
• Parties: Thomas McCANN v. GULF NATIONAL LIFE INSURANCE COMPANY, INC., a Mississippi Corporation; The Mississippi Insurance Company, Inc., a Mississippi Corporation.
• Court: Mississippi Supreme Court

Page 654

574 So.2d 654

Thomas McCANN v. GULF NATIONAL LIFE INSURANCE COMPANY, INC., a Mississippi Corporation; The Mississippi Insurance Company Inc., a Mississippi Corporation.

No. 07-CA-59094.

Supreme Court of Mississippi.

Dec. 19, 1990.

David C. Frazier, Gordon Myers & Frazier, Pascagoula, Pete Halat, Jr., Halat & Sherry, Biloxi, for appellant.

Maurice Dantin, Forest M. Dantin, Dantin & Dantin Firm, Columbia, for appellee.

William Liston, Liston & Lancaster, Winona, Charles T. Yoste, Starkville, for amicus curiae.

En Banc.

ON PETITION FOR REHEARING

SULLIVAN, Justice, for the Court:

The original opinions in this case are withdrawn and these opinions are substituted therefor.

FACTS

On February 19, 1985, Joe McDonald, an agent for Gulf National Life Insurance Company and The Mississippi Insurance Company, Inc. (hereinafter GNL/MIC), and Terry Lynn Keys, a trainee, went to the home of Thomas and Lessie McCann to solicit burial insurance as part of a deal worked out between GNL/MIC and Baylous Funeral Home. Keys was a representative of Baylous and was training in that capacity.

The McCanns decided to purchase two burial policies apiece. Each policy had a face value of $500. Joe McDonald took charge of filling out the applications as the McCanns supplied the answers to the questions he asked from the applications. During the application process, Mr. McCann was told he would be the beneficiary on his wife's policy and Mrs. McCann would be the beneficiary on his. The applications were sent to GNL/MIC and in March of 1985, the policies with applications attached were returned to Keys.

Upon receiving the policies, Keys removed the applications. McDonald returned to town in order to accompany Keys to the McCanns to deliver the policies. Company procedure dictated that the policies be delivered with applications attached. The policies were folded and put in jackets. When McDonald and Keys arrived at the McCann residence, McDonald removed the policies from their jackets and explained each paragraph of the policies to the McCanns. He then gave the policies to them.

Mrs. McCann died on November 1, 1985, of cardiac arrest. A claims statement was received by GNL/MIC on December 11, 1985. Attached to the claim was the death certificate. Michael Cavanaugh, corporate counsel for GNL/MIC, examined the application, the death certificate, the claimant's statement, and the physician's statement. Based upon that examination, he wrote a letter to Mr. McCann denying the claim because "at the time of making the applications for the policies, the insured was suffering from a serious illness and failed to disclose the condition of the health of the deceased." The letter directed Mr. McCann to get in touch with Cavanaugh if he knew of any circumstances which might change the outcome.

Yvonne McCann Laster, the McCanns' daughter, contacted Keys when the claim was refused. Keys at that time told Laster that she had a copy of the application. Keys read the application to Laster after which Laster told Keys that her mother would not have lied on the application. Keys did not contact GNL/MIC with this information.

Mr. McCann brought this suit to recover both actual and punitive damages. Before the suit could be tried, Mr. McCann died and his daughter was substituted as plaintiff. At the close of the trial, the court granted a Motion for a Directed Verdict for the face value of the policies. The judge also sustained a Motion for a Directed Verdict on the issue of punitive damages. This is an appeal of the court's ruling on punitive damages.

LAW

Under the principles of agency, an insurer is bound by the acts of its agents. See Andrew Jackson Life Ins. Co. v. Williams, 566 So.2d 1172, 1180 (Miss.1990); Southern United Life Ins. Co. v. Caves, 481 So.2d 764, 766 (Miss.1985); and American Casualty Co. v. Whitehead, 206 So.2d 838, 842 (Miss.1968). Miss.Code Ann. Sec. 83-17-1 (Supp.1990), which defines an agent, was enacted "to prevent insurers from operating through third persons and later denying responsibility for the acts of those persons." ¹ Ford v. Lamar Life Ins. Co., 513 So.2d 880, 888 (Miss.1987).

The doctrine of estoppel is applicable to the agency relationship.

The essence of estoppel is that the party asserting the agency was deceived by the conduct of the party against whom it is asserted, and, though fraud may be an ingredient of the case, it is not essential. The principal need not authorize the agent to practice a fraud on third parties, yet if he authorize his agent to transact the business with a third party, and in so doing the agent practices the fraud on the party, the principal is liable.

American Bankers' Ins. Co. v. Lee, 161 Miss. 85, 104, 134 So. 836, 839 (1931) [quoting Germania Life Ins. Co. v. Bouldin, 100 Miss. 660, 678, 56 So. 609, 613 (1911) ]. Thus, an insurer, through its agent's actions, may be liable for both actual and punitive damages. Independent Life & Acc. Ins. Co. v. Peavy, 528 So.2d 1112, 1115 (Miss.1988).

Punitive damages may be awarded when an insurer refuses to pay an insured's claim if denial of the claim is "attended by intentional wrong, insult, abuse, or such gross negligence that amounts to an independent tort." Gulf Guaranty Life Ins. Co. v. Kelley, 389 So.2d 920, 922 (Miss.1980). See also Blue Cross & Blue Shield v. Maas, 516 So.2d 495, 496 (Miss.1987) and Progressive Casualty Ins. Co. v. Keys, 317 So.2d 396, 398 (Miss.1975). If the evidence supports a finding of an independent tort, the issue should be submitted to the jury. Commodore Corp. v. Bailey, 393 So.2d 467, 471 (Miss.1981). If the insurer has an arguable reason for refusing the claim, however, punitive damages are not proper. Standard Life Ins. Co. of Indiana v. Veal, 354 So.2d 239, 248 (Miss.1978).

Agent fraud or misrepresentation in the application process has been enough in Mississippi to allow the issue of punitive damages to be submitted to the jury. In National Life and Acc. Ins. Co. v. Miller, 484 So.2d 329 (Miss.1985), Mrs. Miller purchased life insurance for her husband and son and for herself. During the application process, the insurance agent was accompanied by the staff manager of the company. The staff manager filled in the answers on the application as Mrs. Miller supplied them.

When Mrs. Miller was asked, among other things, if any of the proposed insureds had been treated for heart disease, she answered that her son had a heart murmur and had been in the hospital within the last five years. On the application, the manager marked 'no' to the question. The child later died during open heart surgery and the insurance company refused to pay the claim. The agent told the company that he had not known of the condition.

We said that in cases where the agent takes charge of the application or suggests the answers to the questions, "the company shall not avoid the policy because they are false or untrue, if full disclosures were made by the applicant to him." Id. at 334 [quoting Planters Ins. Co. v. Myers, 55 Miss. 479, 507 (1877) ]. Moreover, where the agent is guilty of misrepresentation, the question of punitive damages is one for the jury because a jury might justifiably find that the agent's actions were so willful or of such gross negligence as to evidence a reckless disregard for the rights of the insured. Id. at 336.

The case of Southern United Life Ins. Co. v. Caves, 481 So.2d 764 (Miss.1985), supports the award of punitive damages where an agent has knowledge of a pre-existing condition of the insured but fails to communicate that knowledge to the insurance company and subsequently, the insurer refuses a claim because of the pre-existing condition. In Southern, the insurer's agent was personally acquainted with the proposed insured and knew that he had suffered a heart attack eight years earlier.

We held that the knowledge of the agent was imputed to the insurance company. Punitive damages were allowed since "Southern knew or should have known that as a matter of law, it had no arguable or legitimate reason for refusal. Furthermore, even after the claim arose, Southern made no attempt to contact its agent to determine what imputable knowledge she had." Id. at 768.

A recent decision allowing punitive damages for misrepresentations by an agent is Andrew Jackson Life Ins. Co. v. Williams, 566 So.2d 1172 (Miss.1990). Willie Williams was persuaded by agents of Andrew Jackson to drop his retirement plan with another insurance company and enroll in the supplemental retirement program with a death benefit offered by Andrew Jackson. He was assured that he would be covered immediately upon completing the application and signing his payroll deduction card. The application was filled out by one of the company's agents as Williams and his wife supplied the answers.

Williams' wife died several weeks later. He had not yet received his policy although he had been told he would receive it in two to three weeks. Williams filed a claim which was refused by Andrew Jackson. The company denied the claim on the basis that the underwriting process was still in progress when Williams' wife died. Furthermore, on information obtained during this process, his wife was determined to be uninsurable because of an undisclosed heart condition. Williams contended that a contract had been formed with the agents and that he and his wife had disclosed his wife's condition to the agents during the application process.

We upheld the award of punitive damages. Ostensibly, Andrew Jackson "knew (through Willie's pre-complaint information) or constructively knew (through imputation) or should have known (through diligent and thorough investigation) about its agents' misrepresentations. Such misrepresentations created a jury issue of whether Andrew Jackson's denial was arguable." Id. at 1187. Additionally, the evidence was sufficient for the jury to conclude that the mishandling of the claim may have given rise to an independent...