Morris v. J.C. Penney Life Ins. Co.

• Decision Date: 17 January 1995
• Citation: 895 S.W.2d 73
• Parties: Nancy E. MORRIS, Appellant, v. J.C. PENNEY LIFE INS. CO., Respondent. WD 49210.
• Court: Missouri Court of Appeals

Page 73

895 S.W.2d 73

Nancy E. MORRIS, Appellant, v. J.C. PENNEY LIFE INS. CO., Respondent.

WD 49210.

Missouri Court of Appeals,

Western District.

Jan. 17, 1995.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Feb. 28, 1995.

Application to Transfer Denied

April 25, 1995.

Ted F. Fay, Jr., Merriam, KS, for appellant.

Robert W. McKinley, Jr., Kansas City, for respondent.

Before HANNA, P.J., and BRECKENRIDGE and SMART, JJ.

PER CURIAM:

This case involves an appeal from a trial court order directing a verdict for defendant on a claim of vexatious refusal to pay an insurance claim. Nancy E. Morris, plaintiff, appeals from the judgment entered in favor of J.C. Penney Life Insurance Company, defendant, on the vexatious claim.

On April 25, 1991, Nancy Morris received a telephone call directed to her husband, Frank Morris, from a telephone solicitor for J.C. Penney Life Insurance Company ("Penney"). Mr. Morris was the holder of a credit card account with the J.C. Penney Company, which operates retail stores. The caller was attempting to sell accidental death and dismemberment coverage for Mr. Morris in the amount of $40,000.00. Mr. Morris was not home at the time of the call, but the caller continued the sales presentation with Mrs. Morris. The solicitor told Mrs. Morris that the offer was being made to holders of J.C. Penney credit cards, and that J.C. Penney would pay the first 90 days of coverage for Mr. Morris and that he could cancel the policy at any time. The premiums for coverage after the first ninety days would be billed monthly on the J.C. Penney credit account. Mrs. Morris eventually agreed to accept coverage. A few hours after the phone conversation, Mr. Morris died when the plane he was piloting crashed.

On May 8, 1991, the Morrises' son contacted Penney concerning the death of Mr. Morris. Penney informed him that there was no coverage because a written policy was not issued until April 28, 1991, three days after the date of the death, but agreed to process the claim forms.

Eventually, Penney admitted coverage became effective at the oral acceptance of the coverage by Mrs. Morris. However, the company continued to deny coverage on the ground that the policy included a "pilot's exclusion." ¹ There is no evidence that policy exclusions were ever discussed with Mrs. Morris. The phone script which Penney alleges was used during the solicitation does not mention any exclusions. Mrs. Morris stated that exclusions were not discussed during the conversation. She further stated that had a pilot's exclusion been mentioned, she would not have agreed to the coverage since her husband had been a pilot for many years. Penney concedes that there is no evidence that exclusions were mentioned to Mrs. Morris, but contends that a promotional mailer sent to Mr. Morris in March of 1991 contained a description of the exclusions, including the pilot's exclusion. ² Penney argued to the trial court that the exclusions were constructively incorporated into the coverages even though not specifically mentioned to Mrs. Morris because they were standard exclusions for this type of policy.

Plaintiff filed her petition on January 3, 1992. The trial court denied a motion for summary judgment filed by defendant and a motion for partial summary judgment filed by plaintiff. On May 27, 1993, the court reconsidered the motions and again denied both of them. Plaintiff and defendant agreed to try the claims of plaintiff on a stipulation of facts. Plaintiff chose to submit the coverage issue to the trial court. Plaintiff desired, however, to submit the claim of vexatious refusal to a jury. There is no indication that plaintiff intended to present any evidence beyond the stipulated facts ³ on the issue of vexatious refusal. Upon consideration of the stipulation, the trial court ruled on the coverage issue that plaintiff was entitled to recover the death benefit under the policy, plus interest. The court, as to the claim of vexatious refusal, granted defendant a directed verdict. Defendant appealed the judgment on coverage issue, and then dismissed its appeal. Plaintiff appeals the grant of directed verdict to defendant on the vexatious refusal claim.

Plaintiff Morris raises one issue on appeal. She claims that the trial court erred in ruling that the question of vexatious refusal under § 375.420, RSMo 1986 was not properly an issue for a jury. When reviewing the grant of a directed verdict, this court reviews the record in the light most favorable to the party against whom judgment was entered. Burke v. Kehr, 876 S.W.2d 718, 721 (Mo.App.1994).

Section 375.420 provides that if the evidence indicates that an insurer has refused to pay a claim without reasonable cause or excuse, the court may award damages not greater than 20% of the first $1,500.00 of the loss and 10% of the loss in excess of $1,500.00 together with reasonable attorney's fees, in addition to the amount of recovery owing under the policy. To prove a claim of vexatious refusal, the insured must show the insurer's refusal to pay the claim was willful and without reasonable cause, as the facts would appear to a reasonable and prudent person. Oliver v. Cameron Mut. Ins. Co., 866 S.W.2d 865, 870 (Mo.App.1993). The trial judge first determines whether the case involves a reasonably litigable issue. If the judge decides that it does involve a reasonably litigable issue, that decision does not necessarily end the inquiry. The existence of a litigable issue does not preclude a vexatious penalty where there is evidence that the insurer's attitude was vexatious and recalcitrant in refusing the claim. Russell v. Farmers & Merchants Ins. Co., 834 S.W.2d 209, 221 (Mo.App.1992). The insured is not required to show direct and specific evidence to show vexatious refusal. Id. The jury may find vexatious refusal upon a general survey and a consideration of the whole testimony and all the facts and circumstances in connection with the case. Id.

The fact that the trial judgment is adverse to the insurer's contention is not sufficient reason to impose the statutory penalty. Id. The test is not the final determination of the issues, but rather, how the facts appeared at the time of the refusal to pay. Katz Drug Co. v. Commercial Standard Ins. Co., 647 S.W.2d 831, 839 (Mo.App.1983). If there is an open question of fact or law determinative of the insurer's liability, the insurer, acting in good faith, may insist upon a judicial determination of such questions without being penalized. Kay v. Metropolitan Life Ins. Co., 548 S.W.2d 629, 632 (Mo.App.1977). Only when the insurance company persists in its refusal to pay after becoming aware that it has no meritorious defense does the insurer become liable for vexatious delay. Id. The purpose of § 375.420 is to correct the evil of an arbitrary refusal for the sole purpose of delaying the plaintiff in the collection of the claim. See Bouligny v. Metropolitan Life Ins. Co., 179 S.W.2d 109, 112 (Mo.App.1944).

An insurer's stated grounds for denying a claim must involve a reasonably litigable issue. Russell, 834 S.W.2d at 221 (citing Berry v. Federal Kemper Ins. Co., 621 S.W.2d 948, 954 (Mo.App.1981) (where the court examined the evidence of the insurer's reason for denying coverage and described the reason as "tenuous at best.")). Here, the trial judge found the issue to be reasonably litigable. The trial court viewed the issue as one of first impression. Indeed, we find no previous rulings in Missouri on the issue of whether a telephone solicitation sale of life insurance coverage carries with it the effect of reasonable exclusions which are not detailed in the solicitation. Moreover, we cannot say, as a matter of law, that it was not reasonably litigable for Penney to take the position that coverage did not attach until the policy was issued, which was three days after the telephone solicitation. ⁴ Giving reasonable deference to the trial judge's determination of this matter, we hold the trial court's determination that the issues raised by Penney were reasonably litigable was not erroneous. Since this determination does not necessarily end the inquiry, we next examine whether there was other evidence that the insurer's attitude was vexatious and recalcitrant in handling the claim, thereby causing an unreasonable delay in plaintiff's pursuit of a recovery.

The evidence plaintiff submitted on the issue of vexatious refusal to pay was included in the stipulation. The following item was included in the stipulation:

The tape containing the recordings of telephone conversations of April 25, 1991, including the conversation between Mrs. Morris and the phone solicitor was reused, and the conversation with Mrs. Morris destroyed by J.C. Penney Life approximately 4 to 6 months after the phone call, and some 3 to 5 months after the claim in this case was submitted.

Plaintiff argues that the erasure of the recording of the telephone conversation between Mrs. Morris and J.C. Penney Life is evidence of an attitude of vexatiousness and recalcitrance warranting submission of the claim of vexatious refusal. The stipulation indicates that the tape containing the recording of the telephone conversation was reused, and the conversation was erased. The stipulation does not present an explanation, but the fact that the stipulation states that the entire tape was reused seems to suggest that the tape was reused in the normal course of business. We are not told of the reasons for recording the conversations in the first place. We do not know if all conversations are recorded or just those in which the customer agrees to accept the coverage. It could be the conversations are recorded to allow a supervisor to listen to the tapes to see if the telephone...