Mutual Life Ins. Co. of New York v. Estate of Wesson by Hall, 56046

• Citation: 517 So.2d 521
• Decision Date: 12 November 1987
• Docket Number: No. 56046,56046
• Parties: MUTUAL LIFE INSURANCE COMPANY OF NEW YORK v. ESTATE OF Ray Lamar WESSON, M.D., Deceased, by Emogene HALL, Administratrix as the Guardian of Ray Lamar Wesson, Jr., Allison Lynn Wesson, Dave Newton Wesson and Jason Manning Wesson, Minors; Corporate Planning, Ltd.; and W.A. Wimberly.
• Court: Mississippi Supreme Court

Page 521

517 So.2d 521

MUTUAL LIFE INSURANCE COMPANY OF NEW YORK v. ESTATE OF Ray Lamar WESSON, M.D., Deceased, by Emogene HALL Administratrix as the Guardian of Ray Lamar Wesson, Jr. Allison Lynn Wesson, Dave Newton Wesson and Jason Manning Wesson, Minors; Corporate Planning, Ltd.; and W.A. Wimberly.

No. 56046.

Supreme Court of Mississippi.

Nov. 12, 1987.

Rehearing Denied Jan. 13, 1987.

Natie P. Caraway, Richard D. Gamblin, Wise, Carter, Child & Caraway, Jackson, Roy C. Williams, Megehee, Brown, Williams & Mestayer, Pascagoula, J.P. Coleman, Ackerman, for appellant.

Paul S. Minor, Judy M. Guice, Minor & Benton, Clyde H. Gunn, III, Corban & Gunn, Biloxi, Charles R. Davis, Barry S. Zirulnik, Thomas, Price, Alston, Jones & Davis, Jackson, for appellees.

En Banc.

ROY NOBLE LEE, Chief Justice, for the Court:

The administratrix of the estate of Dr. Ray Lamar Wesson, deceased, [Wesson] joined by the guardian of Dr. Wesson's four minor children, filed suit in the Circuit Court of Jackson County against Mutual Life Insurance Company of New York [hereinafter MONY], Corporate Planning, Ltd., and W.A. Wimberly for the sum of eighty-seven thousand one hundred thirty-six dollars ($87,136.00), face value of an insurance policy covering the life of Dr. Wesson and for punitive damages resulting from the insurance company's bad faith in declining to pay the policy amount. Corporate Planning, Ltd. and W.A. Wimberly, alleged to be agents of MONY, filed a cross-claim against MONY for damages, actual and punitive, for loss of business and injury to reputation. At the end of the trial, the lower court granted a peremptory instruction in favor of the latter two defendants on the claim against them by Wesson.

The jury returned a verdict for Wesson against MONY in the sum of $87,136.00, actual damages, and eight million dollars ($8,000,000) in punitive damages; and a verdict in favor of Corporate Planning, Ltd. and W.A. Wimberly against MONY in the sum of three hundred fifty thousand dollars ($350,000). MONY has appealed from the judgments.

I.

This discussion under Part I relates to the suit of Wesson against MONY.

Facts

In early 1974, Dr. Ray Lamar Wesson and Dr. Jerry Adkins organized the Surgical Clinic of Biloxi, P.A., a professional corporation. Through the advice and assistance of W.A. Wimberly and Corporate Planning, Ltd., his company, agents of MONY, the Surgical Clinic set up a retirement plan by forming a pension trust retirement plan designating Drs. Wesson and Adkins as trustees. The second company formed and owned by Wimberly, i.e., Corporate Investments, sold a MONY whole life insurance policy through the pension trust retirement fund to the Surgical Clinic insuring the life of Dr. Wesson.

The insurance policy was dated February 1, 1974, for a face amount of $87,136.00. Wimberly, as MONY's field underwriter, submitted the special class-employee policy application of Dr. Wesson to MONY, which application became a part of the policy. Question 9 of the application, together with the answer, follows:

9. Auto. Prem. Loan provision operative if available?

Yes X No

The Automatic Premium Loan provision referred to in Question 9 is set forth on page 11 of the insurance policy:

AUTOMATIC LOAN TO PAY PREMIUMS (Subject to conditions specified below)--This provision shall become operative if requested in the application for this Policy or whenever written request is received by the Company at its Home Office before any premium is in default beyond the grace period. It shall become inoperative, as to premiums not yet paid, upon (a) receipt by the Company at its Home Office of written request to that effect or (b) election of an Optional Benefit on Lapse within the grace period.

While this provision is operative and the loan value is at least as great as the total unpaid premium plus any existing indebtedness, each premium for this Policy due and not otherwise paid will be paid by automatic loan on the last day of the grace period. However, a premium shall not be paid by automatic loan if all premiums due during the twelve policy month interval prior to the due date of such premium have been paid by automatic loan and no payment toward indebtedness under this Policy has been made during such interval or during the grace period of such premium.

Further, Endorsement # 73500 was issued by MONY with the Wesson policy which strengthened insured's rights in connection with the original Automatic Premium Automatic Loan to Pay Premiums--This provision shall become operative if requested in the application for this Policy or whenever written request is received by the Company at its Home Office before any premium is in default beyond the grace period.

Loan (APL) provision, and provided in pertinent part:

After receiving Dr. Wesson's application, MONY's Jackson, Mississippi, office forwarded it to the main office in New York, where Annie Kimmerle, an Installation Specialist in MONY's pension trust department, reviewed the application and sent it to the Policy Issue Department, with instructions that Dr. Wesson's policy be issued without APL. Kimmerle later testified that, although the application requested APL, she was aware of MONY's policy regarding APL and instructed Policy Issue accordingly. MONY was relying on an interpretation of non-transferability Endorsement # 64540 that it negated the effect of the APL provision. The endorsement in Dr. Wesson's policy read:

Neither the insured nor the beneficiary may sell, assign, discount, pledge or encumber any interests in this policy except to or through the Mutual Life Insurance Company of New York, and then only in accordance with the right conferred upon him or her under the terms of the Policy.

As a result of Kimmerle's instructions, Policy Issue coded its computer to reflect a "0" under the APL column in its master message printout (computer) to show that APL was not in that policy. Kimmerle then sent a memo to Don Coatsworth, office supervisor of the Jackson office, informing him of MONY's decision not to honor the APL request. Wimberly denied that this information was ever relayed from Coatsworth to him. The policy was then sent to Wimberly, who forwarded it to Dr. Wesson at the Surgical Clinic. Wimberly received a data card for his records, which card indicated that no APL was provided.

At trial, several pension trust policies, other than the Wesson policy, were introduced in evidence and they reflected that APL was requested in their applications, but no instructions were sent by Kimmerle to the Policy Issue Department. Notwithstanding that absence, the master message printout of those policies was coded "0" for the APL as was Dr. Wesson's policy.

After issue of Dr. Wesson's policy, MONY altered its Special Class-Employee Application to delete Question 9 relating to the offer of APL to the insured. Subsequently, MONY became aware that the Endorsement # 64540, mentioned above, did not negate the effect of a requested APL in a pension trust policy. This became clear as early as October 21, 1976, in an interoffice memorandum from Pauline Dana-Bashian to Mary Martini advising her that the non-transferability Endorsement # 64540 does not negate APL. Also, on October 27, 1976, Joan Rapp of MONY's Policy Forms Department, sent a memo to Don Coe of MONY's Sales Department, advising him that, although the policy application was changed in 1974, some policies still include APL and that "these issues are not endorsed to make APL inoperative."

On September 16, 1975, Lou Roth, Vice President and Chief Actuary of MONY, sent a memo to Rudy Vadala, Vice President and department head of MONY's Office Operations Department, wherein he set out that the Actuarial Department did not believe in selling the APL option; that if an insured is on the verge of lapse, MONY should inform him of his rights to continue the policy under APL; and that MONY should have a program of informing agencies and policyholders of the rights under the APL provision only when lapse or surrender seems imminent, and not on a massive scale to all policyholders.

When MONY learned of the ineffectiveness of the non-transferrability endorsement # 64540 in 1976, it was also apprised of a situation where a large number of pension trust policies had been coded in the computer to indicate that APL was operative. The code number appearing in the APL column of the master message print (computer printout) would have to be a number other than "0" to indicate an operative APL's on Pension Trust and Profit Sharing Plans. Issue has been allowing APLs on Pension Trust and qualified profit sharing plans except for Master Annuity per Dot McCarthy and the Pension and Profit Sharing Manual. APL is not available on any Pension Trust and qualified plans. (I don't know about non-qualified). That's in parenthesis. Peg Hess will talk with Carolyn Beltnap and Dot to change their rules. Also, the Special Class Application (since 1974) do not ask if APL is wanted. However, what can we do to prevent APLs from processing on policies which allowed APLs which shouldn't be allowed? And, how and who corrects the ones which are incorrect at present? Please let me know what will happen with these. Seems that this is no small thing. Thanks, Dot.

APL provision. A memo from Delores Hart, Supervisor of MONY's Field Relations Program, to Yolanda Boytell, head of MONY's Quality Control Department, dated September 14, 1976, indicated that this was taking place:

MONY assigned Mary Martini the project of investigating and rectifying the problem. ¹

In a memo by Mary Martini to Don Raves, Sales Department, February 9, 1977, she estimated that 25,000 pension trust policies having APL provisions might be involved in the investigation. Her investigation revealed that pension trust and profit-sharing policies issued prior to May, 1974, were issued with APL, if requested on the application. After learning from Pauline Dana-Bashian's memo of October 21,...