National States Ins. Co. v. Jones

• Decision Date: 22 August 1980
• Citation: 393 So.2d 1361
• Parties: NATIONAL STATES INSURANCE CO. et al. v. Caroline JONES. 79-138.
• Court: Alabama Supreme Court

Page 1361

393 So.2d 1361

NATIONAL STATES INSURANCE CO. et al. v. Caroline JONES.

79-138.

Supreme Court of Alabama.

Aug. 22, 1980.

Ollie L. Blan, Jr. of Spain, Gillon, Riley, Tate & Etheredge, Birmingham, for appellant National States Ins. Co.

R. Clifford Fulford of Fulford, Pope & Minisman, Birmingham, for appellant Mel Gross.

J. Scott Vowell of Beddow, Fullan & Vowell, Birmingham, for appellant Bernard Gold, deceased.

Jerry O. Lorant and J. Gusty Yearout of Lorant, Harris & Yearout, Birmingham, for appellee.

JONES, Justice.

This action for fraud and misrepresentation and for conspiracy to defraud and to misrepresent comes before this Court on appeal by Defendants who were found liable for conspiring to defraud and for perpetrating a fraud on Plaintiff, individually and as administratrix of the estate of Mrs. Minnie L. Haupt, in the sale of a health insurance policy covering Mrs. Haupt, Plaintiff's elderly aunt. The jury returned a verdict against Defendants, in the amount of 3.5 million dollars which was remitted by the trial Judge to $500,000.

Having heard the arguments of counsel, read their briefs, and reviewed the evidence, we affirm the judgment below, including the order of remittitur.

National States Insurance Co. issued two policies of insurance effective March 25, 1976, insuring Minnie L. Haupt against expenses incurred because of cancer and loss due to hospital, doctor and drug expenses. Another policy was issued insuring Minnie L. Haupt effective June 1, 1976, covering expenses incurred because of confinement in a nursing home. Mrs. Haupt was the applicant, insured, and owner of all three policies and was the beneficiary of the hospital, doctor and drug, and the nursing home policies. Her niece, Caroline Jones (Plaintiff-Appellee), was the beneficiary of the cancer policy. Claims were made by Mrs. Haupt under the hospital, doctor, and drug expense policy. These claims were denied by National States for misrepresentations in the application. This policy and the cancer policy were rescinded and the premiums returned to Mrs. Haupt. Mrs. Haupt later died on December 18, 1976. This suit was filed by her niece, Caroline L. Jones, on July 21, 1977.

Multiple issues are presented for our consideration:

1) Does Plaintiff have standing?

2) Is the action barred by the statute of limitations?

3) Is evidence of National States' loss ratios admissible?

4) Is a tape recording of a sales meeting admissible to show intent to defraud?

5) What is the status of the agents involved and was it such that it created liability for the company?

6) Did Plaintiff waive her right to sue by accepting the return of premiums?

7) Did Plaintiff sustain actual damages? Were punitive damages proper? Was the jury verdict excessive and the remittitur proper?

Standing

1) Appellants contend that Plaintiff lacks standing because she was not the applicant, the insured, the beneficiary nor the owner of the policies at issue.

Plaintiff claims that she was injured as a result of Defendants' fraud and, therefore, has standing to sue. Plaintiff further contends that she was responsible for the policy premiums as well as for her aunt's medical expenses. Plaintiff was billed for the medical expenses incurred by decedent which were to have been covered by the policies.

Our review of the evidence shows that the sales representations were made to and directed at Plaintiff, who had responsibility for the care of her elderly aunt, Mrs. Haupt. The consideration for these contracts was to and did flow from Plaintiff. Thus, Plaintiff has standing and a cause of action. Old Southern Life Insurance Co. v. Woodall, 295 Ala. 235, 326 So.2d 726 (1976).

Statute of Limitations

2) The complaint alleges misrepresentations made on March 25, 1976, and June 1, 1976. Suit was filed on July 21, 1977.

On the basis of these dates, Defendants contend the one-year statute of limitations had run before suit was filed.

The evidence shows that the claims were denied in November, 1976, and that a discussion between Plaintiff and Defendant Mack Loftin concerning the policies occurred in January, 1977. The trial Court submitted this defense to the jury with proper instruction saying, in part, "Our law says that in order to sue for fraud, the suit must be filed within one year from the date the plaintiff learned of the fraud or within one year from the date that the plaintiff came into possession ... of facts which reasonably should have led to the discovery of the fraud." See, Cartwright v. Braly, 218 Ala. 49, 117 So. 477 (1928). The trial Court was clearly correct on this point and the jury's finding on this issue will not be disturbed.

Loss Ratios

3) The admissibility of testimony concerning insurance loss ratios (the relationship between premium dollars collected and claims paid) is the principal substantive issue presented for our consideration.

Defendants argue that it was improper to admit such evidence and that the Court rejected their efforts to introduce evidence in rebuttal. Defendants further argue that this issue was not pleaded and, therefore, not properly before the Court.

Plaintiff argues that wide latitude traditionally has been given concerning the admissibility of evidence in fraud cases, and that this evidence had sufficient probative value to warrant admission.

The trial Court's treatment of this issue began with pretrial instructions to the attorneys concerning the acceptable uses and scope of the evidence on this point. The actual instructions are not part of the record, but that such instructions were given is mentioned in the record.

The Plaintiff's witness, Paul Raadt, an examiner with the Insurance Department of the State of Alabama, called to testify on this issue, was heard by the Court outside the presence of the jury, objections were raised and ruled on, and cross-examination was allowed. In the examination of Mr. Raadt, company-wide and State loss ratio figures for National States Insurance were given for the period 1974 through 1978. The highest percentage was 20.3 in 1978. Defendants' counsel was allowed to question Mr. Raadt on these figures before the Court ruled on their admissibility. After entertaining all of Defendants' objections to testimony on these figures, the Court ruled the State and the company-wide loss ratio figures from 1974 through 1978, inclusive, were admissible. The Court found that the broader spectrum of figures would alleviate the possible misleading of the jury which might have occurred had only State figures for a more limited period been introduced.

Excerpts from the deposition of Edward Rareden, executive vicepresident of National States, were read into the record as part of Plaintiff's case, after Mr. Raadt's testimony. Objections were heard and ruled on as the deposition was read. Portions of the deposition went to loss ratios. Defendants objected to their admissibility and were overruled. Rareden stated in deposition that it was "common knowledge in the health and accident field that ... to reach a 50% loss ratio figure at some given point in time is a fair figure for the company or a fair profit for the company to work on." He testified that 50% is a fair figure for both the company and the consumer.

Defendants' witness, Thomas Green, president of National States, was allowed to give detailed testimony concerning National's loss ratios in rebuttal to the testimony offered by Plaintiff. The Court allowed Mr. Green to testify, over objection of Plaintiff, that a loss ratio of 50% was a goal which would be reached by National in the future according to studies and calculations by the company and its actuaries, and that 50% is considered in the insurance industry to be a high and laudable figure.

Plaintiff was not allowed to introduce the State of Alabama Insurance Department's records of complaints about National States' nonpayment of claims. On the basis of this exclusion, the Court disallowed the offer into evidence by Defendants of one page of a multi-page report by the State of Missouri Insurance Department giving its assessment of National States' treatment of policy holders on the basis of claims paid.

This careful review of the record shows that the trial Judge kept strict control of this issue with pre-trial instructions to the attorneys, an in camera hearing of the Plaintiff's witness on this subject, and ample opportunity for Defendants' counsel to cross-examine this witness and to examine its own rebuttal witness. He also required Plaintiff to show evidence of company-wide figures rather than limiting the proof to Alabama, thus presenting a more representative sample to the jury.

We classify this case as one of fraud in the inducement. In such a case, evidence going to the intent and state of mind of the alleged perpetrator is particularly relevant. Wide latitude is afforded the Plaintiff in the introduction of evidence in a fraud case. The trial Judge informed the lawyers after one of the in camera hearings that he found the matter to be a proper one for cross-examination, thus implying that the evidence was admissible and that its weight would be determined by the jury. We agree with this finding. This Court gave a succinct synopsis of the applicable standard in Mid-State Homes, Inc. v. Johnson, saying:

"Great latitude is allowed in admitting evidence on the issue of alleged fraud. May v. Strickland, 235 Ala. 482, 180 So. 93 (1938); National Surety Co. v. Julian, 227 Ala. 472, 150 So. 474 (1933). Most often the perpetrator of fraud is the sole possessor of actual knowledge of such fraud. Undue restriction should not be placed on the introduction of evidence which has probative value, however slight, on this issue. Weight is for the jury."

Mid-State Homes v. Johnson, 294 Ala. 59, 63, 311 So.2d 312, 315 (1975).

"Under (the) liberal test (of relevancy followed in Alabama), a fact is admissible if it has any probative value, however slight, upon a matter in the case...