North Carolina Mut. Life Ins. Co. v. Holley

• Decision Date: 18 September 1987
• Citation: North Carolina Mut. Life Ins. Co. v. Holley, 533 So.2d 497 (Ala. 1987)
• Parties: NORTH CAROLINA MUTUAL LIFE INSURANCE COMPANY v. Mattie HOLLEY. Sam WATTS v. Mattie HOLLEY. 84-1211, 84-1223.
• Court: Alabama Supreme Court

Page 497

533 So.2d 497

NORTH CAROLINA MUTUAL LIFE INSURANCE COMPANY v.Mattie HOLLEY.

Sam WATTS v.Mattie HOLLEY.

84-1211, 84-1223.

Supreme Court of Alabama.

Sept. 18, 1987.

Rehearing Denied in No. 84-1211

Nov. 6, 1987.

On Return from Remand

Sept. 16, 1988.

Ollie L. Blan, Jr., of Spain, Gillon, Riley, Tate & Etheredge, Birmingham, for appellantNorth Carolina Mut. Life Ins. Co.

W. Troy Massey, of Massey, Means & Thomas, Montgomery, for appellantSam Watts.

Ernest C. Hornsby and Steven F. Schmitt, Tallassee, and Billy L. Carter, Montgomery, for appellee.

ON APPLICATION FOR REHEARING

PER CURIAM.

The original opinion in this cause is hereby withdrawn and the following opinion is substituted:

This is a fraud case.The issue presented is whether plaintiff, the beneficiary of a life insurance policy issued on the life of her daughter, could recover for an alleged misrepresentation made by the insurance company's agent at the time the application for the policy was made by the daughter.The insurance company refused to pay benefits due under the terms of the policy on the ground that the daughter had falsely stated the condition of her health at the time she made the application, and that the daughter had cancer at that time and was uninsurable.

The trial court entered a $1 million judgment based on a jury verdict.The defendants brought these appeals from the denial of their motions for JNOV or new trial.The two appeals have been consolidated.

FACTS

On April 1, 1982, as a part of a "special offer" campaign of defendantNorth Carolina Mutual Life Insurance Company to existing policyholders, defendantSam Watts, a soliciting agent of North Carolina Mutual, took an application for a $2,000 policy of life insurance from Patricia Holley, who was to be the insured and the owner of the policy.She paid the initial premium for the policy and named her mother, the plaintiff, Mattie Holley, as beneficiary.On June 20, 1983, Patricia Holley died of cancer.Mattie Holley made a claim to North Carolina Mutual for the $2,000 proceeds of the policy.After investigation, North Carolina Mutual determined that Patricia Holley had had cancer since the summer of 1981, and was, therefore, uninsurable at the time the policy was issued.The company denied the claim because of a policy provision that stated that the policy did not take effect unless it was issued and delivered while the insured was in good health.A refund of the premiums was tendered to Mattie Holley, who refused to accept it.

The evidence was in dispute, but there was strong evidence from which the jury could have found that Watts, when he took the application, knew that Patricia Holley had cancer, and would live no longer than two to five more years.The policy had a two-year incontestability clause.Patricia Holley, as owner of the policy, reserved the right to change the beneficiary.

The question of what causes of action, if any, Patricia Holley would have had against the defendants if she had initiated an action during her lifetime is not before this Court.This is a suit brought by Mattie Holley, individually.

The alleged misrepresentation made the basis of the fraud claim consisted of the following statement alleged to have been made by defendant Watts to the plaintiff, Mattie Holley, the beneficiary of the $2,000 policy and the mother of Patricia Holley: "Mattie, you'll be the beneficiary of this policy if anything happens to Pat to help with funeral expenses."Watts denied making this statement.Mattie Holley was deposed twice before trial and filed an affidavit in opposition to defendants' motion for summary judgment, and in neither of the depositions, nor in the affidavit, did she refer to the above quoted statement, or to any similar statement that Watts made directly to her.Mattie Holley contends that she was not asked during either deposition a question which would have elicited such testimony.Defendants contend that the statement was fabricated by Mattie Holley during the time between the depositions and the trial, so that she could remain in court.Admittedly, there are several areas in which Mattie Holley's testimony at trial could be said to contradict her testimony given in the depositions, but in each instance, she testified at trial that she had made a mistake in her prior sworn testimony.These inconsistencies in her testimony were pointed out to the jury, and the jury as the trier of fact apparently determined that her trial testimony was credible.

There was evidence from which the jury could have found, as it evidently did, that Watts told Mattie Holley: "Mattie, you'll be the beneficiary of this policy if anything happens to Pat to help with funeral expenses."For our purposes, we must assume that the statement was, in fact, made.The policy was issued, and, thereafter, either Patricia or Mattie Holley paid the monthly premium of $4.22 on the policy for the next 13 months.

I

The threshold question this Court must resolve is whether the statement made by Watts to Mattie Holley constitutes a misrepresentation on which an action of fraud can be based.

As Justice Beatty wrote in Harrell v. Dodson, 398 So.2d 272(Ala.1981):

"The elementary rule is that evidence of misrepresentation of a material fact must be shown to support a claim for damages on account of a misrepresentation.Code 1975, § 6-5-101."

Whether a given representation is an expression of an opinion or a statement of fact depends upon all the circumstances of the particular case.Harrell v. Dodson, supra.

Under the circumstances of this case, we hold that the statement allegedly made by Watts is a statement of a material fact.

The circumstances of this case bear some striking similarities to those of National States Ins. Co. v. Jones, 393 So.2d 1361(Ala.1980), in which a niece brought an action, individually and as administratrix of her aunt's estate, to recover for fraud and misrepresentation and conspiracy to defraud and to misrepresent in regard to the sale of health policies covering the aunt, after claims under the policies were denied for alleged misrepresentations in the application.In that case, the following issues were presented:

"(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?"

In that case, this Court, with seven Justices concurring in the opinion, found that the plaintiff niece had standing even though she was not the applicant, the insured, the beneficiary, or the owner of the policies at issue.

As earlier indicated, this case has some striking similarities to that case.In each case, an application for an insurance policy was made by the insured, who was related to the plaintiff.In each case, the plaintiff occupied a special relationship with the insured, and was involved to some degree in the application process; the plaintiff in each case had assumed some responsibility for the care of the insured; and the benefits payable under the policy, in each case, would have been beneficial to the plaintiff in paying any obligations arising out of the plaintiff's assumption of responsibility for the care or burial of the insured.

In this case, the plaintiff was the named beneficiary.In the National States case, the plaintiff was not the named beneficiary.In each case, there was evidence that the plaintiff paid either all of the premiums or some of the premiums.In each case, a claim was filed for benefits payable under each policy, and the defendant insurer, in each case, denied the claim because of alleged misrepresentations in the application by the insured.In both cases, there was evidence that the insured and the plaintiff both knew that the insured had health problems at the time the application was made.Neither the insured nor the plaintiff in either case informed the defendant's agent of the health conditions.In National States, the plaintiff was present when the defendant's agent was questioning the insured, but did not answer the questions.In this case, the plaintiff was not in the room at the time of the questioning by the agent and did not hear the questions.In National States, there was no evidence that the defendant's agent was aware of the condition of the insured.In this case, there was evidence that the insurer's agent did know that the insured had cancer.

There are other similarities between this case and National States.The training methods for sales persons employed by the two insurance companies were similar.In each case, the policies and information concerning the policies were sent from the home office to the agents.The two companies prescribed the presentation to be made by the agents.There were training sessions conducted by the sales manager concerning the presentation to be made to applicants.In National States, one of the sales meetings was partially taped, so there was evidence in that case of what transpired during that sales meeting.Here, there was evidence that during the training session the agents were told that the medical portion of the application was not required.

In making the application, there was evidence that the insured in this case answered two questions falsely.Also, there was evidence that the insured knew she had cancer, and she should have been aware that she was giving false information on the application form, but the jury may have found this fact to be insignificant here.

During the trial, the chief underwriter for North Carolina Mutual, testified:

"Q Now, Ms. Cogwell, what type...