Pace v. Financial Sec. Life of Mississippi, No. 07-CA-59553

• Court: United States State Supreme Court of Mississippi
• Writing for the Court: Before ROY NOBLE LEE; ROY NOBLE LEE; McRAE
• Citation: 608 So.2d 1135
• Docket Number: No. 07-CA-59553
• Decision Date: 03 June 1992
• Parties: Willie J. PACE v. FINANCIAL SECURITY LIFE OF MISSISSIPPI.

Page 1135

608 So.2d 1135 Willie J. PACE
v.
FINANCIAL SECURITY LIFE OF MISSISSIPPI. No. 07-CA-59553. Supreme Court of Mississippi. June 3, 1992.
Rehearing Denied Dec. 3, 1992.

Page 1136

Thomas J. Lowe, Jr., Jackson and Peter K. Smith, Quitman, for appellant.

Mark C. Carlson, McCoy Wilkins Stephens & Tipton, Jackson, for appellee.

Before ROY NOBLE LEE, C.J., and PRATHER and PITTMAN, JJ.

ROY NOBLE LEE, Chief Justice, for the Court:

Willie J. Pace filed a complaint in the Circuit Court of Wayne County seeking to recover actual damages on a credit disability insurance contract and punitive damages for refusal to pay the amount claimed. The lower court granted partial summary judgment in favor of Financial Security Life of Mississippi on the issue of punitive damages and conducted an evidentiary trial on the contract issue. At the close of Pace's case, the lower court granted a directed verdict in favor of Financial Security Life of Mississippi (FSLOM). Pace has appealed and presents the following issues for decision by this Court:

I. WHETHER PRE-EXISTING CONDITION EXCLUSIONS ARE VALID, AND IF SO, WHETHER ESTOPPEL MAY BE USED TO AVOID THEM.

II. WHETHER PUNITIVE DAMAGES MAY BE AWARDED WHERE AN INSURANCE COMPANY DENIES A CLAIM BASED ON AN INVALID REASON WHEN IT ALSO HAD ANOTHER VALID REASON.

FACTS

Pace was no stranger to credit life and disability policies, since she testified that she had always requested such coverage when borrowing money in the past. She was not an ignorant person, having a two-year college degree and, subsequently, thirty-two hours of college education. In her position, buying the insurance was the prudent thing to do, for she was not the model of good health. Though only forty (40) years old at the time, Pace carried 205 pounds on her five-foot, five-inch frame. She had been under the care of Dr. Arthur Woods in Waynesboro since November of 1984 for symptoms she described as shortness of breath, arthritis and limited ability to walk. Dr. Woods characterized her condition as severe sarcoidosis, congestive heart failure, pulmonary fibrosis and seizure disorder.

On January 28, 1985, Pace dealt with Tony Chapman, Vice-President of the Bank of Waynesboro, concerning her loan. FSLOM and the Bank of Waynesboro had an agreement whereby FSLOM agreed to underwrite credit life and credit disability insurance on loans made by the bank. In effect, the loan officers at the bank wore two hats; they were agents for the insurance company as well as bankers. The bank received fifty (50) percent of the premiums collected for selling the policies, as well as the comfort of knowing that their loans would be paid off in the event fortune frowned on their customers. Although Chapman was not the general agent authorized by the bank, he had received training in selling the insurance and was authorized by the bank and FSLOM to

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take the applications for insurance from the customers.

Pace testified at the trial that she asked Chapman for the credit life and disability coverage, as she always did when borrowing money. She wanted it, she said, to protect her credit in case something happened to her. She stated that, had she been unable to obtain the coverage, she would not have taken out the loan. Pace testified that she had never filled out an application, since, according to her, she never saw an application. At trial, however, the parties stipulated that she had received a copy of the application. Although she recognized her signature on the credit life application, she testified that she did not know how it got there. She said that Chapman did not ask her any questions about her health, which she considered good at the time; that Chapman did not read the policy and exclusions to her; and that she did not ask him any questions about the insurance. Pace did state that Chapman readily answered all the other questions which she did ask him. Apparently the two had a cordial meeting. Afterwards, they signed papers at the desk of Emma Sumrall, Chapman's secretary.

Chapman's testimony about the meeting was substantially similar with a couple of notable exceptions. He did not remember Pace specifically asking for the disability coverage. He stated that he always tried to sell it when making loans and that he had asked Pace if she wanted it. He further stated that although he did not read the entire policy to Pace, he did explain the pre-existing exclusion clause to her.

The application for insurance consisted of three (3) pages. The first contained general information about the insured and the amount of coverage applied for. The disability portion of the insurance provided for a monthly benefit of $212.15, the amount of Pace's payments on her loan. This policy cost Pace $317.52 for coverage over the thirty (30) months of her loan.

The second page of the application contained a "certificate" to be signed by the insured, if the disability coverage provided for payments of over $100 per month. It contained a space for the insured to list all illnesses, disease or accidents for which the insured had been treated within the last year, which was left blank. Following this space was a certification that the insured had read the application and given correct answers to the questions on the application, with a space to be signed and dated by the insured. The signature, "Willie J. Pace" appeared, but was not dated.

The third and final page was headed "CERTIFICATE OF INSURANCE." It provided that if FSLOM found the applicant to be uninsurable within ninety (90) days of the application, the application could be denied. It then set out the terms of the life insurance and disability insurance coverages. The disability coverage section was set out in three short paragraphs, the second of which read:

Exceptions: The disability benefit described above is not payable if total disability is caused or contributed by; (1) injury which was intentionally inflicted on the Insured Debtor by himself; (2) pregnancy, childbirth, or any complications thereof; (3) disease, injury or condition of health which manifested itself to the insured by requiring medical diagnosis or treatment within the six months preceding the taking of the application for insurance and which caused loss within six months following the effective date of coverage, provided, however, that disability commencing thereafter resulting from such illness shall be covered; (4) nervous or mental disease or disorder, alcoholism, or drug addiction.

The parties stipulated that Pace became permanently and totally disabled within the meaning of the policy on May 23, 1985. At that time, Pace was already delinquent on her loan payments. She obtained the necessary claim forms from the bank and filed a claim with FSLOM dated September 25, 1985. In response, Pace received a letter from Myles A. Frank, President of FSLOM, denying her claim on the basis that she omitted medical information which should have been on the application, and further voiding the coverage and refunding the

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premium. Subsequently, on May 12, 1986, FSLOM notified Pace that the claim actually was...