Pacific Mut. Life Ins. Co. v. Haslip

Decision Date15 September 1989
Citation553 So.2d 537
CourtAlabama Supreme Court

Ollie L. Blan, Jr., and J. Mark Hart of Spain, Gillon, Tate, Grooms & Blan, Birmingham, and Bruce A. Beckman of Adams, Duque & Hazeltine, Los Angeles, Cal., for appellant.

Charles E. Sharp and John F. Whitaker of Sadler, Sullivan, Herring & Sharp, Birmingham, for appellees.

Stephen D. Heninger of Heninger, Burge and Vargo, Birmingham, for amicus curiae The Alabama Trial Lawyers Ass'n.

SHORES, Justice.

The defendant, Pacific Mutual Life Insurance Company (hereinafter "Pacific Mutual"), appeals from judgments, entered after a jury trial, in favor of the plaintiffs, Cleopatra Haslip, Cynthia Craig, Alma Calhoun, and Eddie Hargrove.

All four plaintiffs are employees of Roosevelt City (hereinafter the "City"), a small incorporated community in western Jefferson County. As many small communities do, Roosevelt City allowed its employees to purchase a group health insurance policy through the municipality. Originally that policy was issued by Blue Cross-Blue Shield. Some months prior to 1981, however, Blue Cross cancelled the policy when several City employees dropped out of the plan, reducing the number of eligible employees participating in the plan below the minimum number of participants required by Blue Cross to maintain a group policy.

Lemmie Ruffin was a soliciting agent for Pacific Mutual. Ruffin sent a mail solicitation to the City asking if it was interested in discussing insurance. The City returned a card indicating that it was.

Ruffin first met with the mayor of the City, who gave him permission to solicit business from the City's employees. Before approaching the employees, Ruffin sought information about the employees from the city clerk, Mabel Poindexter. As he was later to do with the plaintiffs, Ruffin approached Mrs. Poindexter, telling her that he was "with Pacific Mutual." He handed her a Pacific Mutual business card, and he explained that he had been told that the City employees needed hospital coverage. Testimony indicates that Ruffin never told Mrs. Poindexter or the plaintiffs that Pacific Mutual would not write health insurance.

In truth, while Pacific Mutual would issue individual life policies, it did not write group health policies for municipalities. Pacific Mutual did, however, allow its agents to broker business with other insurance companies, and Ruffin was a licensed agent of Union Fidelity Life Insurance Company (hereinafter "Union Fidelity"), which did issue group health insurance through municipalities. Accordingly, Ruffin submitted a proposal to the City on a Pacific Mutual letterhead; that proposal indicated that he would place life insurance with Pacific Mutual and health insurance with Union Fidelity. While Union Fidelity and Pacific Mutual are separate and distinct companies and have no affiliation, Ruffin, when asked by Mrs. Poindexter, indicated that Union Fidelity was a subsidiary of Pacific Mutual.

Employees who opted to participate in the insurance plan paid their premiums by way of payroll deduction. Periodically, Mrs. Poindexter collected the money deducted from these employees' paychecks and wrote one check each month to cover the insurance premiums. These checks were sent to, or were picked up by, Ruffin, who prepared the billing each month on a Pacific Mutual letterhead. Within a few months of the effective date of the insurance policies, they were cancelled for nonpayment of premiums. Neither the City nor its employees were made aware that the policies had lapsed, because, unknown to the City, Mr. Ruffin, with the help of Pacific Mutual's Birmingham manager, Patrick Lupia, had had all correspondance between the insurers and the City employees funnelled through Lupia's Birmingham Pacific Mutual office. In effect, the employees had been paying Ruffin, but their payments had not been forwarded to the insurers.

During this time, in January 1982, Cleopatra Haslip, a participating member of the health insurance plan, entered a hospital. After incurring $2,500 in hospital bills and additional medical bills, she learned that her insurance had been cancelled. The hospital demanded $600 before it would agree to discharge her, and her doctor eventually turned her case over to a collection agency. In time, a deficiency judgment was rendered against Mrs. Haslip, and, as a result, her credit was adversely affected.

Mrs. Haslip and other members of the insurance plan sued Pacific Mutual and Lemmie Ruffin. The case was submitted to the jury on the plaintiffs' claim of fraud; on August 7, 1987, the jury rendered a verdict in favor of each of the plaintiffs in the following amounts: Cleopatra Haslip--$1,040,000; Cynthia Craig--$12,400; Alma Calhoun--$15,290; Eddie Hargrove--$10,288.

Pacific Mutual timely filed motions for a new trial, or alternatively, a judgment notwithstanding the verdict. The motions were denied by the trial court. Pacific Mutual appeals from the judgment based on the verdict; Lemmie Ruffin has not appealed.

Pacific Mutual raises eleven issues on appeal. To facilitate our discussion, we address in the first section several interrelated issues raised by Pacific Mutual.


The first issue that Pacific Mutual presents is whether the trial court erred in charging the jury. Pacific Mutual suggests three ways in which it says the jury charge was flawed: that the trial court charged the jury on an incorrect standard for awarding punitive damages for fraud; that the trial court improperly charged the jury on the standard for awarding damages for mental distress for fraud; and that the trial court erred in refusing to give Pacific Mutual's requested charge regarding justifiable reliance. We address each of these alleged errors in turn.

In charging the jury, the trial judge indicated that the jury could impose liability for fraud if it determined that defendant Ruffin knew that his representations to the plaintiffs were false or should have known that his representations were false:

"[The Court:] The defendant must have known at the time he made the representation that that fact was not true or he should have known that it was not true.


"That is the Defendant represents a certain fact to be true, when in fact that fact is untrue. The Defendant making that representation knows it is untrue when he makes the representation or he should have known it was untrue." (Emphasis added.)

The latter phrase, "should have known it was untrue," Pacific Mutual contends, suggests negligence, which constitutes only "legal fraud": a misrepresentation made innocently or by mistake, for which punitive damages are not recoverable. Code 1975, § 6-5-101. Continental Volkswagen, Inc. v. Soutullo, 54 Ala.App. 410, 309 So.2d 119 (1975). In contrast, a cause of action for deceit or willful fraud, for which punitive damages are recoverable, requires proof that the defendant knew his representation was untrue at the time he made that representation or that he made the representation with reckless disregard for the truth. Code 1975, § 6-5-103. Because punitive damages are not recoverable for "legal fraud," Pacific Mutual argues that the failure of the trial court to distinguish in its jury charge between willful fraud and legal fraud impermissibly allowed the jury to impose punitive damages for mere legal fraud. We disagree.

In his written opinion, the trial judge conceded that he had erred in charging the jury on the issue of fraud by not distinguishing between misrepresentation and fraud. Moreover, the trial court admitted that the phrase "should have known" had crept into the charges inadvertently. Nevertheless, we can not say that under the facts of this case the misphrased jury instruction substantially harmed the defendant.

The evidence submitted at trial indicated that Lemmie Ruffin forged signatures on applications in order to obtain a minimum number of applicants to meet Union Fidelity's membership requirements for establishing a group insurance plan; that the plan was cancelled within a few months of its inception for nonpayment of premiums, even though participants in the plan had made their premium payments to Lemmie Ruffin; that Lemmie Ruffin continued to accept premium payments after notice of cancellation of the insurance plan had been received by his office; that premium payments collected by Lemmie Ruffin were deposited into his own account; and that Ruffin deposited funds refunded to participants by Union Fidelity into his wife's personal savings account. Given these facts, it is impossible for this Court to entertain the suggestion that the jury could have been confused or that it could have concluded that Ruffin's representations were made either innocently or mistakenly. We, therefore, affirm the trial court's conclusion that if, in the context of these facts, the charge was erroneous, then the erroneous charge can only be characterized as harmless error. As the trial judge stated in his opinion:

"Although the 'should have known' language should not have been included, it is unlikely that this misleading language materially confused the jury. Taken together with the evidence, it is the opinion of this court that the misphrased jury instruction was not of sufficient scale to substantially harm the defendant. [Citations omitted.]


"... [Given these facts,] [t]he conclusion is inescapable that the fraud was intentional, gross, oppressive and malicious."

Next, Pacific Mutual argues that the trial court erred in charging the jury on awarding damages for mental distress for fraud. Again, damages for mental distress may not be awarded unless the fraud was willful. Holcombe v. Whitaker, 294 Ala. 430, 318 So.2d 289 (1975). As we have previously stated, when one considers the evidence presented at trial, he can reach but one reasonable conclusion: if fraud existed in this case,...

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