Reserve Nat. Ins. Co. v. Crowell

• Decision Date: 05 February 1993
• Citation: 614 So.2d 1005
• Parties: RESERVE NATIONAL INSURANCE COMPANY v. Ray CROWELL and Myrtle Crowell. Phillip BAILEY v. Ray CROWELL and Myrtle Crowell. Ray CROWELL and Myrtle Crowell v. RESERVE NATIONAL INSURANCE COMPANY and Phillip Bailey. 1911098, 1911099 and 1911157.
• Court: Alabama Supreme Court

Page 1005

614 So.2d 1005

RESERVE NATIONAL INSURANCE COMPANY v. Ray CROWELL and Myrtle Crowell.

Phillip BAILEY v. Ray CROWELL and Myrtle Crowell.

Ray CROWELL and Myrtle Crowell v. RESERVE NATIONAL INSURANCE COMPANY and Phillip Bailey.

1911098, 1911099 and 1911157.

Supreme Court of Alabama.

Feb. 5, 1993.

Rehearing Denied March 19, 1993.

Philip H. Butler of Robison & Belser, P.A., Montgomery, for Reserve Nat. Ins. Co.

James W. Garrett, Jr. of Rushston, Stakely, Johnston & Garrett, P.A., Montgomery, for Phillip Bailey.

Steven F. Schmitt of Schmitt & Harper, Tallassee, FL, and Ab Powell, Andalusia, for Ray Crowell and Myrtle Crowell.

SHORES, Justice.

These appeals are from a judgment based on a jury verdict awarding compensatory and punitive damages to Ray and Myrtle Crowell in an insurance fraud action against Reserve National Insurance Company and Phillip Bailey. Reserve National and Bailey appeal the trial court's denial of their motions for a judgment notwithstanding the verdict and for a new trial. Reserve National appeals, in the alternative, from the trial court's order of remittitur. The Crowells cross-appeal from the order of remittitur. We affirm.

Bailey, a field agent for Reserve National, sold Medicare supplement policies to the Crowells on September 2, 1988. The Reserve National policies were to replace their existing policies held with Liberty National Insurance Company. Bailey told the Crowells that Reserve National offered a policy that was better than their existing coverage with Liberty National, and that, for payment of an extra month's premium, they would receive immediate coverage and a "pre-existing benefits" (PEB) rider, i.e., a policy addendum providing coverage for pre-existing conditions. The Crowells paid Bailey two months' premiums on each policy. Bailey did not indicate on their application that the Crowells were replacing an existing policy.

The evidence at trial showed that an application for a PEB rider with Reserve National must be for a replacement of an existing Medicare supplement policy (MSP), and that Reserve National requires payment of a quarterly premium rather than a monthly premium in order to obtain immediate coverage. Immediate coverage would give an effective date as the date of application which was September 2, 1988. The reason the Crowells paid an extra month's premium was that Bailey assured them that doing so would give them immediate coverage and the PEB rider.

Jeff Reeves, of Reserve National's home office in Oklahoma City, received the Crowells' application on September 13, 1988. The application showed that the Crowells wanted PEB riders and immediate coverage for pre-existing conditions, but did not indicate that their policies were to be replacement policies. Bailey telephoned Reeves on October 17, 1988, and told him that the Crowells were, in fact, replacing an existing policy. Reeves then told Bailey to finish the paperwork (which should have included MSP replacement forms signed by the Crowells) on the Crowells' application and send it to him in Oklahoma City. However, Bailey never got the Crowells to sign a Medicare supplement replacement form, even though Reeves had earlier written three times to Bailey requesting replacement forms for the Crowells. Reeves issued the policy without a PEB rider and with an effective date of November 3, 1988.

Myrtle Crowell received her new Medicare supplement policy on November 15, 1988, and on that day she telephoned Reserve National's David Harvey. She told him that Phillip Bailey had told her that the effective date on her policy would be the day of application, September 2, 1988, and that she had paid an extra month's premium to receive immediate coverage. Mrs. Crowell also told Harvey that she had had a heart attack and surgery in October, that her old MSP insurance had lapsed, and that she needed coverage from her policy with Reserve National for October. Harvey told her that the extra month's premium waived the six-month waiting period for pre-existing conditions coverage. Mrs. Crowell understood this to mean that she had coverage for pre-existing conditions and would receive coverage for her October expenses not covered by Medicaid.

Harvey told his supervisor, Juanita Phelps, about Mrs. Crowell's telephone call because, he said, Mrs. Crowell "thought she had coverage and she didn't, which is a new issue, and Mrs. Phelps is over the new issue department." R.T. 248. Reserve National later changed the effective date of Mrs. Crowell's policy to October 3, 1988.

After Ray Crowell had prostate surgery on January 11, 1989, Reserve National denied his claim on the grounds that his prostate condition was a pre-existing condition and that he did not have PEB coverage under his health insurance policy with Reserve National. The hospital filed claims for Mr. Crowell's prostate treatment with Reserve National, which refused to honor the claims.

The Crowells' daughter, Dorothy Ziglar, telephoned Reserve National, at her parents' request, on October 23, 1989. She spoke with David Harvey and told him that when her parents applied for their policies with Bailey they had paid an extra month's premium for a waiver of the six-month waiting period, in order to receive coverage for pre-existing conditions. Harvey told Ziglar that he had no proof that her parents had paid the extra month's premium and told her what information to send him to show that they had paid the extra premium. On October 31, 1989, Harvey received Ziglar's letter containing a copy of the Crowells' September 2, 1988, receipt signed by Bailey and showing an initial payment of $207.50. ¹

Harvey turned Ziglar's letter over to his supervisor, Mrs. Phelps. No one from Reserve National responded to Ziglar's letter, although the letter was placed in Reserve National's file concerning the Crowells.

The hospital, unable to collect from Reserve National, turned Mr. Crowell's case file over to a collection agency. The Crowells received several collection letters from the credit agency between September and November 1989 about Mr. Crowell's hospital bills.

The Crowells sued Reserve National and Phillip Bailey. The case was submitted to the jury on the Crowells' claim of fraud; the jury rendered a verdict in favor of the Crowells in the amount of $25,000 compensatory damages and $1,000,000 punitive damages.

Reserve National timely filed motions for a new trial, or, in the alternative, for a judgment notwithstanding the verdict, or, alternatively, for a remittitur. The trial court denied the first two motions, but granted a remittitur of $400,000 on the punitive damages award. The Crowells accepted the remittitur of punitive damages from $1,000,000 to $600,000 on March 17, 1992. The trial court issued an amended judgment for $625,000 in favor of the Crowells on March 30, 1992.

Reserve National and Bailey appeal the trial court's denial of their motions for a judgment notwithstanding the verdict and for a new trial. Reserve National appeals, in the alternative, from the trial court's order of remittitur, contending that it was an insufficient reduction in the amount of punitive damages. The Crowells cross-appeal from the order of remittitur.

The parties raise four broad issues on appeal: Whether the award of punitive damages was appropriate in this case; whether the judgment, as amended, was sufficient; whether evidence of bias was properly admitted against Reserve National; and whether the trial court erred in its charge to the jury. No party challenges the constitutionality of the punitive damages statute, Article 2 of Chapter 11, Title 6, Code of Alabama 1975.

I.

The defendants contend that the award of punitive damages was not supported by the evidence, because, they allege, Bailey did not know that his representations to the Crowells were false when he led them to believe that they would receive immediate coverage for pre-existing conditions by paying two monthly premiums when they applied for MSP insurance. Section 6-11-20(a), Ala.Code 1975, provides:

"Punitive damages may not be awarded in any civil action ... other than in a tort action where it is proven by clear and convincing evidence that the defendant consciously or deliberately engaged in oppression, fraud, wantonness, or malice with regard to the plaintiff."

The Crowells sued the defendants for damages based on fraud. Fraud that allows punitive damages is defined as "[a]n intentional misrepresentation, deceit, or concealment of a material fact the concealing party had a duty to disclose, which was gross, oppressive or malicious and committed with the intention on the part of the defendant of thereby depriving a person or entity of property or legal rights or otherwise causing injury." § 6-11-20(b)(1). Clear and convincing evidence represents

"Evidence that, when weighed against evidence in opposition, will produce in the mind of the trier of fact a firm conviction as to each essential element of the claim and a high probability as to the correctness of the conclusion. Proof by clear and convincing evidence requires a level of proof greater than a preponderance of the evidence or the substantial weight of the evidence, but less than beyond a reasonable doubt."

§ 6-11-20(b)(4).

The jury was instructed on these requirements for the imposition of punitive damages. Whether the defendants intended to deceive the Crowells was a question of fact for the jury to decide. Old Southern Life Insurance Co. v. Woodall, 295 Ala. 235, 326 So.2d 726, 729 (1976). Although there was conflicting evidence on the matter, there was also sufficient evidence for a jury to determine that Bailey and Reserve National intended to deceive the Crowells into believing that they had paid for immediate coverage for pre-existing conditions. The evidence was undisputed that the Crowells told Bailey about Ray Crowell's prostate condition before he sold them policies to replace their existing policies with Liberty...