Seastrom v. Farm Bureau Life Ins. Co., 97-1164.

• Decision Date: 09 September 1999
• Docket Number: No. 97-1164.,97-1164.
• Citation: 601 N.W.2d 339
• Parties: Gary SEASTROM and Jo Ann Jacobsen, Appellees, v. FARM BUREAU LIFE INSURANCE COMPANY, Appellant, and Ann Lewis and Bruce Brinkman, Defendants. Farm Bureau Life Insurance Company, Appellant, v. Gary Seastrom and Jo Ann Jacobsen, Appellees.
• Court: Iowa Supreme Court

601 N.W.2d 339

Gary SEASTROM and Jo Ann Jacobsen, Appellees, v. FARM BUREAU LIFE INSURANCE COMPANY, Appellant, and Ann Lewis and Bruce Brinkman, Defendants.

Farm Bureau Life Insurance Company, Appellant, v. Gary Seastrom and Jo Ann Jacobsen, Appellees.

No. 97-1164.

Supreme Court of Iowa.

September 9, 1999.

Clark G. McDermott and Dale A. Knoshaug of Hanson, Bjork & Russell, L.L.P., Des Moines, for appellant.

Frank J. Comito of Neu, Minnich, Comito & Hall, P.C., Carroll, and Colin J. McCullough of the McCullough Law Firm, Sac City, for appellees.

Considered by McGIVERIN, C.J., and LARSON, NEUMAN, SNELL, and CADY, JJ.

SNELL, Justice.

Farm Bureau Life Insurance Company appeals and Gary Seastrom and Jo Ann Jacobsen cross-appeal from judgments entered on the plaintiffs' claims for breach of contract and first-party bad faith. The case arises due to the death of the insured, Alice Seastrom, before her life insurance policy was issued by Farm Bureau. A jury gave the plaintiffs a verdict of $350,000 for breach of contract on the life insurance policy, $12,500 for the plaintiffs' bad faith claims, and $87,500 in punitive damages. We affirm in part, reverse in part, and remand for entry of a judgment consistent with this opinion.

I. Background Facts and Prior Proceedings

On April 19, 1995, Bruce Brinkman, an insurance agent for Farm Bureau, and Ann Lewis, a Farm Bureau manager, met with Alice and Wayne Seastrom to discuss estate planning and the Seastroms' possible acquisition of life insurance. At that time Alice was 74 and Wayne was 76 years of age. The Seastroms had two children, plaintiffs Gary Seastrom and Jo Ann Jacobsen. The Seastroms owned a farm of approximately 500 acres which was operated by their son. The Seastroms wished to have an estate plan in which they could leave their farm to both children but provide sufficient funds to allow Gary to buy out Jo Ann's share and to pay any inheritance taxes.

At the April 19 meeting, Lewis obtained copies of the Seastroms' wills and information related to their estate planning goals. Wayne and Alice completed a trial application for a $300,000 joint last-to-die life insurance policy which Brinkman subsequently submitted to Farm Bureau. Brinkman was later informed Wayne was uninsurable and only Alice was to proceed to have a physical exam. Alice completed both the physical exam and a diabetic questionnaire.

On July 10, 1995, Lewis prepared a lengthy document captioned "Estate Analysis Report." The report contained a description of Alice's anticipated estate inventory and related costs and taxes. The report also contained projections of the premiums required for different levels of life insurance coverage for Alice. Each projection was labeled "THIS PROJECTION IS NOT A CONTRACT. IT IS AN ILLUSTRATION ONLY." One of the projections listed a $21,300 annual premium for a death benefit of $350,000.

Lewis and Brinkman met with the Seastroms on July 12, 1995, and Lewis presented the Estate Analysis Report to them. The report was left with the Seastroms when the meeting concluded.

Lewis and Brinkman met once again with Alice and Wayne on August 4, 1995. On that date they again reviewed the Estate Analysis Report and the Seastroms indicated they wished to proceed with Lewis's recommendations. Brinkman completed another application for life insurance for Alice with Gary and Jo Ann designated as the owners and beneficiaries of the policy. Brinkman did not complete the entire application, but instead wrote the words "Everything taken care of on trial app." over one portion of it.

Gary Seastrom was present for part of the August 4 meeting and he wrote a $5325 check for the quarterly insurance premium. Both Wayne and Gary claim Lewis directed Brinkman to fill in the amount of $400,000 on the application. Lewis and Brinkman deny that any representations were made about the amount of coverage being provided and they claim the $400,000 figure was not inserted into the application until after the August 4 meeting. Lewis and Brinkman claim no determination had been made as to the exact amount of coverage which would be acquired, although Brinkman thought it might be between $300,000 and $400,000.

Lewis claims the $400,000 amount was later added to the application because she knew that amount would adequately cover the Seastroms' estate planning needs. If, after consultation with other professionals such as an attorney or accountant, it became apparent less coverage was needed, Lewis could then "order down" and obtain an amount less than $400,000. Lewis indicated it was preferable to apply for a larger amount than was expected to be necessary because you could always order down. However, if you applied for too small an amount and had to later increase it, the application process would have to start over and additional underwriting would have to be completed.

There is a dispute about whether Brinkman provided Alice, Wayne, or Gary with the conditional receipt, a perforated form located at the bottom of the final page of the life insurance application. The conditional receipt purports to limit Farm Bureau's liability to no more than $250,000 if an applicant dies prior to the issuance of a life insurance policy.¹

Brinkman and Lewis claim Brinkman filled out the receipt, detached it, and gave it to Alice. Brinkman claimed he told the Seastroms "This is a receipt saying that we received that amount for the deposit and that's why I'm giving this to you." Lewis testified she heard Brinkman tell the Seastroms that "This receipt is evidence that you have a policy." Lewis, herself, told the Seastroms "they had coverage."

Gary and Wayne deny that Brinkman ever gave the conditional receipt to Alice. In any case, Farm Bureau admits that Brinkman and Lewis never explained the terms or effect of any conditional receipt nor did they inform the Seastroms that any interim insurance coverage they had just purchased was limited to $250,000.

On August 12, 1995, Alice died. Farm Bureau had not yet completed its processing of her application and no life insurance policy had been issued. Farm Bureau had never had a situation in which an applicant for life insurance had died after completing the application but before a policy had issued and the face amount of the application exceeded the amount provided by the conditional receipt. Over the course of the next two months, a senior underwriter, a vice-president, and Farm Bureau's legal department investigated the claim. At a meeting on September 22, 1995, Lewis and Brinkman met with members of Farm Bureau's legal department to discuss in detail their meetings, conversations, and transactions with the Seastroms. Farm Bureau's claims committee met on September 27 to discuss the claim in detail. Ultimately, Farm Bureau decided that while its liability might be limited to only $50,000 under the conditional receipt, it was going to pay the $250,000 maximum provided thereunder. On October 10, 1995, Farm Bureau tendered a check for $250,000 to Gary Seastrom and Jo Ann Jacobsen along with a refund of $4,517.44 of the premium Gary had paid. Gary and Jo Ann claim their acceptance of the check was contingent upon their filing a release of all claims against Farm Bureau. Farm Bureau disputes this. The Seastroms rejected the check.

Gary and Jo Ann subsequently filed suit against Farm Bureau, Lewis, and Brinkman, raising numerous claims including breach of contract, express and implied warranty, negligent and fraudulent misrepresentation, first-party bad faith, and a request for punitive damages.² Farm Bureau filed a petition for a declaratory judgment seeking a determination of its liability under the conditional receipt. The actions were consolidated.

Immediately before trial, Gary and Jo Ann settled with Brinkman and their claims against him were dismissed.³ Farm Bureau argued the release of any claims against an agent operates as a release of the claims against the principal and the plaintiffs' remaining claims against it should be dismissed. The trial court rejected this argument distinguishing between situations in which a principal's liability is contractual and those in which it is based solely upon vicarious liability.

Several of the plaintiffs' claims were disposed of by motions for summary judgment and directed verdict, and only the breach of contract, bad faith, and punitive damages claims were submitted to the jury. The jury found there had been an oral contract for insurance in the amount of $350,000, and the conditional receipt did not constitute a written contract for insurance benefits on Alice's life. The jury further found the plaintiffs had proven Farm Bureau had conducted itself in bad faith in denying their claim and it awarded $5000 to Jo Ann and $7500 to Gary.⁴ Finally, the jury found Farm Bureau's conduct constituted a willful and wanton disregard for the rights of others and it awarded the plaintiffs $87,500 in punitive damages.

Farm Bureau filed a combined motion for judgment notwithstanding the verdict and new trial. The district court denied the motion with respect to the contract and bad faith claims, but vacated the award of punitive damages.

Farm Bureau has appealed claiming the trial court erred in failing to rule the plaintiffs' release of Brinkman operated as a release of Farm Bureau, in admitting parol evidence, and in failing to direct a verdict or grant a new trial on the breach of contract and bad faith claims. The plaintiffs have cross-appealed, arguing the trial court erred in vacating the jury's award of punitive damages.

II. Release of Brinkman

We first address the contention that the plaintiffs' settlement with Brinkman operated as a release of their claims against Farm Bureau. In arguing Brinkman's release absolved it of any further liability, Farm Bureau relies on Biddle v. Sartori Memorial Hospital, 518 N.W.2d 795, 799 (Iowa 1994), a case in which we held a plaintiff's release of a malpractice claim...