Sparks v. Republic Nat. Life Ins. Co., 15488

Decision Date10 June 1982
Docket NumberNo. 15488,15488
Citation132 Ariz. 529,647 P.2d 1127
PartiesCalvin C. SPARKS and Suzanne Sparks, husband and wife, Appellees, v. REPUBLIC NATIONAL LIFE INSURANCE COMPANY, a Texas corporation; American Life Pension Health Associates Corporation, an Iowa corporation, dba Alpha Corporation, Planned Security Trust, a trust, Appellants.
CourtArizona Supreme Court
Holland & Postal by Robert W. Holland, Phoenix, for appellants

Jennings, Strouss & Salmon by William T. Birmingham, Richard B. Burnham and Ted A. Schmidt, Phoenix, for appellees.

HAYS, Justice.

This is an appeal by defendants Republic National Life Insurance Company (Republic), American Life Pension Health Associates Corporation (ALPHA), and Planned Security Trust (PST), from a verdict and judgment of the Superior Court of Maricopa County. We have jurisdiction pursuant to 17A A.R.S. Rules of Civil Appellate Procedure, rule 19(e).

In August of 1976, plaintiffs, Calvin and Suzanne Sparks, purchased an air conditioning business in Mesa, Arizona, known as Sun Valley Sales & Air Conditioning, Inc. The business was managed entirely by Calvin Sparks. In April of 1977, Calvin met with Robert Bowden, an insurance agent, in order to secure a health insurance policy for his family and the air conditioning company's employees. Bowden recommended a policy underwritten by Republic, administered by ALPHA and funded through PST. During this meeting, Bowden showed Consistent with the brochure, Bowden explained that under "Plan I" of the policy, in the event of illness or accident, an employee would pay a $100 deductible and, thereafter, full benefits of up to $250,000 per person would be paid by the insurance company for any additional covered medical expenses. The brochure was the only written document which Calvin Sparks saw before applying for the insurance. Calvin sent his first premium payment on April 1, 1977, along with his application.

Sparks a sales brochure written by ALPHA and approved by Republic. The cover of the brochure contained a headline, "Planned Security Trust", "$250,000 Comprehensive Major Medical". The remainder of the brochure explained the general provisions of the policy such as eligibility requirements, special major medical features, exclusion of coverage for preexisting conditions and occurrences which would terminate insurance. The termination of insurance section stated that insurance would be terminated for, among other things, nonpayment of premiums. The brochure also contained a prominently displayed box containing capital letters which informed the reader that a more complete description of benefits would be found in the certificate of insurance issued to insured employees. It also informed the reader that all benefits were subject to the master group policy held by PST.

Exactly one month after purchasing the insurance, Calvin, Suzanne and their three children flew to Safford to visit relatives. On the return flight to Mesa, the small passenger plane in which they were flying crashed. Calvin sustained permanent brain damage. Kevin, the Sparks' five-year-old son, was rendered a paraplegic, as well as suffering a broken jaw and several facial lacerations. Suzanne and another child received minor injuries.

Because of his injuries and resulting mental impairment, Calvin was unable to manage the air conditioning business. As a result, Sun Valley Sales went bankrupt in December of 1977. Insurance premiums were paid until December 16, 1977, when the business was closed. At that time, the defendants had paid less than $84,000 under the policy for the treatment of all four of the Sparks family injured in the accident.

In January of 1978, Suzanne received a letter from the defendants returning a premium check for underpayment. In February 1978, Suzanne received another letter from ALPHA advising her of new premium charges for the policy and thanking her for doing business with the defendants. Finally, in March 1978, defendants advised Suzanne that they would not pay any further benefits to Calvin or Kevin for expenses or treatment incurred after December 1, 1977. Defendants explained that under the provisions of the policy, when insurance coverage was terminated, defendants were no longer obligated to pay for any medical expenses for an injury or illness which occurred while the insurance was in effect.

After being informed that defendants would no longer pay any medical benefits, Suzanne reviewed the insurance policy which had been provided to her by Bowden after the accident. After reading the policy, she was unable to understand whether the policy language limited coverage as asserted by the defendants, so she referred to the sales brochure. Having read the brochure, it was her understanding that "(w)hen the business closed the insurance would no longer cover it, if we had another accident the next day. But I expected coverage for injuries incurred in the accident while the policy was in force."

Because of defendant's refusal to pay further medical benefits, Kevin was forced to forgo needed muscle release surgery on his left thigh. Although the surgery was later performed at the Arizona Children's Hospital in March 1980, the delay resulted in deformity to Kevin's left leg, leaving the leg two inches shorter than the right. Kevin was also unable to obtain braces or crutches due to defendants' refusal to pay benefits. A recent examination of Kevin revealed that his spine had become badly curved due to his confinement in a wheelchair. The Sparkses also were forced to forgo additional medical and psychological care for Calvin. Expert medical testimony On January 10, 1980, the Sparkses brought an action alleging breach of contract and various tort claims against the defendants. The plaintiffs sought past and future unpaid insurance benefits under the policy and general and punitive damages arising from defendants' alleged tortious termination of the insurance benefits. At the conclusion of an eight-day jury trial, a verdict was returned against all defendants in the amount of $1,551,000 in compensatory damages and $3,000,000 in punitive damages. The court also awarded attorney's fees to the plaintiffs in the amount of $80,000.

established that both Kevin and Calvin would need continuing treatment throughout their lives.

Defendants raise the following arguments on appeal:

1. The trial court erred by ruling that all contract rights were fixed by the terms of the sales brochure.

2. The trial court erred in instructing the jury on the tort of bad faith.

3. The trial court erred by submitting the tort theories to the jury on the basis of joint and several liability.

4. The trial court erred when it instructed the jury that defendants could be found liable in tort for violation of A.R.S. § 20-443 of the Arizona Insurance Code.

5. The trial court erred when it instructed the jury that Robert Bowden was an agent of the defendants.

6. The trial court's award of $80,000 in attorney's fees violates A.R.S. § 12-341.01 and denied defendants due process of law.


Defendants' position throughout the litigation has been that the master policy provided that the payment of medical expense benefits would cease upon termination of the insurance coverage. Defendants argue that the trial court committed reversible error by ruling that all contract rights were fixed by the terms of the sales brochure and not by the insurance contract. Plaintiffs respond by asserting that the trial court ruled that the defendants were contractually liable even if the master policy were considered alone or construed in conjunction with the brochure.

The interpretation of an insurance contract is a question of law to be determined by the Court independent of the findings of the trial court. State Farm Fire & Casualty Co. v. Rossini, 107 Ariz. 561, 490 P.2d 567 (1971). On appeal, we will sustain the trial court's ruling on any theory supported by the evidence, even though the trial court's reasoning may differ from our own. Minderman v. Perry, 103 Ariz. 91, 437 P.2d 407 (1968). The trial court instructed the jury that defendants had breached their contract with plaintiffs and did not elaborate on the reasoning behind this determination. After examining the provisions of the policy, we agree with the trial court's conclusion.

Provisions of insurance policies are to be construed in a manner according to their plain and ordinary meaning. Parks v. American Casualty Co. of Reading, 117 Ariz. 339, 572 P.2d 801 (1977). Where the language employed is unclear and can be reasonably construed in more than one sense, an ambiguity is said to exist and such ambiguity will be construed against the insurer. Ranger Insurance Co. v. Lamppa, 115 Ariz. 124, 563 P.2d 923 (App.1977). In determining whether an ambiguity exists in a policy, the language should be examined from the viewpoint of one not trained in law or in the insurance business. State Farm Mutual Auto Insurance Co. v. O'Brien, 24 Ariz.App. 18, 535 P.2d 46 (1975).

Defendants direct us to several provisions of the policy that are said to clearly and unequivocally terminate the defendants' obligation to pay insurance benefits to the plaintiffs upon nonpayment of premiums. Section 1 entitled "POLICY TERM" states: "The policy continues from its effective date as long as the premium is paid as herein agreed ..." Section 5 entitled "PERSON'S TERMINATIONS" states, in pertinent part, that the "insurance of the "When as the result of Accidental bodily injury or sickness, an Insured Person incurs Covered Expenses shown herein while this insurance is in force as to such person, the Company will pay the applicable percentage, shown in the Schedule of Benefits hereof, of such expenses incurred in excess of the Deductible Amount, not to exceed the Maximum Amount."

Insured Person shall terminate" either when the "policy is terminated" or on "the premium due date...

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