Sprague v. Equifax, Inc.

• Citation: 166 Cal.App.3d 1012,213 Cal.Rptr. 69
• Court: California Court of Appeals
• Decision Date: 16 April 1985
• Parties: Elmer SPRAGUE, Plaintiff and Cross-Appellant, v. EQUIFAX INC., et al., Defendants and Appellants. Civ. B004367.

Page 69

213 Cal.Rptr. 69

166 Cal.App.3d 1012

Elmer SPRAGUE, Plaintiff and Cross-Appellant, v. EQUIFAX INC., et al., Defendants and Appellants.

Civ. B004367.

Court of Appeal, Second District, Division 4, California.

April 16, 1985.

Cosgrove, Cramer, Rindge & Barnum, J.D. Barnum, and L.P. McElhaney, Los Angeles, for defendants and appellants.

G. Dana Hobart, Marina Del Rey, Leonard Sacks, Encino, for plaintiff and cross-appellant.

ARGUELLES, Associate Justice.

Defendants and appellants, Equifax, Inc. and Equifax Services, Inc. (appellants) have appealed from the judgment on special verdict entered after a two and one-half month jury trial, finding that they engaged in a conspiracy to fraudulently deny insurance benefits to plaintiff and cross-appellant, Elmer Sprague (plaintiff), and awarding plaintiff $100,000 in compensatory damages and $5 million in punitive damages. Plaintiff has cross-appealed from the order granting a new trial as to punitive damages unless plaintiff consents to a reduction of those damages from $5 million to $1 million.

We affirm on both the appeal and cross-appeal.

FACTS

The following were original defendants in this action:

Maccabees Mutual Life Insurance Company (Maccabees) was the insurer from which plaintiff obtained a policy of credit disability insurance.

TOP National Credit Union Service Company (TOP) was Maccabees' insurance claims adjuster.

Appellant Equifax, Inc. was a holding company with various subsidiaries, including appellant Equifax Services, Inc. Equifax, Inc. provided accounting, managerial, and legal services, as needed. Equifax Services, Inc. provided services to insurance companies and claims adjusters, which included investigating insurance claims and insurability of applicants and arranging medical examinations of claimants.

Charles Roath was the employee of appellants who, at TOP's request, scheduled a medical examination of plaintiff and selected the doctor for the examination.

Dr. Ernest Ramey was the physician selected by appellants to conduct a medical examination of plaintiff.

Before trial, plaintiff settled with defendants Maccabees and TOP for $375,000. During jury voir dire, plaintiff settled with Dr. Ramey for $5,000.

The events which led to this lawsuit were as follows:

In May 1975, plaintiff borrowed $21,687 from his credit union, pledging his savings as security for repayment of the loan, and naming the credit union as beneficiary of a credit disability insurance policy issued by Maccabees. Plaintiff, who was born in 1916, was 59 years old when he obtained the disability policy from Maccabees and 66 years old at the time of trial.

When he took out the policy, he was employed as a truck driver by Signal Trucking Service. He had limited formal education, having left high school in his His final assignment was making deliveries of appliances for Sears, which required loading his truck every morning with items to be delivered. On May 31, 1975, as plaintiff and his helper were lifting a dryer onto the top of a washer which they previously had loaded on the truck, plaintiff fell and injured his back. Plaintiff never returned to work after that.

                last year to join the "CCC."   He worked briefly repairing used cars for sale, then went to work for Signal Trucking Service
                

Plaintiff was first treated at the Soto Industrial Clinic, where Dr. Munro found that plaintiff had a herniated disc. In September 1975, plaintiff's workers compensation insurer had plaintiff examined by Dr. William Nelson, an orthopedic specialist, who received the reports from the Soto clinic. Plaintiff underwent several diagnostic tests, and several sets of x-rays were taken of his spine. In November 1975, he was admitted to a hospital and given a myelogram, to determine the exact condition of his spine.

After this testing, Dr. Nelson also concluded that plaintiff had a herniated disc and was totally disabled. Plaintiff was also examined by three other doctors, and, in addition, information about his medical reports and tests was available from the records of his workers compensation hearing.

Plaintiff's credit disability policy issued by Maccabees provided for payment of up to $250 per month of his loan payments in case of total disability, and defined "total disability" as follows: "... that condition resulting from injury or sickness, which prevents the insured debtor during the first 18 months from performing every duty of his occupation or employment and during any period over eighteen months, from performing any gainful occupation for which he is reasonably suited by reason of education, training or experience, and for which evidence of such total disability is provided by the debtor at reasonable intervals as may be required by the Company." (Italics added.)

The policy also provided the insurance company had the right to have physicians designated by it examine any person making a claim for benefits "when it may reasonably require."

For the first 18 months after the accident, plaintiff furnished medical reports showing his disability, and Maccabees continued to make payments on plaintiff's loan. On May 19, 1976, TOP advised plaintiff that he no longer needed to submit regular medical reports.

However, TOP later changed its claims policy. The deposition of Paul Namel, a former claims manager for TOP, provided evidence that, in the fall of 1976, TOP changed from a policy of processing disability claims as quickly as possible, to assure that credit unions would minimize their delinquency rates on loans, to a "get tough" attitude. After the "get tough" policy was instituted, Mr. Namel was instructed to terminate benefits automatically after 18 months, on the theory that a certain percentage of claimants would be disabled from performing their regular occupation, but would not be disabled from performing other work, so that they would not be entitled to benefits after the first 18 months. Only if a claimant objected to the termination of benefits would the case be handled by an individual review.

After the "get tough" claims policy was implemented, there was also a change in the interpretation by TOP of the meaning of "disabled" after the first 18 months. Before then, "gainful employment" would be employment bringing in about as much as the claimant had made before. After that time, TOP considered that it meant employment bringing in any amount, no matter how small.

TOP frequently ordered medical examinations after it adopted its tough claims policy, but had seldom done so before then.

By letter of December 9, 1976, Mr. Namel informed plaintiff that benefits were being terminated because under the definition of disability applicable after 18 months, plaintiff was no longer disabled. Plaintiff informed his workers compensation lawyer Mr. Namel then reviewed plaintiff's file and concluded that he had been diagnosed as having a herniated disc and could not return to work. On February 14, 1977, Mr. Namel wrote to plaintiff and his attorney, stating that payments had been terminated in error and were being reinstated.

who wrote to TOP demanding continuation of benefits, and stating, "I do not understand what gainful employment Mr. Sprague can do."

Believing that the information then available to TOP would not support terminating plaintiff's benefits, Mr. Namel prepared a memorandum to Loretta Ballard, a claims supervisor at TOP, which stated, in relevant part, as follows: "Loretta, please reinstate payment from 11/30/76 to 2/12/77. Payment for this period is certainly questionable. However, since we put the member on short form and then arbitrarily cut off benefits, let's complete the following: [p] Require monthly medical reports. Obtain immediate activity check. Cite claimant to doctor for independent medical exam. (Can claimant RTW [return to work] as cab driver, night watchman, et cetera? Loan expires in 1980. You should be putting the facts together to terminate on a sound basis!)"

An "activity check" meant that TOP would have an investigator perform a surveillance of plaintiff in his neighborhood in order to discover if he was in fact, disabled. Appellants never produced the results of any activity check of plaintiff.

Loretta Ballard telephoned appellants' office nearest plaintiff to arrange a medical examination pursuant to Mr. Namel's instructions. The order was placed with appellants' employee, Marietta Wilhoit.

On April 26, 1977, Mr. Roath, a field representative for appellants in the Los Angeles area, received the request to arrange a medical examination of plaintiff. Plaintiff testified that Mr. Roath telephoned to inform him that TOP wanted the examination. Plaintiff felt the examination would be a "set up," but Mr. Roath assured him that it would be fair and impartial. Plaintiff told him that the examination should not be necessary because he had been examined so many times before, but Mr. Roath told him that if he did not go for the examination, his benefits would be terminated. Mr. Roath did not recall this conversation, nor did he keep any notes.

Mr. Roath selected Dr. Ramey for the examination. Appellants had used Dr. Ramey for many such examinations, including 125 examinations in the one-year period before plaintiff was examined, and Mr. Roath himself used Dr. Ramey for many of the medical examinations he arranged. Most of Dr. Ramey's practice consisted of examining claimants on behalf of insurance companies.

Dr. Ramey diagnosed the majority of back injury claimants he examined as having lumbosacral strains, rather than herniated discs, even though many of them had the signs and symptoms of herniated discs. A herniated disc is a much more serious condition than a lumbosacral strain, and is much more likely to lead to disability.

Appellants did not ask that claimants' medical records be sent to the examining doctor unless the doctor requested them, and Mr. Roath did not remember Dr. Ramey ever requesting them. Dr. Ramey did not...