St. Joseph's Hosp. and Medical Center v. Reserve Life Ins. Co.

• Decision Date: 03 September 1987
• Docket Number: No. CV,CV
• Parties: ST. JOSEPH'S HOSPITAL AND MEDICAL CENTER, an Arizona corporation, Plaintiff/Appellee/Cross-Appellant. v. RESERVE LIFE INSURANCE COMPANY, a Texas corporation; United Chambers Administrators, an Illinois corporation; and United Chambers Insured Plans, Defendants/Appellants/Cross-Appellees. 86-0414-PR.
• Court: Arizona Supreme Court

Page 808

742 P.2d 808

154 Ariz. 307

ST. JOSEPH'S HOSPITAL AND MEDICAL CENTER, an Arizona corporation, Plaintiff/Appellee/Cross-Appellant. v. RESERVE LIFE INSURANCE COMPANY, a Texas corporation; United Chambers Administrators, an Illinois corporation; and United Chambers Insured Plans, Defendants/Appellants/Cross-Appellees.

No. CV 86-0414-PR.

Supreme Court of Arizona,

In Banc.

Sept. 3, 1987.

Gammage & Burnham by Richard B. Burnham and Richard K. Mahrle, Phoenix, for St. Joseph's. Gene G. Gulinson, Scottsdale, for Reserve Life/United chambers.

CAMERON, Justice

I. Jurisdiction

St. Joseph's Hospital and Medical Center (St. Joseph's) petitioned this court for review of a court of appeals' decision and opinion, St. Joseph's Hospital and Medical Center v. Reserve Life Insurance Co., 154 Ariz. 303, 307, 742 P.2d 804, 808 (App.1986), reversing jury awards against Reserve Life Insurance Company, United Chambers Administrators and United Chambers Insured Plans (collectively referred to as "United Chambers") for negligent misrepresentation, promissory estoppel, and insurance bad faith. We have jurisdiction pursuant to Arizona Constitution, article VI, § 5(3); 17A A.R.S. Ariz.R.Civ.App.P., Rule 23.

II. Issues

We answer the following questions on review: ¹

1. Was there sufficient evidence to support the jury's verdict on negligent misrepresentation?

2. Was there sufficient evidence to support the jury's verdict on estoppel?

III. Facts

On 1 September 1981, George Montney, with the help of his business partner, David Holland, filled out an application for a group health insurance policy with United Chambers. Although no medical examination was required, the application form requested certain medical information, i.e., height and weight, any doctors consulted within past five years, and any injury, sickness, treatment and results. Montney listed his height as 5'11"'' and weight as 200 pounds. For doctors consulted, he listed only "Dr. Brite," for a physical and blood test.

Also on 1 September 1981, Montney consulted with Dr. Goldberger, an internist. Montney weighed approximately 240 pounds and was 5'9 1/2"'' tall. Dr. Goldberger found a large mass in Montney's abdomen and another in his right thigh which was visible as well as palpable. Dr. Goldberger made an appointment the next day for Montney with a cancer specialist, Dr. Hood Franks.

Upon receipt of Montney's application, United Chambers issued a policy, effective 1 September 1981. United Chambers sent Montney a validation of coverage, a copy of the application, a certificate booklet, and an insurance information card. United Chambers instructed the insured to review the application and to notify United Chambers of any erroneous information. Montney never supplemented nor corrected the information in his application.

Dr. Franks diagnosed Montney as having chronic myelogenous leukemia. Montney was first treated by St. Joseph's on 8 September 1981 as an outpatient. On 14 October 1981, Montney was admitted to St. Joseph's on an emergency basis. To the hospital personnel upon admission, Montney stated that he had health insurance through United Chambers and presented his insurance information card. Printed on the back of the information card was:

NOTE TO HOSPITAL

If you wish to obtain claim forms--or verify coverage --please call or write the employer or service office named on the other side of this card.

(Emphasis added.)

The service office listed on the card's reverse side was Charles Maher & Assoc. (Charles Maher), Wheat Ridge, Co. at 1-800-525-8213.

The hospital's insurance verifier, Jean Schlect, used this information to contact the office of Charles Maher. Schlect told the insurance office's employee that Montney had been hospitalized and diagnosed as having leukemia, and asked whether he had coverage. Charles Maher's employee verified that a policy for Montney was in effect with a $100 deductible, 80% coinsurance to $5,000, then 100% to $1 million, but did not relay any information regarding conditions on Montney's coverage.

United Chambers received St. Joseph's bill for Montney's October hospitalization on 11 November 1981. On 1 December, United Chambers wrote Montney asking for an attending physician's statement. The statement was received by United Chambers on 16 December 1981. On 23 December, United Chambers asked St. Joseph's to send Montney's records for the October hospitalization. Additional information was also requested from Dr. Goldberger. Later, a postcard was sent to St. Joseph's stating that United Chambers was seeking physician's records in addition to the hospital records.

Montney again was admitted to St. Joseph's on 4 January 1982; he stayed through 2 April 1982. On 5 January, Schlect contacted Charles Maher to verify coverage and received the same policy information as before.

When no payment had been made on Montney's bill for his October hospitalization as of 12 February 1982, Dorothy Diggins, a financial counselor from St. Joseph's, contacted the head office of United Chambers, in Illinois, to inquire as to the bill's status. On 16 February, United Chambers advised St. Joseph's that the claim was pending for information requested from Dr. Bright. Dr. Bright's records were received on 15 March. On 17 March, United Chambers wrote to a physician identified in Dr. Bright's records as having seen Montney prior to 1 September 1981. On 5 April, Diggins again contacted United Chambers to inquire about payment and received verification of Montney's coverage. On 12 April, Diggins was informed that United Chambers was still awaiting information from a doctor.

On 5 May, United Chambers wrote a letter to Montney rescinding his insurance policy. United Chambers stated that had Montney disclosed his true height and weight, the policy would not have been issued. Montney received the letter on 10 May, the same day he was readmitted to St. Joseph's. Nevertheless, when Schlect telephoned to verify Montney's coverage on 11 May, she again received the same coverage information as before. On 12 May, however, United Chambers advised St. Joseph's that Montney's policy had been rescinded. Montney died on 11 June 1982.

St. Joseph's sued United Chambers for the services rendered Montney. The jury returned a verdict for United Chambers on a breach-of-contract claim but returned a verdict for St. Joseph's for negligent misrepresentation, promissory estoppel and insurance bad faith. The jury awarded $93,162.11 in compensatory damages to St. Joseph's for services rendered and $9,316.00 in punitive damages on the bad faith claim. The trial court, however, partially granted United Chambers' motion for judgment n.o.v. and reduced the award by the amount of charges incurred during the last hospital admission, approximately $27,000. United Chambers appealed to the court of appeals.

The court of appeals reversed the judgment for both compensatory and punitive damages, holding that there was insufficient evidence of either negligent misrepresentation or promissory estoppel and that the doctrine of bad faith does not extend to benefit third parties. We granted the hospital's petition for review of the opinion of the court of appeals concerning the issue of negligent misrepresentation and promissory estoppel but denied review as to the issue of insurance bad faith. We agree with the court of appeals' holding that the evidence was insufficient as a matter of law to support a judgment for bad faith and punitive damages. The evidence presented not only failed to establish a claim of bad faith under the standard enunciated in Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 723 P.2d 675 (1986), but also failed to support a judgment for punitive damages. ²

IV. Discussion

Where the sufficiency of the evidence to sustain a jury's verdict is questioned on appeal from the judgment entered thereon, we must, under well-established rules, resolve every conflict in the evidence and draw every reasonable inference in favor of the prevailing party. McFarlin v. Hall, 127 Ariz. 220, 224, 619 P.2d 729, 733 (1980); Harvey v. Kellin, 115 Ariz. 496, 498, 566 P.2d 297, 299 (1977). We must view the evidence in a light most favorable to sustaining the verdict and if there is any substantial evidence from which reasonable men could have found ultimate facts to be such as will sustain the verdict, the judgment will be affirmed. McFarlin, 127 Ariz. at 224, 619 P.2d at 733; Siegrist v. Carrillo, 112 Ariz. 218, 222, 540 P.2d 690, 694 (1975).

We, therefore, consider whether St. Joseph's presented evidence sufficient to sustain the judgments entered on the jury's verdicts of negligent misrepresentation and estoppel.

1. Negligent Misrepresentation

The court of appeals recognized that the tort of negligent misrepresentation "is committed by the giving of false information intended for the guidance of others and justifiably relied upon by them causing damages if the giver of the false information fails to exercise reasonable care or competence in obtaining or communicating the information." 154 Ariz. at 305, 742 P.2d at 806.

In holding that St. Joseph's had insufficient evidence to support a claim of negligent misrepresentation, the court of appeals stated that "the only duty owed by United Chambers was to give true information of existing facts known to it in response to the request. This it did." United Chambers, the court of appeals stated, was under no obligation to comply with St. Joseph's time-table in completing its investigation and determining its liability to Montney for payment of his expenses. In addition to finding no breach of duty, the court of appeals held that the "hospital's assumption that payment would be made because a policy was issued was not justifiable reliance upon the information requested and obtained." At 306, 742 P.2d at 807. We disagree.

Arizona recognizes the tort of negligent misrepresentation. See Van Buren v. Pima Community College District...