Staff Builders, Inc. v. Armstrong

• Decision Date: 06 July 1988
• Docket Number: No. 87-196,87-196
• Citation: 525 N.E.2d 783,37 Ohio St.3d 298
• Parties: STAFF BUILDERS, INC., v. ARMSTRONG, Appellee; Aetna Life Insurance Company, Appellant.
• Court: Ohio Supreme Court

Page 298

37 Ohio St.3d 298

525 N.E.2d 783

STAFF BUILDERS, INC., v. ARMSTRONG, Appellee Aetna Life Insurance Company, Appellant.

No. 87-196.

Supreme Court of Ohio.

Submitted Oct. 28, 1987.

Decided July 6, 1988.

Syllabus by the Court

1. An insurer has a duty to act in good faith in the processing and payment of the claims of its insured. A breach of this duty will give rise to a cause of action in tort against the insurer irrespective of any liability arising from breach of contract. (Hoskins v. Aetna Life Ins. Co. [1983], 6 Ohio St.3d 272, 6 OBR 337, 452 N.E.2d 1315, approved and followed.)

2. Punitive damages may be recovered against an insurer that breaches its duty of good faith in refusing to pay a claim of its insured upon proof of actual malice, fraud or insult on the part of the insurer. (Hoskins v. Aetna Life Ins. Co. [1983], 6 Ohio St.3d 272, 6 OBR 337, 452 N.E.2d 1315, approved and followed.)

In July 1982, appellee, Gertrude Armstrong, suffered a stroke requiring her hospitalization. After her discharge from the hospital on August 17, 1982, she returned to her home and received nursing care therein from that date until November 12, 1982. The nursing care provided appellee primarily during this period was supplied by Staff Builders, Inc. ("SBI"), plaintiff herein. The cost of this care amounted to $25,095.01.

Appellee is the widow of Henry Armstrong--formerly a captain in the Canton Police Department. Part of the retirement benefits provided to Henry Armstrong was medical insurance coverage for him and his wife (appellee), as beneficiaries under the group insurance contract established by the retirement plan. While the retirement benefits were part of the Ohio Retirement Systems ("ORS"), the contract of insurance was administered by Aetna Life Insurance Company (appellant herein) which exercised exclusive control over the allowance or denial of claims.

Pursuant to her nursing service contract, appellee authorized SBI, through an assignment of benefits clause, to seek reimbursement from Aetna for the cost of services rendered on her behalf. Any invoices for nursing care were therefore sent directly to Aetna. No copies of invoices were sent to appellee. During the course of her care, appellee was assured by SBI that coverage by Aetna would be at the rate of eighty percent for the initial $500 of care and at the rate of one hundred percent thereafter. This impression was further confirmed by letters from Aetna to appellee providing an "Explanation of Benefits" and including a statement that "[n]o action is required of you [appellee] at this time." SBI subsequently billed appellee $25,095.01 for the services rendered. On or about November 11, 1982, appellee was notified that there was a problem with the coverage. Shortly thereafter the contract with SBI was terminated. On November 23, 1982, Aetna finally informed appellee that the care provided by SBI would not be covered.

As a result of the denial of coverage by Aetna and the previously incurred expenses of appellee, SBI, on April 22, 1983, instituted the present action for services rendered. Appellee thereafter counterclaimed against SBI and interposed a third-party complaint against Judy Potts, an agent for SBI, alleging negligent misrepresentation by SBI and Potts with respect to coverage under the health plan. SBI subsequently amended its complaint (naming Aetna as a party defendant), whereupon appellee filed a cross-claim against Aetna for breach of the insurance contract and tortious failure to pay charges incurred thereunder. Appellee also sought punitive damages and later amended her cross-claim to include an expanded claim of bad faith.

Appellee's counterclaim against SBI and her third-party complaint against Potts were dismissed by the trial court on June 11, 1985. On June 24, 1985, the trial court entered summary judgment for Aetna on the amended complaint filed against it by SBI.

Trial was held on the remaining claims. During trial, the court directed a verdict for SBI on the original complaint against appellee in the amount of $25,095.01. The case was submitted to the jury on the cross-claim of appellee against Aetna. The jury returned a verdict awarding appellee $35,000 in compensatory damages for breach of the insurance contract, $50,000 in compensatory damages for breach of Aetna's duty to act in good faith and $125,000 in punitive damages. The jury also responded in the affirmative to an interrogatory propounded by Aetna regarding whether the care provided by SBI was primarily custodial in nature. Prior to discharging the jury, the trial court inquired of counsel whether they wished to note anything about the verdict for the record. Both sides responded in the negative. However, Aetna did ask that the jury be polled. The jury was thereafter dismissed. The verdicts were duly filed on November 27, 1985, but no judgment was entered thereon. Rather, on November 29, 1985, the trial court directed counsel to brief the issue of any perceived inconsistency between the verdict and the jury response to the interrogatory. Thereafter, the common pleas court rendered a decision, ostensibly pursuant to Civ.R. 49(B), whereby a new trial was ordered. The basis for this order was that the verdict and the jury response to the interrogatory were inconsistent. On January 21, 1986, appellee appealed this determination to the court of appeals which reversed.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Michael P. Zirpolo and Stanley R. Rubin, Canton, for appellee.

Day, Ketterer, Raley, Wright & Rybolt, John A. Murphy, Jr., and Matthew Yackshaw, Canton, for appellant.

SWEENEY, Justice.

The instant appeal seeks to challenge the jury award of compensatory damages for breach of contract and further seeks to challenge the jury award of compensatory and punitive damages for bad faith on the part of appellant in processing the insurance claim of appellee. At the outset, however, it is necessary to consider whether the vacation of the jury verdict by the trial court because of its perceived inconsistency with the response to the interrogatory was erroneous.

I

Civ.R. 49(B) governs the submission of interrogatories to juries and the effect, if any, the responses thereto have on the verdict. It provides:

"The court shall submit written interrogatories to the jury, together with appropriate forms for a general verdict, upon request of any party prior to the commencement of argument. Counsel shall submit the proposed interrogatories to the court and to opposing counsel at such time. The court shall inform counsel of its proposed action upon the requests prior to their arguments to the jury, but the interrogatories shall be submitted to the jury in the form that the court approves. The interrogatories may be directed to one or more determinative issues whether issues of fact or mixed issues of fact and law.

"The court shall give such explanation or instruction as may be necessary to enable the jury both to make answers to the interrogatories and to render a general verdict, and the court shall direct the jury both to make written answers and to render a general verdict.

"When the general verdict and the answers are consistent, the appropriate judgment upon the verdict and answers shall be entered pursuant to Rule 58. When one or more of the answers is inconsistent with the general verdict, judgment may be entered pursuant to Rule 58 in accordance with the answers, notwithstanding the general verdict, or the court may return the jury for further consideration of its answers and verdict or may order a new trial." (Emphasis added.)

While the text of this rule appears to allow a trial court to sua sponte order a new trial where the verdict and the answers to the interrogatories are inconsistent, the court of appeals below held that the authority of the trial court to do so is conditioned upon the interposition of an objection by a party to the litigation.

However, we expressly decline to resolve the issue on this basis. Rather, we conclude that the trial court erred in determining that an inconsistency existed. The interrogatory propounded by Aetna provided:

"Do you find by a preponderance of the evidence that the services rendered by Staff Builders, Inc., was [sic ] primarily for custodial care? For purposes of answering this question, the term custodial care means care comprised of services which are provided to an individual, whether disabled or not, primarily to assist her in the activities of daily living. Such services are custodial care without regard to the practitioner or provider by whom or by which they are prescribed, recommended or performed."

In contrast, the contract of insurance provided an exclusion for custodial care. Custodial care was defined in Section 1, Article I of the contract as follows:

"(z) The term 'custodial care' means care comprised of services and supplies, including room and board and other institutional services, which are provided to an individual, whether disabled or not, primarily to assist him in the activities of daily living. Such services and supplies are custodial care without regard to the practitioner or provider by whom or by which they are prescribed, recommended or performed."

Thus, the exclusion applied only when custodial care was solely provided. Custodial care was defined as that service designed to assist in the performance of activities of daily living. Therefore, the jury interrogatory did not find that the care provided by SBI was custodial but, at best, primarily custodial. Inasmuch as the terms of the contract did not exclude blended services (i.e., partially custodial, partially professional), this interrogatory would not apply to the facts of this case. Any answer to the interrogatory would therefore not govern a determinative issue in the case as required by Civ.R. 49(B) since an affirmative answer thereto would only mean that the...