Stewart v. Gulf Guar. Life Ins. Co., 2000-CA-01511-SCT.

• Citation: 846 So.2d 192
• Decision Date: 15 August 2002
• Docket Number: No. 2000-CA-01511-SCT.,2000-CA-01511-SCT.
• Parties: Carol D. STEWART v. GULF GUARANTY LIFE INSURANCE COMPANY.
• Court: United States State Supreme Court of Mississippi

846 So.2d 192

Carol D. STEWART v. GULF GUARANTY LIFE INSURANCE COMPANY.

No. 2000-CA-01511-SCT.

Supreme Court of Mississippi.

August 15, 2002.

Rehearing Denied May 29, 2003.

Michael S. Allred, Jackson, J. Hal Ross, Brandon, Kathleen H. Eiler, Jackson, Mark K. Tullos, Raleigh, Attorneys for Appellant.

David Garner, Batesville, Attorney for Appellee.

EN BANC.

SMITH, P.J., for the Court.

¶ 1. Carol D. Stewart ("Stewart") filed this action in the Circuit Court of Smith County on August 29, 1996, against Gulf Guaranty Life Insurance Company ("Gulf Guaranty") based on Gulf Guaranty's denial of benefits under two credit disability insurance policies issued to Stewart. Stewart asserted claims for breach of contract, breach of the duty of good faith and fair dealing, and fraud.

¶ 2. The case was tried before a jury, and the jury returned a verdict in favor of Stewart. The jury awarded damages of $3,500 for breach of contract and $500,000 for emotional distress. Upon submission of the issue of punitive damages to the jury, the jury awarded $500,000. Circuit Judge Robert G. Evans entered final judgment on the jury verdict on May 18, 2000.

¶ 3. Gulf Guaranty filed a motion for judgment notwithstanding the verdict, or in the alternative, for a new trial, or in the further alternative, for a remittitur. The trial court denied the motion as to the damages for breach of contract, but remitted the damages for emotional distress to $50,000 and granted a JNOV as to punitive damages. Final judgment was entered as amended on August 16, 2000. From this amended judgment, Stewart appeals. Stewart asks this Court to reverse the trial court's remittitur and judgment notwithstanding the verdict and to reinstate the jury's award of damages with interest and costs. Gulf Guaranty has not cross-appealed.

¶ 4. We affirm the jury verdict and judgment of $3,500 contractual damages. However, we find that the trial judge erred in granting a supposed remittitur which in actuality was the grant of a partial JNOV. We, therefore, reinstate the jury award of $500,000 for emotional distress.

¶ 5. We also hold that the trial court erred in granting a JNOV as to punitive damages. Sufficient evidence was presented to the jury whereby the jury could have reasonably concluded gross negligence due to Gulf Guaranty's conduct. The jury award of $500,000 punitive damages is reinstated.

FACTS ¶ 6. On August 2, 1995, Stewart went to the Community Bank of Raleigh, Mississippi, to obtain a loan in the amount of $711.12. The loan officer, Mike Stubbs, offered Stewart credit life and disability insurance on the loan. The insurance offered to Stewart was issued pursuant to a group policy issued by Gulf Guaranty to Community Bank. Pursuant to its agreement with Gulf Guaranty, Community Bank retained 45% of the premiums collected as commission for offering the insurance to is customers.¹ Customers purchasing the insurance were not given copies of the master policy between Gulf Guaranty and Community Bank, but they should have received a certificate of insurance, which contained the terms of the policy.²

¶ 7. Stewart testified that when Stubbs offered him the insurance, he asked Stubbs "what did it pay," to which Stubbs responded that the insurance would make the loan payments if Stewart became sick or disabled. Stubbs did not ask Stewart any questions about his health and did not explain anything about the terms of the policy to Stewart. Though Stewart initialed the provision on the loan documents stating that he wished to purchase the insurance, he was not asked to complete or sign the insurance application, which contained health-related questions.

¶ 8. Stewart returned to Community Bank on March 5, 1996, to obtain another loan in the amount of $4,005.18. Raymond McAlpin, the loan officer, testified that Stewart requested the insurance, while Stewart testified that McAlpin offered the insurance to him. Regardless, Stewart again accepted the insurance. McAlpin did not ask Stewart any health questions, nor did he require Stewart to sign an application for insurance. McAlpin did not explain any of the terms of the policy to Stewart. McAlpin testified that it was not the practice of the bank to go over the terms of the policy with its customers, but that the bank would answer questions if the customer had any. ¶ 9. Stewart, who has only an eighth-grade education, is illiterate. Stewart's testimony is inconsistent as to whether he actually received the certificates of insurance, which contain the policy terms. McAlpin testified that it was the practice of the bank to place the certificate, along with a copy of the bank note, in an envelope to be given to the customer. Stewart initially testified that he received no papers to take home from the bank on either of two occasions. However, Stewart testified on cross-examination that he did not know whether he received a copy of the certificate. He stated that he did receive an envelope of documents at the bank, but that he never opened the envelope. Stewart's wife, who was present when the second loan was made, testified that they were given an envelope containing documents, but that neither looked in the envelope after arriving home.

¶ 10. Stewart, who was diagnosed with spinal arthritis in 1994, became permanently disabled in June 1996. Stewart filed a claim with Gulf Guaranty on August 20, 1996. On the claim form, Stewart's attending physician, Dr. Charles Pruitt, stated, "Due to the arthritis, he will not be able to hold a job (he is permanently disabled)." Dr. Pruitt stated on the form that he had been treating Stewart for his condition since 1990. There is no dispute that Stewart's condition was preexisting.

¶ 11. Ellen Methvin, vice president of Gulf Guaranty and the sole person responsible for handling claims for the company, denied Stewart's claim by letter dated August 21, 1996. As basis for the denial, the letter cited the preexisting condition exclusion contained in the policy and set forth on the certificate of insurance. The letter also stated, "As your doctor has stated that your disability is permanent and as it is not covered under your policy, we will be happy to give you a complete disability premium refund upon your written request." Stewart did not request a refund.

¶ 12. In his complaint, Stewart alleged breach of contract, breach of the duty of good faith and fair dealing, and fraud. The crux of Stewart's argument at trial was that Gulf Guaranty had illegally taken a policy that had been approved by the Department of Insurance as one requiring underwriting and converted it, by not requiring the insured to answer the questions on the application, to a guaranteed issue policy. Stewart argued that the terms of the policy, as written and as applied, were inconsistent and allowed Gulf Guaranty to increase profits by facilitating the collection of premiums in cases where the insured, in this case, Stewart, was actually uninsurable, and where no benefits would be paid by virtue of the preexisting condition exclusion. Stewart alleged that this practice resulted in post-claims underwriting.

¶ 13. The master policy issued to Community Bank states that the contract includes "the policy, the application, any endorsements, and the ... copies of the individual certificates." The master policy contained the following exclusion for pre-existing conditions:

The disability insurance coverage under this Policy does not cover total disability contributed to or caused by: (1) injury which was intentionally inflicted on the Insured Debtor by himself; (2) pregnancy, childbirth, or any complications thereof; and (3) pre-existing illness, disease or physical condition for which the Insured Debtor either: (a) knew the existence of such illness, disease or condition on the effective date, or (b) received medical advice, consultation or treatment during the twelve (12) month period immediately preceeding the Date of Loan.

(emphasis added). This exclusion was also contained on the back of the insured debtor's certificate of insurance.³ However, the exclusion was typed in 6-point print rather than the requisite 10-point print.⁴

¶ 14. The application, which was found on the back of Gulf Guaranty's copy of the certificate, contained questions regarding the insured debtor's health. The application stated:

1. Have you ever had or been told that you had (a) cancer, (b) a heart attack, or (3) angina pectoris?

2. Have you had any other sickness, accident, impairment or health for which you have received advise, diagnosis, or treatment from a physician or other health official within the last three years?

If (1) or (2) is YES; who is the doctor who can give us the most up-to-date report about your health?

(emphasis added). At the bottom of the application was a place for the signature of the insured debtor as well as the agent.

¶ 15. Stewart was not required to answer the questions on the application and was never shown the application. Raymond McAlpin testified that he was not even aware the application was on the back of the certificate and that Gulf Guaranty had never required the bank to fill out the application.

¶ 16. Harland Dyer, an actuary for the Mississippi Department of Insurance, testified that the policy, as approved by the Department, did not appear to be a guaranteed issue policy. Dyer testified that the language of the policy itself indicated that it was a policy which contemplated that the risks insured thereby would be underwritten. First, the application contained health related questions, commonly used to aid insurance companies in underwriting a policy. Second, the policy and certificate contained a provision titled "Right of Cancellation," which stated:

The Company may cancel or decline the insurance on any Insured Debtor by writing to the Creditor and returning the premium paid for such insurance coverage within ninety days of the Date of Loan. If the Insured Debtor dies within ninety

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