Walston v. Monumental Life Ins. Co.

• Decision Date: 29 August 1996
• Docket Number: No. 22153,22153
• Citation: 129 Idaho 211,923 P.2d 456
• Parties: James Russel WALSTON, individual, Plaintiff-Respondent, v. MONUMENTAL LIFE INSURANCE COMPANY, Defendant-Appellant. . Boise, April 1996 Term
• Court: Idaho Supreme Court

Page 456

923 P.2d 456

129 Idaho 211

James Russel WALSTON, individual, Plaintiff-Respondent, v. MONUMENTAL LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 22153.

Supreme Court of Idaho.

Boise, April 1996 Term.

Aug. 29, 1996.

Quane, Smith, Howard & Hull; Givens, Pursley & Huntley, Boise; Sonnenschein, Nath & Rosenthal, Chicago, IL, for appellant. Robert Huntley, Jr. and Alan H. Sliberman argued.

Kenneth L. Pedersen, Twin Falls, for respondent.

SCHROEDER, Justice

Following trial a jury awarded James Walston, an insured in a cancer insurance policy, $3,800 for a breach of contract, $120,000 for damages arising from fraud and bad faith denial of benefits and $10,000,000 in punitive damages. The trial court sustained the verdict on all counts but reduced the punitive damages to $3,200,000 in response to an alternative motion for judgment notwithstanding the verdict, new trial, or remittitur. Monumental Life Insurance Company appeals.

I. BACKGROUND AND PRIOR PROCEEDINGS

Monumental Life Insurance Company (Monumental) sent James Walston (Walston) a solicitation to purchase a cancer expense insurance policy. The solicitation was under the auspices of a Masonic organization and consisted of a two-page promotional pamphlet and a letter composed by Monumental with the signature of the Sovereign Grand Commander of the Supreme Council of the Scottish Rite Brotherhood. The Masonic organization received a payment of $100,000 for use of its name. The brochure contained samplings of policy benefits which indicated limited coverage.

Walston did not read the part of the brochure describing the specific benefits payable. He read and relied upon two parts of the brochure: (1) a headline saying the policy provided "lifetime benefits of up to $250,000" and describing it as a "high-limit" policy, and (2) a set of questions and answers stating, among other things, that benefits were payable regardless of whether other policies or plans provided benefits for the same services. Walston testified that the "lifetime benefits of up to $250,000" caught his eye because the print was in "big black letters."

Walston completed an application for the Monumental policy and signed a statement indicating that, "to the best of [his] knowledge and belief, no person to be insured under this coverage has been treated for any type of cancer for the past five years." The application was dated January 25, 1991. Walston's wife had undergone a second mastectomy for breast cancer on January 10, 1986, just fifteen days outside the five-year period. She then made two follow-up visits to her surgeon on January 31, 1986, and May 25, 1986, both within the five-year period. Walston submitted the application with a $36 quarterly premium. Monumental then issued a certificate of insurance.

In February of 1991, approximately one month after Walston applied for the policy, his wife was diagnosed with lung cancer from which she died on July 11, 1991. Her medical expenses totaled approximately $41,000.

All but $3,000--$4,000 was paid by Medicare and another insurer's Medicare supplemental policy.

Mr. Walston submitted a claim to Monumental for medical services rendered from February 19, 1991, through June, 1991. Mrs. Walston's treatment called for $3,800 in benefits under the terms of the policy. Due to the short time between the application and the diagnosis, a Monumental adjuster checked on whether the cancer involved a pre-existing condition. There was not a pre-existing condition, but the investigation did reveal that Mrs. Walston had follow-up visits within the five-year period before the application. Monumental determined that the post-operative visits constituted treatment and, therefore, considered Mrs. Walston to have been under treatment for cancer from January 6, 1985, to May 25, 1986. Monumental concluded that the representation made by Walston on the application had been false and rescinded the policy.

Walston challenged the characterization of these post-operative visits as "treatment." Monumental persisted in its position that the visits were properly characterized as treatment despite information that they were only check-ups on her condition. Walston sued Monumental, alleging breach of contract, bad faith denial of benefits and rescission of contract, and fraud.

James L. Wadhams, a former Nevada insurance official, was permitted to testify that the mailing sent to Walston violated Idaho insurance department advertising regulations and was designed to deceive. Wadhams testified that advertising the policy as a "high-limit" policy and referencing the $250,000 aggregate limit was misleading because of the internal limits on individual benefits contained within the policy which in fact made it a low-limits policy. It was virtually impossible to reach the overall limit advertised in the policy. In his view the $250,000 limit advertised bore "no relationship to the benefits that will be paid" and violated a regulation limiting use of words or phrases such as "all," "full," "complete," "comprehensive," "unlimited," "up to," and "as high as." Wadhams was also critical of advertising information which implied that this was a special offer that must be acted on in a limited time and the implication in the advertising literature that the policy would pay the cost of simple stage one cancer at a cost of more than $22,000. Additionally, he testified that describing policy limitations in a positive manner so as to imply that they were benefits violated insurance department regulations.

Wadhams testified that the denial of benefits on the basis that Mrs. Walston had undergone treatment within five years was improper, because Monumental imposed an unusual and strained interpretation on the term treatment. He described the way the policy was advertised and adjusted as an extreme deviation of reasonable standards of conduct.

Evidence at trial indicated that Monumental's practices in this case were consistent with its usual way of doing business. The advertisements were mass mailed. The denial of benefits was approved by upper management. Management of Monumental did not see any problem with its conduct and intended to continue doing business in the same manner.

The jury rendered a verdict in favor of Walston, answering the questions propounded as follows:

1. Did defendant breach its contract of insurance with plaintiff? Answer: Yes.

2. If you answered "yes" to question No. 1, what is the amount of damages owed to plaintiff as a result of defendant's breach of contract? Answer: $3,800.00.

3. Did the promotional material provided by defendant to plaintiff relating to a Scottish Rite Group Cancer Expense Protection Plan contain intentional fraudulent misrepresentations? Answer: Yes.

4. Did plaintiff reasonably rely on the misrepresentations in electing to purchase the insurance? Answer: Yes.

5. If you answered "yes" to question Nos. 3 and 4, did the plaintiff suffer damages as a proximate result of the fraudulent conduct? Answer: Yes.

6. Did defendant breach its duty of good faith and fair dealing in its handling of plaintiff's claim? Answer: Yes.

7. If you answered "yes" to question Nos. 5 or 6, what is the additional damage suffered by plaintiff on account of defendant's intentional breach of the duty of good faith and fair dealing and/or fraud? Answer: $120,000.00.

8. Was the conduct of defendant an extreme deviation from the standards of reasonable conduct warranting the imposition of punitive damages? Answer: For fraud? Yes. For breach of duty of good faith and fair dealing? Yes.

9. If you answered "yes" to either part of question No. 8, what is the amount of punitive damages you assess against the defendant? Answer: $10,000,000.00.

The district judge entered judgment in favor of Walston in the amount of $10,123,800 and subsequently awarded pre-judgment interest on the $3,800 amounting to $1,191.75. Thereafter, the district court denied a motion by Monumental for a judgment notwithstanding the verdict for the fraud claim. The court found that "the jury could have found the evidence, presented by the plaintiff, indicated that it would be virtually impossible to reach the lifetime maximum.... While the value of the policy was $250,000, in a theoretical sense, the jury clearly found the representation of value on the brochure was intended to create a belief that the policy would be far more valuable to the consumer than it actually was, considering the actual payment limitation."

The district court also determined that there was sufficient evidence presented at trial to support the claim for bad faith, concluding that "there was sufficient evidence presented for reasonable minds to find that Monumental unreasonably failed to settle Walston's claim." The court declared that the damages allowed in a bad faith action are akin to the damages allowed in an intentional infliction of emotional distress claim.

The district court relied upon Cuddy Mountain Concrete Inc. v. Citadel Constr. Inc., 121 Idaho 220, 824 P.2d 151 (Ct.App.1992), for factors in determining the appropriateness of punitive damages, referencing the following factors:

In addition to oppressive behavior in a business context, there are other factors which play a determinative role in deciding whether there is substantial evidence of an extreme deviation from standards of reasonable conduct: (1) the presence of expert testimony; (2) whether the unreasonable conduct actually caused harm to the plaintiff; (3) whether there is a special relationship between the parties, as in the Garnett insured-insurer relationship; (4) proof of a continuing course of oppressive conduct; and (5) proof of the actor's knowledge of the likely consequences of the conduct.

Cuddy Mountain, 121 Idaho at 229-30, 824 P.2d at 160-61. The trial court determined that these factors were present and denied the motion for judgment notwithstanding the verdict on the issue of punitive damages. Id. at 230, 824 P.2d at 161.

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