Worsham v. Provident Companies, Inc.

• Decision Date: 29 July 2002
• Docket Number: No. CIV.A.1:98CV3126RWS.,CIV.A.1:98CV3126RWS.
• Citation: 249 F.Supp.2d 1325
• Parties: Jennifer E. WORSHAM, Plaintiff, v. PROVIDENT COMPANIES, INC., and Provident Life & Accident Insurance Company, Defendants.
• Court: U.S. District Court — Northern District of Georgia

249 F.Supp.2d 1325

Jennifer E. WORSHAM, Plaintiff, v. PROVIDENT COMPANIES, INC., and Provident Life & Accident Insurance Company, Defendants.

No. CIV.A.1:98CV3126RWS.

United States District Court, N.D. Georgia, Atlanta Division.

July 29, 2002.

Order Denying Reconsideration January 22, 2003.

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David E. Tuszynski, Garland Samuel & Loeb, Betty Green Berman, Office of Betty Green Berman, Atlanta, GA, William Sims Stone, Boone & Stone, Blakely, GA, for Jennifer E. Worsham, plaintiff.

David Joel Marmins, Office of State Attorney General, H. Sanders Carter, Jr., Elizabeth Johnson Bondurant, Kenton Jones Coppage, Carter & Ansley, Atlanta, GA, for Provident Life and Accident Insurance Company, Provident Companies, Inc., defendants.

ORDER

STORY, District Judge.

Now before the Court for consideration are Defendants' Motion for Summary Judgment [63-1], Plaintiffs Second Motion To Amend Complaint [72-1], and Defendants' Motion for Leave To File Supplement to Reply Memorandum [76-1]. As a preliminary matter, the Court GRANTS Defendants' Motion for Leave To File Supplement to Reply Memorandum [76-1]. After reviewing the record and considering the parties' arguments, the Court enters the following Order.

BACKGROUND

In 1985, Plaintiff purchased a disability income policy from Provident Life & Accident Insurance Company ("Provident"), through Provident's agent, John Lagana. Provident Policy No. 6-337-657160 became effective on June 16, 1985, and was amended on June 1, 1989. The policy provided benefits in the event of a covered residual or total disability. Among the terms in the policy was an "Entire Contract" provision: "This policy with the application and attached papers is the entire contract between you and us. No change in the policy will be effective until approved by one of our officers. This approval must be noted on or attached to this policy. No agent may change this policy or waive any of its provisions." (Disability Income Policy at 13 (PL's Resp. to Defs.' Mot. for Summ. J., Ex. 1).)

In April 1996, Plaintiff submitted a claim for disability benefits based on depression and job burnout she suffered in her position as a "Human Resources Consultant." Provident paid Plaintiff disability benefits from November 1995 through March 1997. After an investigation, Provident found that an independent medical examination ("IME") of Plaintiff would be appropriate. Based on the determinations of the doctors who conducted the IME of Plaintiff, Provident denied further disability benefits. Plaintiff appealed the decision and demanded that her benefits be resumed. Thereafter, Plaintiff filed this lawsuit against Provident and its parent company, Provident Companies, Inc.¹

The Original Complaint alleged claims for breach of contract, attorneys' fees and penalty for bad faith denial of insurance claim under O.C.G.A. § 33-4-6, tort damages under O.C.G.A. § 51-12-6, and punitive damages under O.C.G.A. § 51-12-5.1. After the addition of new counsel, Plaintiff amended the complaint to abandon all of the original claims and to allege the following claims: violation of the Georgia Racketeer Influenced and Corrupt Organizations Act ("RICO"), O.C.G.A. § 16-14-4(a)-(c) (Counts I—III); fraud and deceit (Count IV); breach of covenants of good faith and fair dealing (Count V); tortious breach of contract (Count VI);² and tortious interference with property rights (Count VII). Defendants move for summary judgment on all of Plaintiffs claims.

Moreover, Plaintiff moves to amend the Complaint again to clarify that she intended to assert a breach of insurance contract claim. Plaintiff wishes to substitute Count V of the Amended Complaint for a new Count V alleging bad faith breach of insurance contract under O.C.G.A. § 33-4-6.

DISCUSSION

I. Defendants' Motion for Summary Judgment

Federal Rule of Civil Procedure 56(c) provides that a district court shall grant summary judgment if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The applicable substantive law identifies which facts are material, and a fact is not material if a dispute over that fact will not affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., All U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

When the non-moving party has the burden of proof at trial, the movant may carry its burden at summary judgment by demonstrating the absence of an essential element of the non-moving party's claim. Celotex Corp. v. Catrett, All U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether the movant has met this burden, the district court must view the evidence and all factual inferences in the light most favorable to the nonmoving party. Anderson, All U.S. at 255, 106 S.Ct. 2505; Adickes v. S. H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Clark v. Coats & Clark, Inc., 929 F.2d 604, 606 (11th Cir. 1991).

If the movant meets this burden, the non-moving party then has the burden of showing that summary judgment is not appropriate by setting forth "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). An issue is genuine when the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson, All U.S. at 248, 106 S.Ct. 2505; Thornton v. E.I. Du Pont De Nemours & Co., 22 F.3d 284, 288 (11th Cir.1994). The non-moving party cannot rely on his pleadings, but must file a response that includes other evidence showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Combs v. Plantation Patterns, 106 F.3d 1519, 1526 (11th Cir. 1997); Isenbergh v. Knight-Ridder Newspaper Sales, Inc., 97 F.3d 436, 439 (11th Cir.1996). Mere conclusory allegations and assertions are insufficient to create a disputed issue of material fact. Earley v. Champion Int'l Corp., 907 F.2d 1077, 1081 (11th Cir.1990); Pelli v. Stone Savannah River Pulp & Paper Corp., 878 F.Supp. 1559, 1565 (S.D.Ga.1995); Mack v. W.R. Grace Co., 578 F.Supp. 626, 630 (N.D.Ga.1983).

A. Fraud and RICO Claims: Counts I-IV

In her Complaint, Plaintiff contends that Defendants' agent, John Lagana, represented to Plaintiff that Provident was a financially reliable, reputable insurance company, which would deal honestly and in good faith with her, and which would fairly and properly adjust any claims for disability benefits according to the terms of the disability policy he proposed to sell her. Plaintiff also alleges that Defendants omitted or failed to disclose material facts about the policy and Provident's intended performance under the contract. Plaintiff further alleges that because of those representations and material omissions, she was fraudulently induced to enter into the insurance contract.

In Georgia, the common law tort of fraud requires five elements: (1) false representation by defendant; (2) with scienter, or knowledge of falsity; (3) with intent to deceive plaintiff or to induce plaintiff into acting or refraining from acting; (4) on which plaintiff justifiably relied; (5) with proximate cause of damages to plaintiff. Lakeside Inv. Group, Inc. v. Allen, 253 Ga.App. 448, 450, 559 S.E.2d 491 (2002).

A purchaser claiming fraud in the inducement, or inceptive fraud to enter into a contract, has an election of remedies. Conway v. Romarion, 252 Ga.App. 528, 530, 557 S.E.2d 54 (2001); Ben Farmer Realty Co. v. Woodard, 212 Ga.App. 74, 74, 441 S.E.2d 421 (1994). The first option after discovering the fraud is to rescind the contract and, after offering to restore the benefits received under the contract, to sue in tort to recover the purchase price and any additional damages from the fraud. Alternatively, the purchaser may elect to affirm the contract and sue for damages resulting from the fraud. Conway, 252 Ga.App. at 530, 557 S.E.2d 54; Fann v. Mills, 248 Ga.App. 460, 462, 546 S.E.2d 853 (2001); Ben Farmer Realty Co., 212 Ga.App. at 74, 441 S.E.2d 421. Although the latter suit is an independent action in tort, it is based on the defrauded party's election to affirm the contract, and sue for damages³ resulting from the fraud arising out of the contract. Having elected to affirm the contract, the defrauded party is bound by its terms and is subject to any defenses which may be asserted by the other party based on the terms of the contract. Keller v. Henderson, 248 Ga. App. 526, 528, 545 S.E.2d 705 (2001); Ben Farmer Realty Co., 212 Ga.App. at 75, 441 S.E.2d 421 (citing Mitchell v. Head, 195 Ga.App. 427, 428, 394 S.E.2d 114 (1990), and Am. Demolition v. Hapeville Hotel Ltd. P'ship, 202 Ga.App. 107, 109, 413 S.E.2d 749 (1991)).

Defendants contend that the merger clause in the disability policy bars Plaintiff from asserting fraud and RICO claims in this case based on the representations made before she purchased the policy. The disability policy contains a merger clause, specifying that the "policy with the application and attached papers is the entire contract between you and us. No change in the policy will be effective until approved by one of our officers. This approval must be noted on or attached to this policy. No agent may change this policy or waive any of its provisions." (Disability Income Policy at 13 (PL's Resp. to Defs.' Mot. for Summ. J., Ex. 1).)

In written contracts containing a merger clause, "prior or contemporaneous representations that contradict the written contract `cannot be used to vary the terms of a valid written agreement purporting to contain the entire agreement of the parties, nor would the violation of any such alleged oral agreement amount to actionable fraud.'" First Data POS, Inc. v. Willis, 273 Ga. 792, 795, 546 S.E.2d 781 (2001) (quoti...