Case Title: National Sav. Life Ins. Co. v. Dutton

Citation: 419 So. 2d 1357

Docket Number: 

State: alabama

Court: Alabama Supreme Court

Date: 1982-09-17T00:00:00Z

Document:
419 So. 2d 1357 (1982)
NATIONAL SAVINGS LIFE INSURANCE COMPANY, a Corporation
v.
Eula DUTTON.
80-897.

Supreme Court of Alabama.
September 17, 1982.
*1358 Robert H. Harris of Caddell, Shanks, Harris, Moores & Murphree, Decatur, for appellant.
A. P. Reich, II of Speake, Speake & Reich, Moulton, for appellees.
SHORES, Justice.[*]
This is an action in which damages were claimed for breach of a contract of health and accident insurance issued to plaintiff Eula Dutton by defendant National Savings Life Insurance Company (National), and the bad faith refusal by National to pay a claim made under the policy.
National denied any liability and charged that Mrs. Dutton had, in her application, materially misrepresented matters relating to her previous health condition. For this reason, National denied the claim, rescinded the policy, and returned all premiums.
The case was tried to a jury, which returned a verdict in favor of the plaintiff for $14,000. National filed a motion for new trial or, in the alternative, a judgment notwithstanding the verdict, contending:
(1) That the court erred in denying National's motion for a directed verdict on the tort claim of bad faith refusal to pay Mrs. Dutton's claim; and
(2) That the court erred in its instruction to the jury that the policy was subject to cancellation or rescission only if Mrs. Dutton intentionally or deliberately furnished false information to National in her application for insurance.
The trial court denied National's motion, and National appealed. We reverse and remand.
The policy was solicited by Wendell Eddy, Mrs. Dutton's son-in-law, who was a soliciting agent for National and other companies. In completing the application for the policy, he asked Mrs. Dutton a series of questions which appeared on the printed application form. He testified that he recorded her response to each question, one of which inquired of her whether she had ever had: "High or low blood pressure, pain in chest, varicose veins, disease of heart or circulatory system." To this she responded "no." Dr. Paul P. McCain, Decatur, was shown on the application as her physician.
After completing the application, Eddy forwarded it to National to be processed. When the policy was returned to Eddy for delivery to Mrs. Dutton, he reviewed it with her and pointed out to her the "NOTICE" contained in the policy, advising that it could be voided if the application contained incorrect information.
The policy became effective on September 20, 1977. On November 6, 1978, Mrs. Dutton, for the first time, consulted Dr. Tony Williams, a medical practitioner in Moulton. A medical history was taken by his nurse, which, according to Dr. William's testimony, included a statement that Mrs. Dutton "was having pain in her right side of her back and under the right shoulder," and this pain had been experienced "at intermittent intervals for two or three years."
At trial, Dr. Williams described the pain as radiating "from the right side around into the right upper quadrant, the lower part of the chest right upper quadrant." He also testified that, because of the vagueness of the symptoms and his being not quite sure what the cause was, he sent her to the hospital for further examination that same day.
As part of the admitting process, a further medical history was taken by hospital personnel, who are not medically trained.
*1359 This hospital record contains the following entry:
Dr. Williams testified that he admitted Mrs. Dutton to the hospital and ordered laboratory tests "to rule out the cause of chest pain." He also testified, and the hospital record reflects, that the patient had some high blood pressure readings in the days following her admission to the hospital, and Dr. Williams started her on high blood pressure medication "shortly thereafter." The patient's chart contains this entry on the night she was admitted:
The patient was dismissed after several days, and the hospital discharge summary, as reflected in the record, is as follows:
Following her discharge from the hospital, a claim for benefits was filed with National by the hospital and Dr. Williams. The claim indicated that Mrs. Dutton's hospitalization was for an ulcer disease. Upon receipt of the claim, National sought and received, with Mrs. Dutton's authorization, the medical records relating to her hospitalization. After reviewing these records, the company denied the claim with the following letter:
Mrs. Dutton asked Dr. Williams to respond to this letter, which he did, he said, to document that he "was not aware that Mrs. Dutton had previous outstanding hypertension." His letter follows:
The record also discloses that subsequent to the cancellation of the policy, Mrs. Dutton was again admitted to the hospital, complaining of chest pains. When the company declined Mrs. Dutton's request to reinstate the policy, she cashed the premium refund check and filed this lawsuit.
On appeal, National presents the same two issues on which its motion for new trial or JNOV was based. It argues that the trial court erred in its instruction to the jury that the policy was subject to cancellation or rescission only if Mrs. Dutton intentionally or deliberately furnished false information in her application for insurance.
The trial court addressed the issue of National's right to cancel the policy several times in its instruction to the jury, and the following is representative of the substance of the trial court's charge:
We agree that the trial court's instruction was erroneous. A representation need not be made with intent to deceive for an insurer to void an insurance policy. In pertinent part, Code 1975, § 27-14-7, provides:
Construing the predecessor to § 27-14-7, this Court in New York Life Ins. Co. v. Horton, 235 Ala. 626 at 630, 180 So. 277 at 280-1 (1938), commented:
It was unnecessary, therefore, for plaintiff to have provided incorrect information with an intent to deceive. If she innocently made an incorrect statement that was material to acceptance of the risk, or would have caused National, in good faith, not to have issued the policy as it did, then National could have denied her claim and voided her policy. Accordingly, National's objections to the erroneous charges and motion for a new trial were meritorious.
National Security Fire & Casualty Co. v. Bowen, 417 So. 2d 179 (Ala.1982), is our most recent effort to define the recently recognized tort of bad faith refusal to pay a valid insurance claim. There we said:
Applying these rules to the facts of this case, we are compelled to hold that the trial *1362 court erred in denying National's motion for judgment notwithstanding the verdict on the bad faith claim.
The plaintiff failed to meet the burden of proof that she must bear. She did not prove that her claim was denied by National without a reasonably legitimate or arguable reason for the refusal. In fact, her evidence established that it did have a reasonable basis for denying the claim.
Whether an insurance company is justified in denying a claim under a policy must be judged by what was before it at the time the decision is made. Here, the company had before it a hospital record which purported to quote Mrs. Dutton as saying, upon her admission, that she was suffering chest pain and had experienced chest pain for two or three years. This was in direct contrast to the answer which she gave to a direct question on the application. When the company informed her that it was denying the claim and cancelling the policy because her answers to the questions on the application conflicted with the medical records, she did not come forward with any additional information with regard to a history of chest pain. She did not tell the company that the hospital admission record was false; in fact, she did not attempt to refute it in any way except to have her physician write a letter in which he did not dispute the record. He simply said that, insofar as he knew, she had no history of hypertension before he first saw her and hospitalized her.
Under these facts, a reasonable basis existed for denying the claim and would, thus, defeat a tort action for bad faith refusal to pay the claim. We cannot agree with the plaintiff's assertion in brief that the company had an affirmative duty to investigate further. It invited Mrs. Dutton to supply additional information if what it had was inaccurate. This she did not do.
As noted by both sides in this case, the tort of bad faith refusal to pay a valid insurance claim is in the embryonic stage, and the Court has not had occasion to address every issue that might arise in these cases. In Bowen, supra, we set out the elements of the tort and attempted to show the plaintiff's burden in these cases. It is a heavy burden. In the normal case in order for a plaintiff to make out a prima facie case of bad faith refusal to pay an insurance claim, the proof offered must show that the plaintiff is entitled to a directed verdict on the contract claim and, thus, entitled to recover on the contract claim as a matter of law. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the claim and, thus, the legitimacy of the denial thereof, the tort claim must fail and should not be submitted to the jury.
Such is the case before us. Under these facts, National sought and was entitled to a directed verdict on the tort claim. Therefore, the trial court erred in denying its motion for a judgment notwithstanding the verdict on that claim.
The judgment appealed from is reversed and the cause remanded for a new trial on the contract claim.
REVERSED AND REMANDED.
MADDOX, BEATTY[**], and ADAMS, JJ., concur.
JONES[**] and EMBRY, JJ., concur specially.
FAULKNER, J., dissents.
TORBERT, C. J., recused.
JONES, Justice (concurring specially).
I concur completely with the opinion and write separately to elaborate on one point. The opinion correctly prefaces the "directed verdict on the contract claim" standard with the words "In the normal case"; and the phrase "if the evidence produced ... creates a fact issue ..." is preceded by the word "Ordinarily." These are significant *1363 qualifications. Certainly, extreme cases will arise in which a fact issue will present a jury question on that claim. This is not the case before us; and, absent such circumstances, the "directed verdict on the contract claim" is the applicable standard for testing the tort of bad faith claim.
EMBRY, Justice (concurring specially):
I am in complete agreement with the result the opinion of the majority dictates. However, it seems to me the course of this case through the trial court demonstrates the need for the safeguards suggested in my dissent in Vincent v. Blue Cross-Blue Shield of Alabama, Inc., 373 So. 2d 1054, 1067, 1068 (Ala.1979). My views, regarding the safeguards necessitated by the nature of these cases, were repeated in my dissent in Chavers v. National Security Fire & Casualty Co., 405 So. 2d 1, 16, 17 (Ala.1981), and in my special concurrence in Aspinwall v. Gowens, on rehearing, 405 So. 2d 135, 139.
[*]  Although not sitting at oral argument of this case, this Justice has listened to the tapes of oral argument and has studied the briefs.
[**]  Although not sitting at oral argument of this case, this Justice has listened to the tapes of oral argument and has studied the briefs.