Opinion ID: 1798716
Heading Depth: 1
Heading Rank: 3

Heading: Loss Ratios

Text: 3) The admissibility of testimony concerning insurance loss ratios (the relationship between premium dollars collected and claims paid) is the principal substantive issue presented for our consideration. Defendants argue that it was improper to admit such evidence and that the Court rejected their efforts to introduce evidence in rebuttal. Defendants further argue that this issue was not pleaded and, therefore, not properly before the Court. Plaintiff argues that wide latitude traditionally has been given concerning the admissibility of evidence in fraud cases, and that this evidence had sufficient probative value to warrant admission. The trial Court's treatment of this issue began with pretrial instructions to the attorneys concerning the acceptable uses and scope of the evidence on this point. The actual instructions are not part of the record, but that such instructions were given is mentioned in the record. The Plaintiff's witness, Paul Raadt, an examiner with the Insurance Department of the State of Alabama, called to testify on this issue, was heard by the Court outside the presence of the jury, objections were raised and ruled on, and cross-examination was allowed. In the examination of Mr. Raadt, company-wide and State loss ratio figures for National States Insurance were given for the period 1974 through 1978. The highest percentage was 20.3 in 1978. Defendants' counsel was allowed to question Mr. Raadt on these figures before the Court ruled on their admissibility. After entertaining all of Defendants' objections to testimony on these figures, the Court ruled the State and the company-wide loss ratio figures from 1974 through 1978, inclusive, were admissible. The Court found that the broader spectrum of figures would alleviate the possible misleading of the jury which might have occurred had only State figures for a more limited period been introduced. Excerpts from the deposition of Edward Rareden, executive vicepresident of National States, were read into the record as part of Plaintiff's case, after Mr. Raadt's testimony. Objections were heard and ruled on as the deposition was read. Portions of the deposition went to loss ratios. Defendants objected to their admissibility and were overruled. Rareden stated in deposition that it was common knowledge in the health and accident field that ... to reach a 50% loss ratio figure at some given point in time is a fair figure for the company or a fair profit for the company to work on. He testified that 50% is a fair figure for both the company and the consumer. Defendants' witness, Thomas Green, president of National States, was allowed to give detailed testimony concerning National's loss ratios in rebuttal to the testimony offered by Plaintiff. The Court allowed Mr. Green to testify, over objection of Plaintiff, that a loss ratio of 50% was a goal which would be reached by National in the future according to studies and calculations by the company and its actuaries, and that 50% is considered in the insurance industry to be a high and laudable figure. Plaintiff was not allowed to introduce the State of Alabama Insurance Department's records of complaints about National States' nonpayment of claims. On the basis of this exclusion, the Court disallowed the offer into evidence by Defendants of one page of a multi-page report by the State of Missouri Insurance Department giving its assessment of National States' treatment of policy holders on the basis of claims paid. This careful review of the record shows that the trial Judge kept strict control of this issue with pre-trial instructions to the attorneys, an in camera hearing of the Plaintiff's witness on this subject, and ample opportunity for Defendants' counsel to cross-examine this witness and to examine its own rebuttal witness. He also required Plaintiff to show evidence of company-wide figures rather than limiting the proof to Alabama, thus presenting a more representative sample to the jury. We classify this case as one of fraud in the inducement. In such a case, evidence going to the intent and state of mind of the alleged perpetrator is particularly relevant. Wide latitude is afforded the Plaintiff in the introduction of evidence in a fraud case. The trial Judge informed the lawyers after one of the in camera hearings that he found the matter to be a proper one for cross-examination, thus implying that the evidence was admissible and that its weight would be determined by the jury. We agree with this finding. This Court gave a succinct synopsis of the applicable standard in Mid-State Homes, Inc. v. Johnson , saying: Great latitude is allowed in admitting evidence on the issue of alleged fraud. May v. Strickland, 235 Ala. 482, 180 So. 93 [1938]; National Surety Co. v. Julian, 227 Ala. 472, 150 So. 474 [1933]. Most often the perpetrator of fraud is the sole possessor of actual knowledge of such fraud. Undue restriction should not be placed on the introduction of evidence which has probative value, however slight, on this issue. Weight is for the jury. Mid-State Homes v. Johnson, 294 Ala. 59, 63, 311 So.2d 312, 315 (1975). Under [the] liberal test [of relevancy followed in Alabama], a fact is admissible if it has any probative value, however slight, upon a matter in the case. McElroy's Alabama Evidence, § 21.01(1) (3rd Ed. 1977). In National Surety Co. v. Julian , this Court stated: Where fraud is involved, a wide latitude is permitted in the introduction of evidence. Of course, this latitude cannot be extended to allow evidence wholly foreign to the issue. But, subject to this limitation, it is proper `to admit any evidence which is competent by other rules of law, either direct or circumstantial, which in the opinion of the court has a legitimate tendency to prove or disprove the allegations in issue, the matter resting largely in the discretion of the trial court.' 27 Corpus Juris, p. 50. National Surety Co. v. Julian, 227 Ala. 472, 482, 150 So. 474, 482 (1933). We agree that the trial judge's discretion must, of necessity, have a field of operation in borderline situations. Referencing Rule 303 of the American Law Institute's Model Code of Evidence, McElroy's Alabama Evidence states: This [within the sound discretion of the trial judge] is where such power should lie because, unless some discretion is vested in the trial judge, every ruling upon the admissibility of a particular fact of a kind above-mentioned becomes a law unto itself. If any particular rule of evidence runs into numerous borderline cases, we must either give the trial court some discretion in applying it or admit that the rule is not workable at all. This argument for the investiture of a measurable discretion in the trial court must not be taken, however, as suggesting that an appellate court ought not to correct a plainly prejudicial misuse of discretion by the trial court. McElroy's Alabama Evidence, § 21.01(6) (3rd Ed. 1977). Plaintiff contends that the evidence on loss ratios was introduced to give rise to an inference of fraud. We agree with this and find ample support in the record for this contention. We find it clearly admissible for this purpose. The trial Court's careful handling of the issue was in line with the strictest sense of legal propriety and fairness to the litigants.