Opinion ID: 1690391
Heading Depth: 2
Heading Rank: 1

Heading: The Reprehensibility of Union Security's Misconduct

Text: Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct. BMW, 517 U.S. at 575, 116 S.Ct. at 1599. Although the Supreme Court in BMW did not provide any particular yardstick by which to measure reprehensibility, it did acknowledge that `trickery and deceit' ... are more reprehensible than negligence and that acts of affirmative misconduct, such as making deliberate false statements, are more reprehensible that an innocent misrepresentation. 517 U.S. at 576,116 S.Ct. at 1599. Likewise, this Court has stated that in determining the reprehensibility of a defendant's conduct the reviewing court may consider `[the] duration of this conduct, the degree of the defendant's awareness of any hazard which his conduct has caused or is likely to cause, and any concealment or cover up of that hazard, and the existence and frequency of similar past conduct.' Green Oil Co. v. Hornsby, 539 So.2d 218, 223 (Ala.1989), quoting Aetna Life Ins. Co. v. Lavoie, 505 So.2d 1050, 1062 (Ala.1987). The evidence shows that the Crockers could not obtain the First Alabama loan they needed unless they also obtained credit life insurance from Union Security. Sammy Taylor, acting as Union Security's agent, knew that applicants for credit life insurance who revealed previous or existing health problems on the health disclosure statement contained in the application would not qualify for the coverage. There was evidence that Taylor was a friend of Mr. Crocker, that he and his wife had vacationed with the Crockers, and that they had visited the Crockers during the time that Mr. Crocker suffered from both Parkinson's disease and heart disease. There is evidence that Taylor knew that these health conditions existed when Mr. Crocker and his wife applied to him for credit life insurance in conjunction with this home equity loan. Taylor knew that he would receive a commission from the sale of credit life insurance to Mr. Crocker, even if a future claim for the benefits was denied. With this knowledge, Taylor deliberately precompleted for the Crockers the health disclosure statement on the Crockers' application form, marking No beside questions that asked if Mr. Crocker suffered from heart disease or certain other illnesses. Taylor thus intentionally falsified information on the Crockers' life insurance application, to secure a fraudulent approval by Union Security. He did so knowing that the Crockers were relying on the coverage to pay off the loan and to prevent the foreclosure of their home mortgage in the event either of them died. He assured them they would receive coverage, and he collected his commission when they did, knowing that their benefits would be denied if his false representations on their applications were discovered after the fact. Union Security issued insurance to Mr. Crocker without any meaningful knowledge of his medical history, and it collected premiums from him until he died on August 28, 1991. When Mrs. Crocker, newly widowed, submitted her claim for benefits under the policy, Union Security denied it, leaving her with no means to pay her debt to First Alabama. She was threatened with foreclosure of her home mortgage, only five days before the first Christmas that she would spend without her husband after 31 years of marriage. Given these facts, we agree that the gravity of Union Security's misconduct is a factor that would support a considerable punitive damages award. However, we must also recognize that Union Security's misconduct appears to have been an isolated incident, rather than the result of a standard operating procedure. The evidence shows that in 1991 Union Security received 134 claims for payment on credit life insurance issued through First Alabama, and that Mrs. Crocker's claim was the only one it denied. In 1992, Union Security received 119 claims for payment and denied only two; both were denied because the insureds had committed suicide and the policies had suicide-exclusion clauses. In 1993, Union Security received 113 claims and denied only four of them. Thus, during the period 1991-1993, Union Security's denial rate on credit life claims was less than 1% and most of the denials were based upon an insured's having committed suicide. The evidence thus indicates that, while Union Security's misconduct in this case was highly reprehensible, it was also an aberration for the company.