Clarence FREEMAN, Appellee, v. BONNES TRUCKING, INC., Oran Bonnes, and Guardian Life Insurance Company, Appellants.
No. 68603
Supreme Court of Iowa.
Aug. 17, 1983.
Rehearing Denied Oct. 13, 1983.
337 N.W.2d 871
V. Conclusion. We have considered all of the contentions raised by the parties and we now affirm the judgment of the district court, except that the judgment on punitive damages against McLane is reversed and remanded for a new trial in accordance with this opinion.
AFFIRMED IN PART; REVERSED AND REMANDED IN PART.
All Justices concur except UHLENHOPP, CARTER and WOLLE, JJ., who concur in part and dissent in part, and REYNOLDSON, C.J., who concurs in the result.
UHLENHOPP, Justice (concurring in part, dissenting in part).
I concur in all of the majority opinion except division II and the result. I would adopt the complicity rule as the majority does, but I would affirm the judgment.
To me, absent the element of driving while intoxicated this would be a negligence case, although a strong one. The added intoxicated driving permits an award of punitive damages against Hyslop. Sebastian v. Wood, 246 Iowa 94, 106, 66 N.W.2d 841, 847 (1954). The intoxicated driving, however, does not permit an award of punitive damages against McLane without substantial evidence of complicity regarding the intoxicated driving in at least one of the respects stated in the Restatement, and such evidence does not appear. Substantial evidence of McLane‘s complicity regarding Hyslop‘s negligence does appear, but punitive damages are not awarded for negligence only. Restatement (Second) of Torts § 908 comment b (1977).
We see punitive damage awards in more and more cases; they are becoming commonplace rather than extraordinary. I view this trend with alarm. I think we should allow compensatory damages liberally to compensate prevailing claimants fully for their actual injuries, but we should restrict punitive damages to the truly extraordinary situations in which they are appropriate. Id. comment f. I agree with the District Judge that as to McLane, this is not a punitive damage case.
CARTER and WOLLE, JJ., concur in this partial concurrence and dissent.
Gregory G. Barnsten of Smith, Peterson, Beckman & Willson, Council Bluffs, for appellant Guardian.
Dennis M. Gray and Jan Stansberry Fuller of Peters Law Firm, P.C., Council Bluffs, for appellee.
Considered by REYNOLDSON, C.J., and UHLENHOPP, HARRIS, McGIVERIN, and WOLLE, JJ.
UHLENHOPP, Justice.
This law case tried to the court involves the requirements for termination of a group medical insurance policy for nonpayment of premiums.
Viewing the evidence in the light most favorable to the judgment for plaintiff Clarence Freeman, the court could find the facts to be as follows. Defendant Oran Bonnes (Bonnes) was president and sole stockholder of defendant Bonnes Trucking, Inc. (Bonnes Trucking). As one of their benefits, employees of Bonnes Trucking received medical expense insurance coverage under a group policy Bonnes Trucking maintained with defendant Guardian Life Insurance Company. Employees could also obtain coverage for dependents by paying half the premium for them through payroll deductions, with Bonnes Trucking paying the other half.
Freeman was one of these covered employees. He also had coverage for his wife, and Bonnes Trucking deducted half of the premium for her from his wages. Bonnes Trucking held the master policy and each employee including Freeman received a “Certificate of Coverage” explaining the insurance benefits of the employees and dependents. Guardian‘s policy also provided life and disability insurance, but those coverages are not involved here.
In the fall of 1979, Bonnes Trucking had insufficient income to pay all its bills. It therefore failed to pay monthly premiums to Guardian, including the amounts it withheld from Freeman‘s wages for his wife‘s coverage. Guardian purported to terminate the policy for nonpayment of premiums as of November 19, 1979, by notifying Bonnes Trucking. Neither Guardian, Bonnes Trucking, nor Bonnes notified Freeman of the termination.
In January 1980, Freeman became ill with a breathing problem. Bonnes adroitly left Freeman with the impression that he had insurance, and Brenda Lewis, the office secretary at Bonnes Trucking, assured Freeman that his insurance was in effect. Freeman underwent surgery and also received post-surgery care and treatment. In addition, his wife had medical expenses from a broken elbow as a result of a fall. In all, these medical expenses came to $16,522.06 (allowing for deductibles). Guardian refused to pay these expenses, claiming that the policy had been cancelled and had expired.
Freeman brought the present action against Bonnes Trucking and Bonnes for $16,522.06 together with $25,000 for punitive damages for fraudulently leading him to believe that he had insurance and withholding information that the policy had been terminated. Through procedural steps in the case, Freeman also sued Guardian for $16,522.06. The trial court awarded him $16,522.06 jointly from Bonnes Trucking, Bonnes, and Guardian, plus $25,000 from Bonnes Trucking and Bonnes as punitive
I. Cancellation and expiration. The heart of Guardian‘s appeal relates to the effect of the failure to notify Freeman of the termination of the policy. Because he was not notified, Freeman had no reason to seek employment with a truck line which did provide insurance, or to take action, alone or with his co-workers, seeking to induce Bonnes Trucking to reinstate the insurance.
A. As to cancellation, we need not decide whether, as a matter of Iowa common law, a group insurer must notify the group members of policy cancellation for nonpayment of premiums by the employer. Hence we do not consider the common-law decisions from elsewhere on that subject. But see Hendrix v. Republic National Life Insurance Co., 270 Ark. 955, 958, 606 S.W.2d 601, 602 (Ark.1980) (“We might even find, were we at liberty to do so, some equitable duty on the part of the insurer to notify employees participating in the group policy when there is such a lapse resulting from the employer‘s failure to pay.“); Elfstrom v. New York Life Insurance Co., 67 Cal.2d 503, 512, 63 Cal.Rptr. 35, 41, 432 P.2d 731, 737 (1967) (“The reasoning underlying these decisions [holding employer is agent for insurer] is that the employer carries out the functions which the insurer necessarily would perform in other types of insurance and thereby confers a substantial benefit on the insurer, and that since the individual employee has no knowledge of or control over the administrative acts performed by the employer, it would be inequitable to charge him with the employer‘s errors.“). In this jurisdiction, the matter is covered by
No policy or contract of insurance provided for in this chapter shall be forfeited or suspended for nonpayment of any premium, assessment, or installment provided for in the policy, or in any note or contract for the payment thereof, unless within thirty days prior to, or on or after the maturity thereof, the company shall serve notice in writing upon the insured that such premium, assessment, or installment is due or to become due, stating the amount, and the amount necessary to pay the customary short rates, up to the time fixed in the notice when the insurance will be suspended, forfeited, or canceled, which shall not be less than thirty days after service of such notice, which may be made in person, or by mailing in a certified mail letter addressed to the insured at his post office as given in or upon the policy, and no suspension, forfeiture, or cancellation shall take effect until the time thus fixed and except as herein provided, anything in the policy, application, or a separate agreement to the contrary notwithstanding.
Guardian argues that
The part of Guardian‘s policy involved here is non-life—medical expense insurance. The specific chapter of the Code on group insurance is
A provision of
Guardian contends that other language of
As to the address of the insured given “in or upon the policy,”
Guardian also argues that Freeman and the other drivers did not contribute to the cost of the insurance; Bonnes Trucking provided the insurance as a gratuity. Hence the General Assembly must not have intended that the employees should receive notice of cancellation.
Putting aside the payroll deduction for the coverage of Freeman‘s wife, we believe the suggestion that Bonnes Trucking provided the insurance as a charitable act is a myth. The insurance clause in the employment contract was part of the employee‘s compensation for his services, just as surely as if the employer had paid the employee the amount of the premium in cash and the employee himself had sent the premium to Guardian. As stated in Note, Group Insurance: Notification of Termination of Coverage, 40 S.Cal.L.Rev. 697, 699 (1967):
Yet even in non-contributory policies the employee may be viewed as supplying the premiums—at least indirectly. The non-contributory plan is a benefit that employers offer in lieu of salary. The insurance premiums paid by the employer substitute for salary; the economic transaction is the same as if the employee were paid the premium amount and then purchased his own insurance protection. In some instances similar employer payments to third parties have been held to be “wages.” Thus, it seems the employee might be considered a party—and hence entitled to notification—regardless of whether the policy was contributory.
See also Note, Cancellation of Group Insurance Policy by Employer Without Consent of Employee, 49 Yale L.J. 585, 589-90 (1940) (“On the non-contributory policy, there would seem to be consideration in the fact that the insurance given is partial compensation for services—as is emphasized by the provision for an increase in insurance with each additional year of employment.“).
We agree that as a matter of common law Guardian had a legal duty to give Bonnes Trucking advance notice of cancellation for nonpayment of premiums, because Bonnes Trucking had the responsibility of actually remitting the premiums. See 1 Appleman, Insurance Law & Practice § 43.25, at 102-03 (1981) (employer‘s responsibility of attending to the policy). But this case of a financially unstable employer and an employee going forward with his work in the belief he has medical insurance constitutes a graphic illustration of the wisdom of applying
Guardian analogizes the three cases to the present one, and states in its brief at page 24:
[R]eferring to trial Exhibit No. 31 [master policy], it is provided therein on the very first page that the anniversary date of this policy shall be December 15 of each year beginning in 1979, and further, that the company has the right to decline to renew the policy on any anniversary subject to the provisions of the policy, which provide, in pertinent part, for the automatic termination at the expiration of the 31-day grace period to begin upon the date the last missed premium was due.
Upon close examination of Guardian‘s master policy, we find that of the four cited decisions this case most closely resembles Gibson. Of the policy in Gibson we stated in Fields, 317 N.W.2d at 184: “We held, however, that the policy was not for a set term; it continued indefinitely with premiums payable periodically and with cancellation permitted the insurer upon nonpayment of premiums.” While the present policy is not precisely the same as the one in Gibson, we apply the Gibson rationale and hold that
II. Amendment to pleading. At the conclusion of the evidence at trial, Guardian moved to amend its pleading by asking contribution and indemnity from Bonnes Trucking and Bonnes. Allowance or disallowance of an amendment at that late date, injecting a new issue for Bonnes Trucking and Bonnes to meet, was largely discretionary with the trial court in the interests of justice. Johnston v. Percy Construction Co., 258 N.W.2d 366, 370 (Iowa 1977); B & B Asphalt Co. Inc. v. T.S. McShane Co., Inc., 242 N.W.2d 279, 284 (Iowa 1976). While allowance of amendment is the rule and disallowance the exception, we cannot say the trial court abused its discretion here.
III. Allegedly erroneous findings and conclusions. Guardian devotes several propositions in its brief to findings and conclusions of the trial court which it argues are erroneous: finding that Freeman and spouse could have obtained individual insurance from Guardian or elsewhere; that Guardian was aware of the names and addresses of Bonnes Trucking employees; that the Certificate of Coverage defines “insured” to include the employee; and that employees had rights directly from Guardian including options for coverage following termination and for conversion.
We turn the decision against Guardian on facts and principles independent of these findings and conclusions. First, since cancellation or expiration of the insurance did not occur for want of compliance with
We turn to the propositions of Bonnes Trucking and Bonnes.
IV. Fraud by Bonnes Trucking and Bonnes. Freeman‘s recovery from Bonnes Trucking and Bonnes is predicated on fraud by them. Fraud of Bonnes and Brenda Lewis, the secretary for Bonnes Trucking, would implicate Bonnes Trucking under respondent superior, and Bonnes would not be immune from personal liability for fraud he himself committed merely because he was an officer of a corporation. Briggs Transportation Co., Inc. v. Starr Sales Co., Inc., 262 N.W.2d 805, 808 (Iowa 1978).
The evidence abundantly supports the finding of fraud on the part of Bonnes and Lewis. Initially Bonnes told Freeman that he would have medical insurance coverage. Payroll deductions were made for coverage of Freeman‘s wife. Bonnes Trucking failed to pay premiums and received notice of cancellation. Bonnes Trucking did not notify Freeman of the cancellation but on the contrary, continued to deduct from his wages for his wife‘s coverage. This money was used for other obligations of Bonnes Trucking. Far from leveling with Freeman about the true situation, Bonnes falsely led Freeman to believe he was insured. Even at trial, Bonnes was evasive in his answers and difficult to pin down. His claim that he was confused as to whether the policy was in force is belied by the unequivocal notice (and letters) from Guardian that the insurance was cancelled for nonpayment of premiums. If Bonnes’ conduct is not direct evidence of fraud upon Freeman, it is evidence from which a strong inference of fraud arises. Lewis expressly and falsely assured Freeman that he had insurance. Freeman incurred large medical expenses on the strength of all these misrepresentations. The trial court was well within the evidence in finding that fraud existed.
V. Extent of liability. At some point in time Freeman ceased to be an employee. This appears to have been after his surgery, when he was disabled and unable to work. His remaining medical expenses grew out of his illness that initially occurred when he was a Bonnes Trucking employee.
We have examined Guardian‘s policy. It covers expenses arising from the extended illness under those circumstances. Indeed, Guardian filed an answer to that effect in response to a request for admissions, and rested its defense instead on cancellation and expiration of the policy.
Bonnes Trucking and Bonnes, however, insist that their liability would in no event extend to expenses incurred beyond January 19, 1980, which they put as the date Freeman ceased employment. But the action against Bonnes Trucking and Bonnes is predicated on fraud, and we are committed to the benefit-of-the-bargain rule in such cases. Holcomb v. Hoffschneider, 297 N.W.2d 210, 212 (Iowa 1980); Syester v. Banta, 257 Iowa 613, 626, 133 N.W.2d 666, 674 (1965). See Restatement (Second) of Torts § 549(2) (1977). Thus Freeman‘s damages for fraud against Bonnes Trucking and Bonnes include the extended medical expenses during disability growing out of the initial illness, in accordance with the policy.
VI. Punitive damages. Bonnes Trucking and Bonnes argue finally that the proof of fraud is insufficient for punitive damages. We have already upheld the finding that Bonnes and Lewis were guilty of fraudulent conduct. Punitive damages are justified where a defendant acts maliciously. The malice may be actual (express), such as personal spite, hatred, or
These defendants also argue that punitive damages of $25,000 are excessive. The award is very generous but again we cannot say the court abused its discretion. Grefe v. Ross, 231 N.W.2d 863, 868 (1975).
VII. Bonnes Trucking and Bonnes do not argue that they are not liable for damages because Guardian is liable for the medical expenses for want of statutory notice to Freeman, and we do not consider that question.
AFFIRMED.
All Justices concur except WOLLE, J., who concurs specially.
WOLLE, Justice (concurring specially).
I concur in the result reached by the majority and in the reasoning of all of the majority opinion except a portion of division IA. I disagree with the court‘s interpretation of
The trial court found that on November 19, 1979, the group policy was cancelled by Guardian and that notice of the cancellation was given to Bonnes Trucking, though not to Freeman. The uncontradicted evidence conclusively establishes the contrary with respect to Bonnes Trucking. The written notices were deficient in several respects. The record discloses that Guardian sent Bonnes Trucking written notices concerning policy cancellation or lapse on November 20 and December 19, 1979, and on February 8, 1980. The November 20 notice provided that if payments of overdue and current premiums (with no amount specified) were not received “WITHIN TEN DAYS,” the policy “will be cancelled as of the effective date of lapse,” identified as “11-15-79“. The later written notices referred to cancellation as having occurred on November 15, 1979. None of the notices complied with the requirement of
Guardian had the burden of proving effective cancellation; the notice was required to be given in strict compliance with the statute. Farmers Insurance Group v. Merryweather, 214 N.W.2d 184, 189-91 (Iowa 1974). Because the cancellation notice required by
First, Bonnes Trucking was certainly “the insured” to the extent that it had agreed to provide coverage for its employees and contributing dependents and undertook to perform that obligation by purchasing the Guardian policy. Bonnes Trucking was the insured because when Guardian paid covered medical or other expenses of
Secondly, a reading of
To ascertain legislative intent we may consider the language used in the statute and the objects sought to be accomplished, seeking a sensible, workable, practical and logical construction. Hansen v. State, 298 N.W.2d 263, 265-66 (Iowa 1980); Janson v. Fulton, 162 N.W.2d 438, 443 (Iowa 1968). It is presumed that a just and reasonable result is intended.
Consequently, I concur in affirming the judgment against Guardian not because Guardian failed to serve the Freemans but rather because it did not serve an effective cancellation notice upon Bonnes Trucking.