UNIVERSAL LIFE INSURANCE COMPANY
v.
Martha VEASLEY.
Supreme Court of Mississippi.
Leonard B. Melvin, Billie J. Graham, Len Melvin, Melvin & Melvin, Laurel, for appellant.
John M. Deakle, Hattiesburg, Charles G. Blackwell, James M. Brown, Laurel, for appellee.
Paul S. Minor, Minor & Guice, Biloxi, for amicus curiae.
Before HAWKINS, P.J., and ROBERTSON and BANKS, JJ.
Dissenting Opinion by Justice McRae on Denial of Rehearing December 31, 1992.
BANKS, Justice, for the Court:
I
The primary question put to the Court in this matter is whether the failure to honor a claim without justification is a sufficient circumstance to support an award of punitive damages in the absence of evidence *291 that the failure was willful or caused by any thing other than simple negligence, where the claim was honored within seventy-five days of when it was filed and five days of the first written protest of its dishonor. Applying traditional principles governing the award of punitive damages we answer the question in the negative.
This matter is before the Court on appeal from a judgment of the Circuit Court of Jones County reflecting a jury verdict awarding actual damages in the amount of $3552.76 and punitive damages in the amount of $175,000. Universal Life Insurance Company, (Universal) aggrieved by the verdict and judgment, appeals and, in the end, we affirm as to actual damages and reverse and render as to punitive damages.
II
In August 1985, Teretha Veasley (Teretha) purchased a life insurance policy from Regina Battle, an agent of Universal Life Insurance Company. She named her mother, Martha Veasley (Veasley), as the solе beneficiary of the policy. Concomitant with the completion of the application, Teretha paid one premium in the amount of $7.29. Subsequently, she received notice that the policy was approved with a higher risk rating and that premiums would be $10.76. The first premium was due September 18, 1985. That premium was never paid. The policy provided for a thirty-one (31) day grace period in which it would remain in effect following the due date of a premium not paid.
Teretha died in Laurel, Mississippi, on October 18, 1985, as a result of complications from childbirth. Thereafter, Veasley contacted Viola Malone at the Malone Funeral Homе in Laurel to make funeral arrangements. She gave the insurance policy in issue to Malone who agreed to file a claim so that the proceeds could be used to pay the funeral bill. She asked that the balance of any monies due be paid to her. At that time, Malone, who coincidentally, is a writing agent for Universal, contacted Universal's main office in Memphis, Tennessee and inquired about coverage. She was informed by a male employee that coverage was in effect, because Teretha died one day within the grace period.
Malone handled all of the paperwork in submitting the claim form. For reasons not fully explained in the record, she did not mail the claim until July 1, 1986, more than eight months after Teretha's funeral. On July 3, 1986, the claim packet was received by Universal. Universal had two death claims analysts. When this claim came up for review, one of the analysts was out and a death claims clerk was filling in as a replacement. That clerk drew the claim in question. Feeling uncertain about the claim, she consulted the other regular analyst who told her that the claim should be denied because the policy had lapsed.
The death claims clerk handling the matter then turned it over to another clerk for communication of the denial of covеrage. For bases unexplained in the record, that clerk mailed a notice of denial of coverage on July 16, 1986, indicating that coverage was denied because the policy had not been in force the required period of time and because there was "no value in the policy." Although these reasons are applicable to some policies and claims thereon, they had no application whatever to the policy and claim in question.
Later in July, Malone inquired as to the status of the claim and a copy of the denial form was mailed to her. Nothing in the record reflects that any other contact was made with Universal's claims office until Charles Blackwell (Blackwell), an attorney consulted by Veasley, sent a letter in September of 1986 questioning the reasons for denial and inquiring as to whether there was a problem with the policy.
There was testimony concerning several contacts with Universal selling agents, between the initial denial and the Blackwell letter. Darnell Milsaps (Milsaps), Veasley's son-in-law, made contacts with Regina Battle, the agent who took Teretha's application, and Jack Morgan, another Universal selling agent, in an effort to determine why the claim was not paid. The record does not indicate what, if anything, was donе by *292 them. Veasley called the Universal office in Laurel about the problem. She testified that a gentleman, whom she originally identified as Willis McDonald, came to see her. At trial, she retracted her identification of McDonald, who had been made a defendant in this case. In any event, she maintained that the now unidentified gentleman came to her home to discuss the problem and called back the following day to indicate that he had been unsuccessful in changing the decision.
Finally, Milsaps, on behalf of Veasley, retained Blackwell who wrote the letter alluded to above. Upon reading the letter, Redmond, Universal's claims departmеnt manager, had the file pulled. He reviewed the file and realized it should have been paid. Immediately after reading the file, Redmond attempted to call Blackwell. It was after five o'clock and there was no answer. He did speak to Blackwell the following day, September 12, and informed him the claim had been wrongfully denied and that it would be paid promptly. True to the word of its representative, on September 26, 1986, Universal mailed a check in the amount of $1458.00 to the Malone Funeral Home and the balance due under the $4500.00 policy to Veasley.
The check mailed to the funeral home was cashed. Veasley consulted her lawyer. At some point she endorsed the check but rather than negotiate it, John Deakle, who had apparently been associated to represent her by this time, tore the check in half and mailed a copy of it to Universal together with a letter asserting a bad faith claim. This litigation ensued.
Veasley's complaint alleged tortious breach of contract, fraud in the inducement, and breach of fiduciary duty. In addition to contractual and punitive damages, she sought extra-contractual damages. Veasley alleged that she suffered emotional distress as a result of Universal's (mis-)handling of her claim. She testified that Universal's refusal to pay her claim caused her worry, nervousness, and depression. She also claimed she had sleepless nights and little or no tolerance for children or noises. She stated she was taking tranquilizers for her problems. There was no medical testimony presented during the trial and Veasley admitted that she had some of the same problems before and after her daughter's death.
Trial was had, at the end of which, the jury was instructed to find for the plaintiff in the amount of $3,052.76, which was the balance due on the contract after the funeral expenses had been paid. The jury, on its own accord, pursuant to instructions allowing it to determine the issues, awarded Veasley $500.00 for actual extra-contractual damages and $175,000.00 in punitive damages.
McDonald had been dismissed at the close of the plaintiff's case. Universal brings this appeal assigning as error the failure of the court to give an instruction directing the jury to find for defendant if the initial failure to pay was a result of clerical error, granting an instruction allowing punitive damages and granting an instruction allowing extra contractual damages. Because we find that this record does not support an instruction allowing punitive damages we pretermit discussion of the issue of the "clerical error" instruction.
III
The primary issue here is whether or not this record suppоrts Veasley's claim for punitive damages. Universal contends the record is devoid of evidence which supports a punitive damage instruction. Veasley, argues to the contrary.
Since the seminal case of Standard Life Insurance Company v. Veal,
The trial court is responsible for reviewing all evidence before it in order to ascertain whether the jury should be permitted to decide the issue of punitive damages. Andrew Jackson Life Ins. Co. v. Williams,
Notwithstanding an absence of an arguable basis for the denial or breach of a policy claim, submission of the punitive damages issue may not be warranted. Andrew Jackson,
For example, the punitive-damages issue should not be submitted to the jury in cases involving an insurer who wrongfully denied a claim because of `clerical error or honest mistake' though `objectively speaking, [error or mistake does not constitute an] arguable reason for failure to honor a just claim.'
Andrew Jackson,
As the proof in the instant case does not reflect the existence of malice, on these facts the standard to be applied is that of gross negligence or reckless disregard. The burden of proof is on the plaintiff to show that the conduct in question rises to the level necessary to justify the imposition of punitive damages. There is an absence of evidence establishing that the error here was anything more than clerical. The evidence simply does not rise to the level of gross negligence. Although the reasons given by the company for denying Veasley's claim were undeniably erroneous, the error was corrected promptly after Universal received a non-threatening letter from Veasley's attorney inquiring about the denial of payment of the claim. There is no evidence suggesting that this type of oversight happened on a regular basis. Finally, nothing in the record indicates that a letter from one other than an attorney would not have produced the same result.
We have unhesitantly upheld punitive damage awards where the facts justified them. For example, in Mutual Life Insurance Company of New York v. Wesson,
There, in contrast to the instant case, the insurer's contention that it is guilty of only simple negligence was amply rebutted. Evidence from its files showed that it deliberately *294 failed to correct computer coding which erroneously denied automatic premium loans (APL) to policy holders resulting in erroneous denials of coverage. Moreover, the insurance company continued to deny coverage through the time that it filed its answer, after it was on notice of the APL error.
In Travelers Indemnity Co. v. Wetherbee,
In Standard Life Ins. Co. of Indiana v. Veal,
Here again, there is evidence of protracted delay even to the point of a lawsuit before an offer to honor the claim is made. In the case before us, Universal determined to honor the claim within hours of receiving the first written inquiry questioning the denial.
National Life and Acc. Ins. Co. v. Miller,
Without doubt, a mistake was made by Universal. The record is bereft of an explanation why such a mistake was made. The totality of circumstances, however, does not suggest more than an unfortunate episode оf a failure of competence. The burden of proof rests with the plaintiff. The defense is not required to prove that its negligence did not constitute gross negligence. In all circumstances, the burden is on Veasley to prove that it did. On this record, we are compelled to conclude that no rational jury could find, based on a preponderance of the evidence, that the acts of the defendant were willful or grossly negligent, as opposed to an inadvertent calculation due to inattention and substitute personnel handling the claim.
We conclude that no punitive damage instruction should have been given. Having so decidеd, we need not discuss the propriety of the court's refusal of instruction D-1 and we turn to the award of extra contractual damages.
*295 IV
Universal contends the court erred in granting instruction P-6 which stated,
Damages is the word which expresses in dollars and cents the injuries sustained by the plaintiff. The damages to be assessed by a jury for personal injury cannot be assessed by an [sic] fixed rule, but you are the sole judges as to the measure of damages in any case. Should your verdict be for the plaintiff, you may consider the following factors in determining the amount of damages to be awarded as may be shown by a preponderance of the evidence.
(1) The type of injuries to the plaintiff, if any.
(2) Past, present and future mental anguish, if any.
(3) In arriving at the amount of the award, if any, you may consider mental pain, and mental anguish and suffering of the plaintiff, if any.
This is not an instruction which would ordinarily be permissible in an action for breach of a contract to pay money. The court's purpose in establishing a measure of damages for breach of contract is to put the injured party in the position where she would have been but for the breach. Leard v. Breland,
We have traditionally held that damages for mental anguish and emotional distress cannot be considered in the absence of a finding of an indeрendent intentional tort separate from the breach of contract. Aetna Casualty and Surety Co.,
Some justices on this court have suggested that extra-contractual damages ought be awarded in cases involving a failure to pay on an insurance contract without an arguable reason even where the circumstances are not such that punitive damages are proper. Pioneer Life at 932. (Sullivan, J., concurring, joined by D. Lee, Prather and Robertson, JJ.). Applying the familiar tort law principle that one is liable for the full measure of the reasonably foreseeable consequences of her actions, it is entirely foreseeable by an insurer that the failure to pay a valid claim through the negligence of its employees should cause some adverse result to the one entitled to payment. Some anxiety and emotional distress would ordinarily follow, espeсially in the area of life insurance where the loss of a loved one is exacerbated by the attendant financial effects of that loss. Additional inconvenience and expense, attorneys fees and the like should be expected in an effort to have the oversight corrected. It is no more than just that the injured party be compensated for these injuries.
In the instant case, while not voluminous, evidence existed to support Veasley's contention that the refusal of Universal Life to pay the claim caused her worry, anxiety, insomnia, and depression. Additionally, she experienced difficulty in coping with daily life and children, her grandchildren, in particular. Veasley stated that she did not have any of these emotional problems prior to her contact with Universal. Thus, the amount awarded by the jury for Veasley's emotional distress was no more than just compensation for her claims which, although contested, were presumably credited by the jury.
*296 V
Under the facts in the case at bar, there was no evidence of wanton or gross conduct by the insurance company toward Veasley, therefore the court erred in submitting the issue of punitive damages to the jury. We reverse and render as to punitive damages. In all other respects, including the assessment of actual damages caused by the anxiety resulting from delay without an arguable reason is the judgment is affirmed.
AWARD OF PUNITIVE DAMAGES IS REVERSED AND RENDERED; AWARD OF ACTUAL DAMAGES IS AFFIRMED.
ROY NOBLE LEE, C.J., and HAWKINS and DAN M. LEE, P.JJ., PRATHER, ROBERTSON, SULLIVAN and PITTMAN, JJ., concur.
ON PETITION FOR REHEARING
Petition for Rehearing Denied.
DAN M. LEE, P.J., and SULLIVAN and McRAE, JJ., would grant.
ROBERTS, J., not participating according to Supreme Court Internal Rules.
DISSENTING OPINION ON PETITION FOR REHEARING
McRAE, Justice, dissenting:
After a careful review of the record and the applicable Mississippi law, I disagree with the majority's refusal to grant the petition for rehearing. In affirming the actual damages awarded to the Appellee and reversing the punitive damages award, the majority found that there was insufficient evidence to show that insurer's original refusal to honor a claim was any more than simple negligence or a mere clerical error. However, there is substantial evidence in the record which suggests otherwise and supports the jury's award of punitive damages. The record reveals that each of the company's claims analysts had reviewed Veasley's file and refused to pay the claim without a giving valid reason, despite its original denial on a basis completely contrary to the language of the policy provisions. Universal Life's system appears to be even more "black" than those we considered in Mutual Life Insurance Company of New York v. Wesson,
After her daughter's death on Oсtober 18, 1985, Martha Veasley turned the paperwork for the claim over to Viola Malone, a Universal Life Insurance Company agent and the proprietress of the Malone Funeral Home, which handled Teretha's burial arrangements and thus had been assigned part of the benefits claimed. Ms. Malone contacted the home office and ascertained that the policy was in, indeed, in effect at the time of Teretha's death. Although Teretha died in October, 1985, Ms. Malone did not send the physician's Proof of Loss Form for Universal Life nor have it completed until April 15, 1986. Further, she did not submit the claim form to Universal Life until July 1, 1986. Although Ms. Malone testified that this was the first claim she had ever processed, there is no explanation in the record for the eight month lapse in time before the claim was filed.
Ms. Malone's negligence in failing to timely file the claim was compounded by the actions of the claims analysts at Universal Life. The notification of the denial of the claim indicated two reasons for its rejection. It indicated that the policy contract had not been in force for the required time period and further, that the policy had no value. However, the Universal Life Claims Manager testified that the insurer "never" denies death claims for the first reason. He further testified that the second rеason was inappropriate and never used to deny death claims. He explained that at the time the claim was received, a substitute clerk, who normally calculated the cash surrender value of life insurance policies, conducted the review. However, the record indicates that the substitute *297 clerk had worked in the death benefit claims area on prior occasions and further, that she discussed the denial of the claim with a regular claims analyst before rejecting it.
After learning of the denial of the claim on July 16, 1987, Ms. Malone contacted Universal Life several times by telephone. Her inquiries were not followed uр by an investigation; rather, when the vacationing claims analyst returned, she also denied the claim and merely mailed Ms. Malone another copy of the notification of denial of the claim on July 25, 1986. It was not until the Veasley's attorney, Charles Blackwell, contacted Universal Life in early September, 1986 that the insurer looked into its reasons for denying the claim, and ultimately, paid it.
In "bad faith" cases, we have placed a heavy burden on the claimant to show by a preponderance of the evidence the existence of "bad-faith-plus" before punitive damages may be awarded. Andrew Jackson Life Insurance Company v. Williams,
I recognize that we have stated that mere clerical errors, oversights and honest mistakes alone do not rise to the heightened level of an independent tort so as to warrant the imposition of punitive damages. Pioneer Life Insurance Co. v. Moss,
We have upheld awards for punitive damages where, as an element of the bad faith issue, as agent's representations to the insured are contrary to the insurer's subsequent denial of the claim. Mississippi Farm Bureau Mutual Insurance Co. v. Todd,
Under the Unfair Claims Practices Act promulgated by the National Insurance Commissioners Conference in 1976 and adopted by the majority of insurance companies, it was agreed that claims such as this would be paid within thirty days and if a claim was to be denied, the insured would be notified in writing within forty five days. This has not been recognized in this state, however, under Mississippi law, an insurance company has a clear duty to promptly and adequately investigate a claim before denying it. Eichenseer v. Reserve Life Insurance Co.,
A finding of malice on Commonwealth's part is not supported by the record. Nevertheless, the motive behind the insurer's actions was clear: it intended to save money by denying a claim. Moreover, such actions were done with wanton disregard for the right of the insured in that the insured was assumed to have lied when a question on the application was left unanswered. Impairment of the plaintiff's ability to manage her affairs was a clearly foreseeable result of the denial. The use of an insurer's superior position to wrongfully deny a claim offends the public sense of justice and propriety.
Guy,
Universal Life quite promptly denied Mrs. Veasley's claim within two weeks after it was finally submitted. However, I question seriously the adequacy of any investigation undertaken prior to the swift denial of the claim. There is no evidence in the record to suggest that Universal investigated the claim prior to rejeсting it through contacting either Ms. Malone or the agent who originally sold the policy to Teretha, Regina Battle. The failure to meet this very simple prong of the minimum requirements test articulated in Eichenseer suggests to me that Universal's denial of Mrs. Veasley's claim was more than a simple clerical error or mere oversight.
As the majority points out, Universal's Claims Manager realized immediately that the claim had been wrongfully denied after he was contacted by Mrs. Veasley's attorney in September, 1986. The claim was then "promptly" paid, but only after several reviews by the company's primary claims analysts and an eight month delay. What does it take to have an independent tort? Granted, in most сases where we have affirmed punitive damages, the delay in investigating the wrongful denial and paying the benefits owed has been longer than the two month period in the case sub judice. In Blue Cross & Blue Shield of Mississippi Inc. v. Mass,
In the past, we have upheld punitive damages awards against insurance companies under facts no more egregious than those before us today. In Continental Casualty Co. v. Garrett,
The failure of Viola Malone to file promptly Mrs. Veasley's claim, after representing to her that the coverage was in effect and that she would handle the filing; the failure of the insurance company to adequately investigate the claim before summarily denying it on a basis contrary to the explicit language of the policy; and the failure of the insurer to investigate the denial of the claim upon the inquiry of its agent all add up to more than simple negligence, mere oversight or clerical error. It smacks of reckless disregard for the rights of others and gross negligence. Finally, when an insurer forces the insured to retain an attorney to make the company comply with the provisions of its own policy, the company should be liable for attorneys fees and costs. We require this to be done only when punitive damages are allowed; however, as in this case, once the fees and costs are paid, the claimant is left with nothing. Accordingly, I dissent.
NOTES
Notes
[1] Andrew Jackson Life Ins. Co. v. Williams,