BOWLING, JUSTICE, FOR THE COURT:
The primary question involved in this appeal from the Circuit Court of Rankin County is whether or not appellee's evidence was sufficient to make a jury question on liability of appellant, Reserve Life Insurance Company, for punitive damages for failure to pay appellee's claim for medical and hospital benefits under the policy of insurance issued to appellee. Appellee received a jury verdict of $2,416 as actual expenses owed under the policy and a verdict of $158,000 as punitive damages. As is often the case, the Court is required to apply applicable legal principles to the particular facts of a particular case. As usual, those facts are different from any other case previously considered.
Mr. and Mrs. Henry McGee resided in Rankin County, Mississippi. For approximately five years Mrs. McGee had a policy of what is commonly known as "hospitalization
insurance" with appellant, Reserve Life Insurance Company. Mr. McGee had his insurance with Blue Cross-Blue Shield Company. This policy with Blue Cross-Blue Shield was approaching the renewal date and Mr. and Mrs. McGee discussed the fact that Mr. McGee's policy did not provide for adequate room charge payments and, for this reason, the Jackson office of appellant [hereinafter referred to as Reserve] was requested to have someone contact them about insuring McGee with that company.
On the night of February 18, 1980, Mr. Bill Nunn came to the McGee home for the purpose of discussing Mr. McGee's insurance and a possible application to Reserve. Mr. Nunn was the agency director for Reserve and also actively solicited and secured applications for policies. The main conflict in the evidence, which is important in the disposition of the cause, was the testimony of Mr. and Mrs. McGee and that of Nunn regarding the completion of the application for insurance. A copy of this application is attached hereto as Appendix "A" . There are seven questions on the application. Four of these have sub-questions. After each question and sub-question there were two blocks, one under "yes" and one under "no." All of these questions refer to the physical conditions of the applicant Mr. McGee and most of them list specific medical conditions, requesting whether or not the applicant was suffering from any of those physical infirmities. Mr. McGee, who has a third grade education, testified positively that Nunn did not read each question to him, but asked in general terms regarding Mr. McGee's health. McGee testified that he told Nunn that he was in "good" health. McGee testified that as shown under question 10 (b) of the application, Nunn was told that McGee's physician was Dr. Bobo of Pearl and that Nunn could secure any information needed from Dr. Bobo pertaining to McGee. Nunn was advised that McGee had not been confined to a hospital in the past five years, but had been seen by Dr. Bobo. At Nunn's request, McGee executed a written authority for the appellant company to contact Dr. Bobo and secure any medical information from him regarding McGee's prior record before the policy was issued. It was the McGees' understanding that this would be done. Their sworn testimony was that Nunn told them it would be done. It is noted, as shown on the attached copy of the application, that Nunn in the blanks at the bottom of the application under the response to question lo(b) wrote "complete physical by Dr. Bobo." In the next blank Nunn wrote "ex. health." We digress here and state that Nunn in his testimony agreed that McGee stated he was in "good health" and Nunn was the one who wrote "excellent
Appellee and his wife gave Nunn a check for the first month's premium. Nunn's testimony was that for the first year a policy is in force, he receives something around fifty percent of the premiums and thereafter a lesser percentage during the life of the policy. McGee executed a form that gave appellant company authority to draw a draft on the McGee account each month for the monthly premiums.
The appellant company issued Mr. McGee the policy of insurance dated March 16, 1980, approximately a month after the application was secured, but in time for the Blue Cross-Blue Shield policy to be cancelled.
In September 1980 appellant McGee began having some trouble with his urinary tract. He conferred with Dr. Bobo, who referred him to Dr. Charles Jackson, a specialist in Jackson. Jackson examined McGee and found a lesion on his bladder. McGee was admitted to the St. Dominic's Hospital in Jackson on September 16, 1980, and by using special instruments, the lesion was removed. An examination determined that the lesion was a transitional cell carcenoma of a low grade and short prior existence. Appellee was in the hospital nine days and was discharged with a good prognosis. After discharge, the proper forms were completed for benefits under the policy discussed above and the forms forwarded to appellant company. McGee heard from appellant company by receiving a form dated December 3, 1980, in which the company representative stated that they needed more information and "we will appreciate your courtesy while your file is being completed."
On December 14, 1980, McGee again was hospitalized by Dr. Jackson for a period of five days. He had noted some irregularity in the bladder that was suspicious and wanted to check this situation. As a result of that hospitalization, Dr. Jackson was of the opinion that the trouble was inflammatory and there was no evidence of residual tumor. He was treated and at the time of the trial on November 4, 1981, there had been no further evidence of bladder tumor regarding Mr. McGee. According to Dr. Jackson, there was no connection between McGee's bladder problem and any transient ischemic attack he might have had in the past.
By letter dated January 12, 1981, McGee was informed by appellant company that their file still was incomplete with respect to the September 16, 1980, hospitalization
and that their representative was still investigating his medical history. This letter ended with "Thank you again for your continued patience and cooperation." Understandably, Mr. McGee's patience by that time was somewhat tested. He, therefore, employed an attorney to represent him in his claim for hospitalization benefits. This culminated in a letter dated February 12, 1981, to McGee's attorney advising:
We have learned of ten separate dates of office visits to Dr. Bobo during 1977, 197B and 1979, some of which were for treatment of a condition which would have been pertinent to our acceptance of Mr. McGee for coverage with this Company.
Had the Company known of Mr. McGee's history of transient ischemic attack, which dates back to at least June 1978, coverage would not have been issued to him. The initial premium submitted with the application would have been returned along with a letter of explanation.
Although we have only recently learned of this history, our obligation remains the same as it was initially, and is limited to a refund of premiums paid to date. The policy should be attached to the enclosed draft before taking the draft to the bank for payment.
The check included payments for five months' premiums that the company had been issuing a draft for and collecting thereon during the time of their "investigation." The evidence revealed that during that period of time, appellant company had employed a large investigation firm named Equifax Services to investigate McGee's medical history. In addition to that of McGee's personal physician for five years prior to the application, as hereinbefore discussed, the Equifax investigation was directed to hospitals and doctors, including a Dr. Lee of Forest and local hospitals. No hospitalization was found in this extensive investigation. It was ascertained that there were two Dr. Lees in Forest, Mississippi. According to Equifax Services, "A thorough search of Dr. John Paul Lee's records" was made and no record was found on a Henry McGee. A search o the records of Dr. Charles David Lee revealed that he had seen a Henry McGee four times: October 13, 1959; April 5, 1965; November 15, 1965; and December 15, 1966. All four of these visits during the
seven year period were for such things as bronchitis. The last visit in December of 1966 was for treatment of a cough.
Introduced in evidence was a memo dated February 3, 1981, from a Mr. Rowland [a witness at the trial] to the underwriting manager relating that he would have declined the original application and gave as a reason under the heading "claim history developed" the following: "History of TIA with office visits, June 16, 1978, and July 2, 1979, as well as checks and prescriptions."
We, therefore, find that after giving up on the wide-spread investigation of McGee, appellant relied solely on the record of Dr. Bobo of Pearl, whose name McGee had given Nunn the night the original application was taken and when McGee signed the authority at the request of Mr. Nunn for Dr. Bobo to give any information to appellant company prior to the issuance of the policy. This record of Dr. Bobo is as follows:
2-13-76 infection behind left ear 2-7-77 flu syndrome 2-10-88 re-check 2-14-77 re-check 6-16-78 tia 6-20-78 re-check 6-19-79 headache and bronchitis 12-13-78 contusion of nose 12-19-78 flu syndrome 6-2-79 headache and tia 7-11-79 re-check 5-2-80 bronchitis 12-19-80 flu syndrome
For the two TIA diagnoses, Dr. Bobo prescribed nicotonic acid, the same medication used to treat inner ear trouble that causes dizziness.
Referring to the pleadings, the declaration was filed on April 1, 1981, with allegations in detail as to Nunn's visit to secure the application and in much other detail, including refusal of appellant company to pay the claim. The declaration included a request for punitive damages against Reserve. There were general denials by Reserve of most of the declaration's paragraphs. After this we find "first affirmative defense" which reads as follows:
That Henry McGee, Plaintiff, made false
statements on his application for insurance with Reserve Life Insurance Company which materially affected either the acceptance of the risk or the hazard assumed by Reserve Life Insurance Company, all according to Section 83-9-11 (3), Mississippi Code of 1972, Annotated.
That accordingly, due to the material misrepresentations and false statements of the insured, Henry McGee, policy number 0590994A was rescinded by the company on February 12, 1981, after the company learned of said false statements and material misrepresentations and the insured was refunded the premiums previously paid to said Defendants.
Interrogatory 3 propounded by plaintiff to appellee company is as follows:
3. In the answer filed in this cause on behalf of the defendants, Reserve Life Insurance Company and Bill Nunn, it is alleged that Henry McGee, the plaintiff, made false statements on his application for insurance which materially affected either the acceptance of the risk or the hazard assumed by Reserve Life Insurance Company according to Section 83-9-11 (3) of the Mississippi Code of 1972, as annotated. With regard to said allegations, please state the following: Exactly which statements were made by Henry McGee; the exact wording of such statements; to whom said statements were made; on what date; in what way they were false; in what way they materially affected the acceptance of the risk; in what way they materially affected the hazard assumed by Reserve Life Insurance Company.
The appellant's answer to Interrogatory No. 3 is as follows:
Plaintiff failed to truthfully answer question lo(b) of the application for insurance in that he failed to disclose that from the period of February 13, 1976, until July 16, 1979, that he had eleven office visits for various illnesses to Dr. Edgar E. Bobo in Pearl, Mississippi; his answer to that
particular question was made to William A. Nunn; February 18, 1980; plaintiff failed to disclose the complete nature of his medical history; plaintiff failed to disclose that he had been diagnosed and treated in June 1978 for transient ischemia attack (TIA) and that had this information been disclosed on the application, defendant Reserve Life Insurance Company would have declined to issue the policy. In addition, due to the several episodes of bronchitis, the policy would have required a waiver eliminating liability for bronchitis even if the TIA had not existed. William A. Nunn lives at Morningside Apartments, F-16, Jackson, MS 39202.
Appellant in its brief stated that "The appellant relied upon the above referenced section [83-9-11 (3)] as an affirmative defense to the declaration filed by Mr. McGee." Appellee replied, denying the affirmative defense, thereby requiring appellant to prove its affirmative defense. Reserve Life Ins. Co. v. Brunson, 252 Miss. 20, 172 So.2d 571 (Miss. 1965).
There is no question regarding whether or not appellee's claims were owed under the terms of the policy. They clearly and undisputedly were covered. Also, the testimony was undisputed that the September and December 1980 hospitalization had nothing whatever to do with the alleged transient ischemia attack or bronchitis attack set up in the affirmative defense.
It was admitted by agent Nunn that when McGee told him he was in good health, then, he (Nunn), of his own volition substituted "excellent" for "good."
The only request of appellant for a directed verdict at the conclusion of all the evidence was a request in the form of a proposed written instruction from the Court "that it is your sworn duty to return a verdict for the defendant."
We should say here that during the entire five months appellant was "investigating" the alleged false answer on McGee's application, the appellant nor its hired representatives contacted Mr. Nunn about what he put on the application and why. Me first learned of the facts of the policy cancellation when the company secured a refund of his part of the premiums the company has collected during the five month investigatory period. This is
especially important when considering the undisputed proof that at no time did either Dr. Bobo, Mr. Nunn or anyone else ever mention to appellee the term "transient ischemia attack" . We have already seen that both Mr. and Mrs. McGee testified positively that according to Mr. Nunn the company was going to contact. Dr. Bobo prior to issuing the policy. The jury had a right to believe Mr. and Mrs. McGee's testimony.
There has been a lot written by various members of the judiciary and legal article writers about "bad faith" cases. It is unknown to us how this term "bad faith" came into being. These words were never mentioned in the principal case from this Court of Standard Life of Indiana v. Veal, 354 So. 2d 239 (Miss. 1978). Some would have us put this term in a straight jacket which no other court has done; this for the obvious reason that in litigation of cases, it is usually hard to make a legal principle all black or all white. Some of them are gray.
Before ending this opinion, we shall discuss this situation further.
This is purely and simply a case where the plaintiff was forced to litigate under the previous edicts of this Court, regarding liability of an insurance company under a hospitalization policy and regarding if and when the company refusing payment would be subject to an assessment of punitive damages by a jury - nothing more and nothing less. The rules in this game clearly have been set forth by the prior decisions of this Court.
Appellee filed his suit contending that his claim clearly was covered under the terms of the policy [undisputed] and that the company had refused to pay, saying it had cancelled the policy ab initio. The appellant insurance company filed its answer saying that as an affirmative defense they hereby invoke the last sentence of MCA 89-9-11 (1972), and contend that a false statement on the application gives it a right to cancel the policy as the statement materially affected the acceptance of the risk, even though the claim was clearly covered under the terms of the policy. The case was litigated in the lower court on this basis and there is no need to rehash the evidence hereinbefore set out. Also, the trial court was of the opinion that a jury question existed as to whether or not appellant should prevail under its affirmative defenses and further that the evidence of appellee was sufficient to bring the case within the opinion in Veal, supra, and was sufficient to submit the question of punitive damages to the jury.
The instructions given the jury at the request of parties clearly followed the outline set out in Veal, supra. There we said:
This case demonstrates the necessity of awarding punitive damages when an insurance company refuses to pay a legitimate claim, and bases its refusal to honor the claim on a reason clearly contrary to the express provisions of its own policy. If an insurance company could not be subjected to punitive damages it could intentionally and unreasonably refuse payment of a legitimate claim with veritable impunity. To permit an insurer to deny a legitimate claim, and thus force a claimant to litigate with no fear that claimant's maximum recovery could exceed the policy limits plus interest, would enable the insurer to pressure an insured to a point of desperation enabling the insurer to force an inadequate settlement or avoid payment entirely. (354 So.2d at 248).
We also stated in Veal that punitive damages are assessed as an example and warning to others and should be allowed only with caution and within limitation. In Veal we quoted from Snowden v. Osborne, 269 So.2d 858 (Miss. 1972), by saying:
Exemplary or punitive damages are those, of course, which are in addition to the actual or compensatory, settlement. They are granted in the nature of punishment for wrongdoing of the defendant and as an example so others may be deterred from the commission of similar ...