Standard Life Ins. Co. of Indiana v. Veal, 354 So. 2d 239 (Miss. 1977)

SUGG, Justice,

for the Court:

This appeal and cross appeal comes from the Circuit Court of the First Judicial District of Hinds County. Eugene Yeal, plaintiff, sued Standard Life Insurance Company of Indiana, defendant, for breach of contract for failing to pay the face value of a decreasing term life insurance policy in the initial amount of $1,008. The jury awarded plaintiff damages in the amount of $26,008, $1,008 actual damages and $25,-000 punitive damages.

Defendant assigns the following errors on direct appeal:

3. The lower court erred in instructing the jury with regard to construction of the insurance policy.

Plaintiff cross appealed and assigned as error the action of the trial court in setting aside a default judgment rendered in his favor in the amount of $51,008.

On July 23,1973 plaintiff executed a brokerage contract with Ades Finance Company, a licensed broker under the small loan privilege act, to negotiate a loan for him. The face amount of the loan was $1,008 from which various charges were deducted as set forth in the following summary:

The indebtedness was to be repaid in thirty-six monthly installments of $28 each with the first installment due on August 23, 1973. When the brokerage contract was entered into, Ades Finance Company, acting as agent for defendant, issued a decreasing term life insurance policy on the lives of plaintiff and his wife, Jessie Lee Veal. The policy also insured plaintiff against physical disability.

Defendant entered into a contract on February 21, 1973 with Moses Ades, doing business as Ades Finance Company whereby defendant agreed to insure obligors upon payment of the premium specified therein. The contract contained the following provisions:

any time to discharge the indebtedness, unless the initial indebtedness exceeds $10,000.00.

As authorized by the contract, Ades issued a certificate of insurance to plaintiff upon the inception of the indebtedness which contained the following provisions:

Jessie Lee Veal died August 5, 1973 and proof of death was filed with defendant, in accordance with the terms of the policy. On October 15, 1973 defendant wrote Ades that the death claim of Jessie Lee Veal would not be honored. Defendant stated in its letter the following:

We regret we cannot honor this claim since Jessie’s name did not appear on the debt instrument; so she had no insurable interest, and there was no debtor-creditor relationship.

On October 24, 1973 plaintiff’s attorney wrote defendant requesting them to review the claim and forward their check without further legal proceedings. No reply was made to this letter so on November 30,1973 plaintiff’s attorney wrote defendant stating that it would be necessary to file suit unless they received a cheek in payment of the claim. Defendant replied on December 4, 1973 that they did not find the letter dated October 24. Defendant enclosed a copy of their letter to Ades dated October 15, 1973 and stated that the letter to Ades, “explains the position our company has decided upon relative to the policy that was issued.” Plaintiff then filed his declaration on March 20, 1974.

After suit was filed defendant’s House Counsel received a copy of the declaration and reached the conclusion that defendant was not liable, but after considering the claim from an economic standpoint, recommended that the company pay $1,008, the face amount of the policy. The offer was made to one of the attorneys representing the plaintiff who stated that he would talk with plaintiff and get back in touch with defendant’s House Counsel. Plaintiff’s attorney did not call defendant’s House Counsel so in about a week the offer was repeated to plaintiff’s attorney who informed the House Counsel that he was not interested in any settlement. Plaintiff testified that he was never told that defendant had offered to pay the $1,008.

I.

Defendant argues, in support of its first assignment of error, that it was entitled to a directed verdict on the question of liability under the insurance policy for two reasons: (1) plaintiff did not have the right to bring the action because he was not named as a beneficiary, and (2) no premium was paid for coverage on the life of plaintiff’s wife.

Defendant’s contention that plaintiff is precluded from recovering on the policy because he is not a beneficiary does not dispute the legitimacy of the claim, but simply raises the question of the standing of the plaintiff to maintain the action. Defendant’s argument is based on the following provisions of the policy:

Defendant contends that the insurance was issued for the purpose of paying the loan to Ades and that Ades (the creditor policyholder) is the primary beneficiary; and, therefore plaintiff had no standing to bring the lawsuit. Jessie Lee Veal, plaintiff’s wife, worked and helped support the family. By insuring his wife, Veal was protecting himself against the possibility of his wife’s death which would result in decreasing the family income.

We have no case directly in point on this question, but the principle announced in Stuyvesant Ins. Co. v. Motor Sales Co., 135 Miss. 585, 99 So. 575 (1924) is applicable to the facts of this case. Motor Sales Co. sued appellant, Stuyvesant Insurance Co. for a loss suffered by appellee in the burning of an automobile covered by the policy. Motor Sales recovered a judgment and appellant argued on appeal that there was no right of action in appellee, but that if one existed, it was in the Capital National Bank, to whom

there was a mortgage loss payable clause in the policy of insurance. The Court stated:

In our case plaintiff executed a contract with Ades to borrow money, and following the death of his wife and rejection of the claim for the wife’s death by defendant, Ades demanded payment of the debt from plaintiff. Ades did not sue defendant, which it had the right to do, thereby leaving plaintiff liable for the debt. Although any amount collected from defendant, on account of the death of Mrs. Veal, was due to be paid Ades as a credit on plaintiff’s debt, and although Ades was the primary beneficiary named in the policy; nevertheless, plaintiff had a beneficial interest therein. Like the plaintiff in Stuyvesant Insurance Co., supra, the beneficial interest was the right to have the proceeds of the policy applied on his debt. If plaintiff was not permitted to maintain the action and Ades refused, or did not file suit, plaintiff would have no remedy to collect the proceeds from the insurance policy and apply it on his debt, but would be required to pay the debt. We hold that plaintiff’s beneficial interest in the proceeds of the insurance policy entitled him to maintain his action.

In Williams v. Home Insurance Co., 168 Miss. 443, 151 So. 728 (1934) Williams, the appellant, brought an action against Home Insurance Co., appellee, for his interest in the loss of a truck which burned. Appellee issued a policy of insurance containing a loss payable clause in favor of Universal Credit Company, the mortgagee. The policy provided that in case of fire the loss should be adjusted with appellant, but was to be paid, subject to all the conditions of the policy, only to Universal Credit Company “for account of all interests.” Appellant alleged that appellee had settled with Universal Credit Company 'but had not settled for his interest in the loss of the truck. The trial court sustained a demurrer to the declaration and this Court reversed and stated:

The rule announced in these two cases, which permitted suit by a plaintiff who had a beneficial interest in the proceeds of an insurance policy, should not be limited to the mortgagor-mortgagee relationship but should be extended to the debt- or-creditor relationship involved in this case. Defendant knew that it was insuring payment of loans of debtors of Ades if these members died or were totally and permanently disabled. Ades was interested

in the loan being paid, and the plaintiff as a debtor, was interested in his loan being paid in the event of his death or disability, or in the event of the death of his wife. Certainly plaintiff could have joined in a suit against the defendant because the contract of insurance was actually for the mutual benefit of Ades and the plaintiff, and the benefit to plaintiff was more than an incidental benefit.

If defendant had filed his objection of non-joinder as required by section 11 — 7— 21 Mississippi Code Annotated (1972) the trial court could have, before trial of the issue, permitted the declaration to be amended to sue in the name of Ades for the use of the plaintiff. The failure of Ades to file suit on the policy was, as held in Williams v. Home Insurance Company, supra, a mere non-joinder.

Section 11-7-21 was not repealed when section 11-7-59 Mississippi Code Annotated (1972) was adopted as Chapter 280 Mississippi General Laws of 1948. The section is still viable and we held in Wiener v. Pierce, 253 Miss. 728, 178 So.2d 869 (1965), with reference to section 11-7-23 Mississippi Code Annotated (1972) which deals with non-joinder or misjoinder of defendants, that:

The same rule applies to the statute dealing with non-joinder or misjoinder of parties plaintiff. (Section 11-7-21).

Defendant next contends it was entitled to a directed verdict because the estate of his deceased wife was the second beneficiary under the policy. The insurance policy named Ades as the creditor policyholder and provided for payment to the creditor policyholder to be applied by the creditor policyholder toward the discharge of the debt of plaintiff. The debt was incurred and the policy issued on July 23, 1973 and plaintiff’s wife died on August 5, 1973. The initial amount of insurance was $1,008, the note was for $1,008, and no payment was due nor had been made on the date of the wife’s death. The policy provided that the initial amount of insurance shall be equal to the initial indebtedness and thereafter during the term of the indebtedness the amount of insurance in force on the insured obligor or the spouse will be equal to the balance due on the unpaid indebtedness.

Plaintiff admits in its brief, under the factual situation involved in this case, the estate of plaintiff’s deceased wife did not become a second beneficiary because no payment had been made on the loan and the face amount of the policy equalled the debt. Under no conceivable set of facts could the estate of plaintiff’s deceased wife become a second beneficiary because the policy provides that the amount of insurance will never exceed the amount of the debt. Furthermore, the termination clause1 of the policy contains additional provisions which further limit the possibility of defendant ever becoming liable to the estate of plaintiff’s deceased wife.

II.

Defendant next contends that plaintiff is not entitled to recover because no premium was charged for insurance on the life of plaintiff’s wife. The contract between Ades Finance Company and defendant contains the following provisions:

Office of the Company on or before the 10th day of the month following the month in which the premium becomes due:

Defendant states that the premium was computed on the single coverage rate of $1.00 for each $100 of initial insurance instead of the joint coverage of $1.68 for each $100 of initial insurance and states that the single coverage rate of $30.24 shown in the certificate of insurance issued to plaintiff reflects that the single coverage rate was charged. According to our computation the joint coverage rate would amount to $50.80 for the three years insurance. This argument of defendant is unsound for two reasons. First, the error in the premium was an error of the agent of defendant and an insured may not be prejudiced by the mistake of an insurance agent if the agent made a mistake in computing the premium. In case of a mistake in the premium being charged, defendant would be entitled to have the contract reformed to reflect the proper premium. In Johnson v. Consolidated American Life Insurance Company, 244 So.2d 400 (Miss.1971) we held that insurance policies may be reformed as other contracts in a proper case. We permitted reformation of a contract when the figure of $5,000 was mistakenly written instead of $19.20 in a payment option.

The second reason is that a premium was charged which was sufficient to keep the insurance in force until Mrs. Veal’s death. The certificate of insurance was issued by Ades to plaintiff on July 23, 1973 and his wife died on August 5, following. The contract between Ades and the defendant provided that:

The policy requires the creditor policyholder to furnish the company on or before the 10th of each month such data as may be required respecting the obligor’s insured

and the terms of their respective obligations and to accompany such data with the monthly premium due under the terms. After the certificate was issued by Ades Finance Company on July 23, 1973 it was not required to forward the monthly premium due until the 10th day of August, 1973. Ades had charged plaintiff with a premium in the amount of $30.24 which was sufficient to provide joint coverage on plaintiff and his wife for more than eighteen months. The policy does not require that the full amount of the premium for three years be paid in advance but provides for monthly premiums. We therefore conclude that the plaintiff had been charged a premium sufficient to keep the policy in effect for at least eighteen months past the date on which his wife died.

III.

In its second assignment of error defendant contends that this is not a proper case for assessment of punitive damages against it. We recognize that punitive damages are assessed as an example and warning to others and should be allowed only with caution and within narrow limits. In Snowden v. Osborne, 269 So.2d 858 (Miss.1972), the reason for allowing punitive damages was stated as follows:

In Seals v. St. Regis Paper Co., 236 So.2d 388 (Miss.1970) the Court did not allow punitive damages under the facts in that case, but stated:

Further in Fowler Butane Gas Co. v. Varner, 244 Miss. 130, 141 So.2d 226 (1962) the Court held:

With reference to punitive damages in suits for breach of contract we stated in Progressive Casualty Insurance Company v. Keys, 317 So.2d 396 (Miss.1975) the following:

We come now to the query; Does the evidence support an award for punitive damages?

Defendant originally denied payment on the ground that “Jessie’s name did not ap

pear on the debt instrument; so she had no insurable interest, there was no debtor-creditor relationship.” This position is contrary to the express definition of “insured obligor." The contract between Ades Finance Company and the defendant defines “insured obligor” in the following language:

There is no requirement that the spouse of an insured obligor sign the note; therefore, the original reason assigned by defendant for failing to pay the claim for the death of plaintiffs wife is without any foundation whatever, and was not argued on appeal. Likewise, the other grounds raised at the trial and argued were without merit as previously, discussed in this opinion.

Defendant failed to honor the legitimate claim filed following the death of plaintiffs wife and there was no reason whatever to justify its action. Following its initial rejection of the claim plaintiff employed an attorney and defendant again rejected the claim for the original reason stated. It only offered to pay the face amount of the policy after plaintiff had filed his suit. •

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. We are of the opinion that the refusal to pay the legitimate claim in this case was an intentional wrong and constituted an independent tort as contemplated in Progressive Casualty Insurance Company v. Keys, supra.

Of course, if an insurance company has a legitimate reason or an arguable reason for failing to pay a claim, punitive damages will not lie, but in this case the defendant had no reason to contest the claim filed with it. We therefore hold that punitive damages were allowable.

IV.

In its third assignment of error defendant argues that the following instruction should not have been given:

This instruction is error because difficulty of understanding a contract of insurance is not a reason to construe a policy against the insurance company. However, this does not constitute reversible error because this instruction deals with the liability of the defendant on the insurance policy. In our view of the case the plaintiff was entitled to a peremptory instruction directing the jury to find for him for the face amount of the policy; therefore, the instruction is harmless error.

V.

In its fourth assignment of error defendant argues that the trial court erred in overruling its motion for a new trial particularly with reference to the amount of the verdict of the jury. Defendant ar

gues that the amount awarded for punitive damages is excessive. In Snowden v. Osborne, 269 So.2d 858 (Miss.1972) we declined to enter a remittitur in a case where punitive damages in the amount of $30,000 were awarded and stated:

We also stated in Snowden :

We are, in fact, on review, left in a complete quandary by the vacuum in the record as to the appropriateness of the judgment by way of punitive damages other than to say that it seems, on its face, to be disproportionate to the physical injuries inflicted. It is an insufficient basis for establishing a remittitur and particularly so since we stated in Yazoo & Mississippi Valley Railroad Co. v. Williams, 87 Miss. 344, 39 So. 489 (1905), the following:

To the same effect see Yazoo & Mississippi Valley Railroad Co. v. May, 104 Miss. 422, 61 So. 449 (1913). (269 So.2d at 861).

In this case we are of the opinion that the award is not excessive. Defendant had no reason to deny the claim and has assets of in excess of $85,000,000. An award for punitive damages, if it is to accomplish its purpose, must be of sufficient size to deter the defendant from arbitrarily refusing to pay legitimate claims.

VI.

Plaintiff filed a cross appeal and urges this Court to reinstate a default judgment rendered by the trial judge on a writ of inquiry in the amount of $51,008; $1,008 actual damages and $50,000 punitive damages. Judgment on the writ of inquiry was entered on September 8, 1975 and on September 19,1975 defendant filed a motion to set aside the default judgment and judgment on writ of inquiry. After a hearing on the motion the judge set aside the default judgment and in this we find no error.

AFFIRMED ON DIRECT AND CROSS APPEALS.

PATTERSON, C. J., and WALKER and LEE, JJ., concur.

SMITH and INZER, P. JJ., and ROBERTSON and BROOM, JJ., dissent.

BOWLING, J., took no part.

SMITH, Presiding Justice,

dissenting:

This case involves a certificate of credit life insurance.

Appellee Veal obtained a loan from Ades Finance Company in the sum of $1,008. As additional security for the loan, appellant, Standard Life Insurance Company, issued its certificate of credit life upon the lives of Veal and Veal’s wife, loss payable to Ades for the amount of the unpaid debt. Veal and his wife were named jointly as insureds although Mrs. Veal was not a signatory on the note evidencing Veal’s debt to Ades. The certificate reflected the following:

Insured Obligor Mr. Eugene Veal

The policy provided:

Mrs. Yeal died shortly after the transaction with Ades was closed and the certificate issued. Yeal paid nothing on the debt and Ades, testifying as a witness, so stated.

Following Mrs. Veal’s death Ades wrote Standard Life requesting that it pay the amount due him by Veal under the terms of the certificate. Standard declined upon the stated ground that Mrs. Veal had not signed the loan instruments and was not a debtor to Ades. After considerable correspondence with attorneys employed by Veal, Standard’s general counsel offered to pay the amount of $1,008 in settlement of the claim. This offer, made to Veal's counsel who promised to submit it and to advise Standard’s counsel as to the result, was never communicated to Veal by his counsel.

Having received no response to the offer, after a time Standard again contacted Veal’s counsel who, this time, rejected the offer out of hand. Again Veal was not informed of the offer and Standard was told by his counsel that they were “not interested” in the offer or in “any other offer.”

The case came on for trial and was stubbornly contested by able and reputable counsel representing Standard. At the conclusion of the case, the trial court submitted the liability of Standard for the $1,008 to the jury, and also instructed the jury that it might return punitive damages against Standard. This resulted in a verdict for Veal in the sum of $1,008, and, in addition, an award of $25,000 as punitive damages.

It is difficult to see how this case can be distinguished in any material particular from any other case where suit is filed upon a contract and the person against whom the suit is brought defends and loses. Veal had no standing to sue under the clear terms of the insuring certificate. This right was the exclusive prerogative of Ades so long as the debt to Ades was outstanding and unpaid. It is true that Veal might have sought a mandatory injunction to compel payment of the debt by Standard to Ades under the terms of the certificate, but Ades had the exclusive right to recover the money in an action at law. In the situation which has now resulted in the present suit, Ades has not been paid and Veal is being allowed to collect money which belongs to Ades under the policy and which Veal undoubtedly owes.

There was, and will be, no “balance” remaining “after payment of the Insured Ob-ligor’s indebtedness to the Creditor Beneficiary” to be paid to Veal or anyone else. It is conceded in Veal’s pleadings that this policy is a credit life insurance policy, and is, quite obviously, the type of policy which has come into common use in credit transactions. It is cheap, and protects both the lender and borrower with respect to the loan. Its low cost of only $1.68 for each $100 of initial insurance requires that the coverage afforded be strictly limited by the terms of the certificate. The decision in this case would increase the exposure of the insurer under this type of coverage (here about 26 times the amount of insurance afforded) to losses which cannot be estimated in advance and which are measured only by the emotional whim of a jury.

The wage earner, whose income stops with his death, by means of (presently) inexpensive credit life insurance may now borrow money which, without credit life coverage, he would not otherwise have been able to do. If a company writing a certificate insuring a thousand dollar loan is to be exposed to a judgment for $26,000.00 simply because it first rejected a claim, even if it turns out that it was mistaken in so doing, it may become difficult to obtain coverage and certainly will become substantially, and perhaps prohibitively more expensive. These things are of particular importance to people who work for wages.

In any event, the record in the ease before us discloses that Standard was represented by competent and reputable local counsel throughout and it must be assumed they acted upon advice of counsel. This, in itself, should destroy the claim of intentional wrongdoing. In no event should the mere declination to pay a debt, however, clearly owed, be held to be a “distinct and separate tort” justifying the imposition of punitive damages. The rule in Mississippi is to the opposite effect and is well established by the ease law of this state. Typical of these decisions are the following:

In Fowler Butane Gas Company v. Varner, 244 Miss. 130, 141 So.2d 226 (1962) the Court held:

In Progressive Casualty Insurance Company v. Keys, 317 So.2d 396 (Miss.1975) the Court held:

(b) Punitive damages are not recoverable for the breach of a contract unless such breach is attended by intentional wrong, insult, abuse or such gross negligence as to consist of an independent tort. D. L. Fair Lumber Company v. Weems, 196 Miss. 201, 16 So.2d 770 (1944); American Ry. Express Co. v. Bailey, 142 Miss. 622, 107 So. 761 (1926); Hood v. Moffett, 109 Miss. 757, 69 So. 644 (1915).

(317 So.2d at 398).

Here, Standard sought to settle the case by payment in full of the face amount of the certificate, and its efforts were at first ignored and then finally rejected with a statement by Veal’s counsel that they were “not interested” in any settlement. And this without ever having submitted the offer to Veal. This is not a situation which casts Standard in the role of villain or that reflects that its actions were wanton or oppressive. Fraud is neither alleged nor proved.

Ades, if anyone, was entitled to recover under the security certificate given and accepted for the purpose. Ades Finance Company cannot be considered to have been a Babe in the Woods in a financial transaction of a type with which it dealt daily. The result in this case is that Veal has usurped Ades’ right to the proceeds of the policy. Veal will be permitted to receive under the conclusions and views expressed in the controlling opinion, money that is admittedly owing to Ades, leaving Ades and Standard in an anomalous situation, to say the least, as to the amount owed Ades and unpaid by Veal. I cannot agree that this is a proper disposition of the case, since it avoids the fundamental purposes of the contract and misconstrues the clear terms of the certificate. It seems to me that Standard had a reasonable, arguable defense, and that, moreover, its repeated offers to settle the case shortly after receiving a copy of the declaration filed against it, destroyed any suggestion of intentional wrongdoing.

The controlling opinion would dismiss the issue raised by Standard, that Veal had no standing under the contract to bring the suit, by citing the statutory requirement as to the manner of raising a question of non-joinder of parties. It seems to me, however, that in an action at law for money allegedly due on a contract, exhibited with the declaration, under the terms of which the plaintiff clearly had no standing to recover, was a question which went beyond a mere question of nonjoinder and was a matter apparent upon the face of the declaration and its exhibited contract, and was a defect so fundamental and fatal to plaintiff’s right that it might be attacked in any manner, even by motion for a directed verdict at the conclusion of the case when plaintiff’s right to recover under the contract sued on not only had not been established but has been negated by specified proof put on by him that his creditor, not he, was entitled to sue.

Section 24 of the Mississippi Constitution 1890 requires that “all courts shall be open.”

Article 3, section 25, Mississippi Constitution 1890, provides:

This means that every person against whom a suit is brought is entitled to defend it without exposing himself to punishment for so doing in the event he does not prevail.

The present case was sternly defended by competent reputable counsel and a number of defenses were interposed against Veal’s right to recover under the terms of the certificate. The case involved interpretation of an insuring certificate affording Ades security for a small loan made to Veal. Standard’s obligation was contractual. It was limited in express terms to paying to Ades the balance of the debt which remained unpaid at the time of the loss. There was nothing in the certificate that can be construed as having obligated Standard to pay anything to Veal. I do not believe that this Court can say that the case

was not defended in good faith or that the defendant was not acting with the advice of counsel. Nor can the defense offered at the trial be characterized as having been so groundless as to have been no more than a mere sham. Certainly the objection that Veal was not entitled to recover the money that belonged to Ades was well taken. The trial court properly rejected Veal’s request for a peremptory instruction directing the jury to find in his favor, and granted numerous instructions for each party dealing with issues in the case. Moreover, much of the delay dwelt upon in the controlling opinion as having constituted wrongdoing by Standard was the result of an agonizing personal tragedy which occurred in the family of Standard’s counsel. It was during this period that discussions took place between counsel as to the granting of additional time to plead. No definite agreement had been settled upon and Veal’s counsel took a default judgment against Standard. The trial court, however, quite properly set this aside after a full hearing in which all of the facts were made known to him. I find myself unable to join in the conclusion that the delay, which was found by the trial judge to have been excusable to the extent that he set aside the default judgment, can justly be considered a circumstance which supports an award of punitive damages. The Constitutional right of a litigant to defend a suit brought against him will be severely chilled, to say the least, if he is to be required to expose himself to the prospect that in the event he and his counsel should prove to be mistaken in their position and he loses, he will be assessed with punitive damages. This has never been the law in Mississippi and should never be.

If the premise should be granted that Standard was mistaken and that there was a breach of contract, there is nothing to indicate that it was “attended by intentional wrong, insult, abuse or such gross negligence as to constitute an independent tort.”

INZER, P. J., and ROBERTSON and BROOM, JJ., join in this dissent.