Motion — American General Life & Accident Insurance v. Miller

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Supreme Court, U.S.

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5) APR 2049988

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No. 85-1429 Wo len &. SPANIO‘L, JR.

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

AMERICAN GENERAL LIFE AND ACCIDENT

INSURANCE COMPANY,

Appellant,

CAROLYN MILLER AND MARVIN RAMSEY MILLER, B8R.,

Appellees.

On Appeal from the Supreme Court of Mississippi

MOTION TO DISMISS

GEORGE C. COCHRAN *

University, MS 38677

(601) 232-7361

MICHAEL B. MCMAHAN

MCMAHAN & MCMAHAN

P. O. Box 31

Hattiesburg, MS 39401

(601) 544-8680

Attorneys for Appellees

* Counsel of Record

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

re cence ae ee

TABLE OF CONTENTS

Page

pe PR Be ig y | | RRR NE Re On i

CONSTITUTIONAL AND STATUTORY PROV!-

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TABLE OF AUTHORITIES

CASES:

Aetna Life Ins. Co. v. Lavoie, slip op. at 14 (No. 84-

es i ceshsabiaiadi 9

Barr v. City of Columbia, 375 U.S. 147, 149 (1964)... 7

Collins v. North Miss. Sav. & Loan Ass’n, 445 So.

pM eT cae, |) eee rne 7

Cunningham v. Cunningham, 423 So. 2d 136 (Miss.

I ce on 7

Hathorn v. Lovorn, 457 U.S. 255 (1982) ................. 7

Lumberman’s Mut. Cas. Co. v. Rhodes, 459 So. 2d

i cen sipsaoscancunne 7

McGolderick v. Compagnie Generale Transatlan-

tique, 309 U.S. 430, 4384 (1940)... 9

Peoples Bk. & Trust Co. v. L & T Developers, Inc., _

ee Tk ee FE, OD erie. 8

Radio Station WOW, Inc. v. Johnson, 326 U.S. 120,

BE ii neck p oucserkbneidaaainncialse 5

South Cent. Beli v. Adson, 474 So. 2d 584 (Miss.

|.) BRERIERRRY tcp rm ery ere meer UNC een eee 7

Wallace v. Jones, 360 So. 2d 932 (Miss. 1978) ........ 8

Webb v. Webb, 451 U.S. 493, 499 (1981) —000000... 9

STATUTES AND RULES:

Miss. Code Ann. § 11-3-23 (Supp. 1982) ........0........ 5, 6

Rule 14, Mississippi Supreme Court ......................... 1% 74

TREATISES:

A. TOBIAS, THE INVISIBLE BANKERS 258-9 (1982)... 1

16 C. WRIGHT, A. MILLER, E. COOPER & E. GRESS-

MAN, FED. PRAC. & PROC. 4022 at 701 (1977)....... 5,8

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

No. 85-1429

AMERICAN GENERAL LIFE AND ACCIDENT

INSURAI"CE COMPANY,

Appellant,

CAROLYN MILLER AND MARVIN RAMSEY MILLER, 8R..,

Appellees.

On Appeal from the Supreme Court of Mississippi

MOTION TO DISMISS

Pursuant to Rule 16.1(b), Appellees move to dismiss

this appeal on the ground that the federal questions

sought to be reviewed were not timely and properly

raised before the Supreme Court of Mississippi.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Rule 14, Mississippi Supreme Court.

PETITION FOR REHEARING

(a) Within fifteen (15) days after a decision is

handed down on the merits of a case or on a motion,

any party asserting that an error of law or fact was

committed may file a written petition for rehearing,

fandj] ... shall briefly and distinctly set forth its

grounds. The petition for rehearing shall be accom-

panied by a brief in support thereof....

STATEMENT OF THE CASE

Appellant is a debit insurance company.’ In 1981 it

had a net worth of $470,000,000 and net profits for that

fiscal-year of $134,000,000. The typical policy issued is

for a small amount and the typical insured is a person

of low income who has never purchased insurance before.

Carolyn and Marvin Miller fit the pattern. Neither

possesses a high-school education, and they live a life best

described as on the edge of a marginal economic base.

When solicited by two agents of Appellant (Messrs.

Dillon and Blount), Mrs. Miller orally responded to ques-

tions concerning the health of her child by explaining

that he had a heart murmur. The agents, however,

omitted this information from the application form they

1The history and current status of this industry has been

recently reviewed:

[With respect to debit insurance] [t]hese are tiny face-amount

policies, still sold in some of America’s poverty pockets ....

Under the terms of these whole life policies, an insurance agent

comes by in person, weekly, to collect the 50 cents or dollar

that is due, checking off payments in his debit book. For the

poor who could save in no other way, it was argued, this was

worthwhile insurance. Yet these policies were, and are, gro-

tesquely inefficient. Of each dime “saved,” perhaps a penny

went to pay the actual cost of insurance, and a penny or two

more built up “cash value”’—but most of the dime went to

expenses, overhead and profit. Horror stories abound of

families being sold five and ten such penny-rate policies—on

the lives of their children, no less, instead of their breadwinner

—when the coverage was not needed, or when the same dollars,

combined to purchase a single term policy, could have pur-

chased five or ten or twenty times more coverage .... There

were still 98 million home-service life insurance policies in

force in 1980 (. . . 36 million [of which are] monthly debit

plans), with an average face value of less than $1,600 each.

[A. ToBIAS, THE INVISIBLE BANKERS 258-9 (1982) ].

prepared and forwarded to the Appellant. Subsequently,

following the child’s death, Appellant refused to pay the

policy amount ($2,500) to the Millers on the basis of

“false statements” on the application. The practices of

Appellant uncovered at the trial in which the jury

awarded $2,500 in actual damages and $350,000 in puni-

tive damages elicited the following analysis from one

Justice of the Mississippi Supreme Court:

In ail likelihood Dillon’s and Blount’s sole source

of income from National Life was on commission.

Furthermore, their largest commission came from the

initial premium paid on an insurance policy.

If the policy was issued following the application,

they kept the commission. If the policy was not is-

sued, the premium had to be refunded.

When the soliciting agent, rather than the appli-

cant fills in the application, it is naive to assume

there is not a strong temptation on his part to ig-

nore an answer the applicant gives which would

prevent the company’s issuing a policy, which would

“knock out” a sale.

The insurance companies surely know this. Yet,

they permit their agents to be put in such conflict

of interest positions, only to assert later, with a pre

sumably straight face, that precisely what happened

in this case should never occur.

Not only this, having approved a system of prac-

tice which encourages giving false answers (by their

own agents) to questions on their application forms,

they use the deceit of their own employees as a

weapon to deny a claim.

It would be quite simple to remove from the agent

any responsibility or authority to fill in the applica-

tion form. The question then follows, why don’t in-

surance companies do so?

The answer, for insurance companies such as this

defendant, is not savory.

... Did National Life know, or have any reason |

to know, that Blount and Dillon had been told by |

Mrs. Miller that her son had a heart problem when

the application was taken? When she made the claim |

for her son’s death, she told the company she had

told Dillon and Blount the truth. Yet the company

waited eleven months after rejecting her claim, and

just two weeks before trial before it ever so much

as questioned Dillon and Blount, its own employees,

about the circumstances surrounding the apvlication.

. . . National Life could play the odds with its

practice of encouraging agents to submit false appli-

cations and then be able to deny a claim because the

application was false. In this case National Life has

played the odds and lost.

A punitive damages award in this case is quite

proper. Again, a court has been called upon to re-

dress grievances which could be avoided by proper

state regulation of insurance company practices.

[ Jurisdictional Statement 20a-21a]}.

After the jury’s verdict was entered, Appellant filed

a “Motion for Judgment, Corrected Judgment, or New

Trial.” Grounds for setting aside the punitive damage

award were limited to the following:

That the verdict of the jury is against the over-

whelming weight of the testimony and there is no

testimony «> atsoever to justify a verdict for puni-

tive damages.

That, if the plaintiffs were entitled to recover

anything whatsoever in the cause, which is denied,

the verdict is excessive and evidences that the jury

was biased and prejudiced against said defendant.

(Id. at 71a}.

The motion was denied. Appeal to the Mississippi

Supreme Court followed. In its brief to the court,

Appellant confined its argument on the punitive dam-

ages issue to the contention that it was “excessive”

under applicable Mississippi decisions. Jd. at 109a-110a,

123a. Following affirmance and imposition of the manda-

tory fifteen percent appeal penalty pursuant to Miss.

Code Ann. § 11-3-23 (Supp. 1982), id. at 22a, Ap-

pellant filed a petition for rehearing. This document

raised, for the first time, the issue of whether the 15%

penalty provision violated the Fourteenth Amendment.?

The only basis for reconsideration of the punitive dam-

age award, on the other hand, was limited to the follow-

ing contention:

A party making an unsuccessful factual defense

should not be subjected to a punitive damage in-

struction.

[Id. at 26a].

Thereafter, in a discrete portion of its brief in support

of the petition for rehearing, Appellant inserted one

sentence in which reference was made to a violation of

the Eighth Amendment and/or “due process rights.”

Id. at 32a. Following denial of rehearing without

opinion, Appellant now comes to this Court arguing that

plenary review of all constitutional issues “raised” and

“rejected” on rehearing is in order.

ARGUMENT

The Eighth Amendment and Due Process Issues:—The

general rule, of course, is that “[{q]uestions first pre-

sented to the highest State court on a petition for re-

hearing come too late for consideration” by this Court.

Radio Station WOW, Inc. v. Johnson, 326 U.S. 120, 128

(1945); 16 C. Wricht, A. MILLER, E. Cooper & E.

GRESSMAN, FED. PRAc. & Proc. § 4022 at 701 (1977).

While Appellant attempts to bring its case within excep-

* As pointed out, Appellant also raised the issue in a Motion to

Correct Mandate. Jurisdictional Statement 3.

tions to this rule, its analysis fails to deal with one

serious problem: the petition for rehearing did not raise

any constitutional claim with respect to the punitive

damage award.’

Rule 14 of the Mississippi Supreme Court requires the

filing of two documents at the rehearing stage: a peti-

tion which “briefly and distinctly set forth its grounds,”

and a “brief in support thereof.” As noted in the state-

ment of the case, the only grounds asserted in the peti-

tion for the granting of a rehearing alleged a violation

of state law, ie., “[a] party making an unsuccessful

factual defense should not be subjected to a punitive

damage instruction.” Having failed to “distinctly set

forth” any constitutional deficiency with respect to the

punitive damage award in its petition (as compared to

the sentence reference found in the brief in support

thereof), the issue is not appropriate for full review by

this Court.

Mississippi's Penalty Provision and the Equal Protec-

tion Challenge:—Section 11-3-23 is a mandatory pro-

vision, i.e., “the Supreme Court shall render judgment

arainst the appellant for damages at the rate of fifteen

percent ....” (emphasis added). This fact has led the

Mississippi Supreme Court to make the following propo-

sition clear to all members of the bar:

Every losing litigant is given an automatic right of

appeal. When deciding whether to exercise that

right, the penalty statute is there for him to con-

sider. If he is successful on his appeal, of course,

he incurs no penalty. Jf he loses, however, he must

pay the price, a price he well knows and may easily

calculate before giving his notice of appeal.

3 Appellant apparently has reached the same conclusion. See, e.g.,

Jurisdictional Statement 10 (requesting a “hold” on the case

pending disposition “of any other cases ... which... may be

suitable for decision of [sic] the Excessive Fines Clause” in order

that the perceived “new constitutional rule” can be applied to

the case.

[Collins v. North Miss. Sav. & Loan Ass’n, 445 So. 2d

828, 832 (Miss. 1984) (emphasis added) }.

Appellant had adequate notice of the proposition that

if the trial court’s judgment was affirmed, the penalty

would automatically attach. The fifteen percent penalty

of Section 11-3-23 is imposed unless the appeal is suc-

cessful and an appellant’s only defense is to contest

the statute’s applicability (on constitutional or other

grounds) on appeal. This is exactly the technique em-

ployed by counsel in previous cases. Cunningham v.

Cunningham, 423 So. 2d 136, 1388 (Miss. 1982) (court

directly addresses question on appeal as to whether

appellee was entitled to statutory damages); Collins v.—

North Miss. Sav. & Loan Ass’n, supra at 831 (addressing

applicability of 11-3-23 on appeal). See also South Cent.

Bell v. Adson, 474 So. 2d 584 (Miss. 1985) (direct

appeal; decision that 15% penalty was applicable to em-

ployer in worker’s compensation case); Lumberman’s

Mut. Cas. Co. v. Rhodes, 459 So .2d 244, 246 (Miss.

1984) (direct appeal; determination that funds were

subject to penalty).

Appellant argues, however, that there is precedent for

the proposition that the Mississippi Supreme Court enter-

tains post-judgment motions by unsuccessful appellants

attacking the statute’s constitutionality. As a general

proposition, the fact that a state supreme court employs

its equitable powers in certain instances to grant peti-

tions for rehearing has no bearing on this Court’s

rule precluding review of questions first raised in

this manner. Even more important, however, the

* Appellees agree with Appellant’s apparent conclusion that this

Court’s decision in Hathorn v. Lovorn, 457 U.S. 255 (1982), has no

bearing on the correct disposition of the instant case. First, there

is no argument that petitions for rehearing with respect to Section

11-3-23 have not been handled “evenhandedly.” Jd. at 264. Second,

this Court’s citation to Barr v. City of Columbia, 378 U.S. 147, 149

(1964), indicates that Hathorn is a decision compatible with the

case relied upon by Appellant, Wallace v. Jones, 360

So. 2d 932 (Miss. 1978), involves a situation in which

a successful appellee filed a post-decision motion con-

tending that the court was in error by not complying

with the mandatory statutory obligation to impose the

penalty. It is in this limited context, and only this contexi,

that the Mississippi Supreme Court has entertained ar-

guments on rehearing (including those of a constitutional

dimension) by appellants that the penalty should not be

imposed. See also, Peoples Bk. & Trust Co. v. L & T

Developers, Inc., 4837 So. 2d 7 (Miss. 1983) (motion for

assessment of statutory damages entertained; defense

by opposing party based on, among other things, consti-

tutional grounds).

This line of decisions establishes the following prece-

dent. First, those deciding to appeal are on notice that

an affirmance will result in the assessment of the penalty

if the case falls within the coverage of Section 11-3-23.

Second, inasmuch as the penalty is mandatory, all argu-

ments relating to its inapplicability must be presented

on appeal. Third, absent a decision to attack the statute

on appeal, the only remaining opportunity to contest the

mandatory penalty on constitutional grounds arises only

if all three of the follewing have occurred: (1) the Mis-

sissippi Supreme Court affirms the trial court’s decision;

proposition that state procedural rules that are “deliberately applied

to avoid consideration of federal rights” will not preclude review by

this Court. 16 C. WRIGHT, A. MILLER, E. COOPER & E. GRESSMAN,

FED. PRAC. & Proc. § 4028 at 429 (Supp. 1985). See also id. at 431

(Hathorn may have been decided because of ‘‘an unspoken fear that

the state court was applying its rehearing limits so as to discrim-

inate against federal rights.”) Third, Hatorn can be read to pro-

vide an exception to the general rule against review of questions

presented for the first time in a petition for rehearing with respect

to issues “that the parties could have foreseen but that [arise]

with urgency” only after a court upholds part of a challenged

statute. 457 U.S. at 264. This, of course, is not the procedural

posture of the instant case.

(2) the judgment entered fails to award the penalty;

and (3) the appellee files a proper motion contending

that error has been committed. It is at this point that

Wallace v. Jones supports the proposition that a consti-

tutional challenge by an appellant in the form of a re-

sponse may be sufficient to permit the Court to entertain

the argument.

In Aetna Life Ins. Co. v. Lavoie, slip op. at 14 (No.

84-1601, April 22, 1986), this Court concluded that the

issue of mandatory assessments of percentage penalties

against unsuccessful appellants raises an important issue

“which, in an appropriate setting, must be resolved... .”

An “appropriate setting” is obviously not one in which

the issue is not raised and argued on appeal and is

brought to the attention of a state supreme court in a

petition for rehearing. Time and again this Court has

recognized that “due regard for the appropriate relation-

ship [with] ... state courts requires [it] to decline to

consider and decide questions affecting the validity of

state statutes not urged or considered there.” McGold-

erick v. Compagnie Generale Transatlantique, 309 U.S.

430, 484 (1940). As emphasized in Webb v. Webb, 451

U.S. 493, 499 (1981):

There are powerful policy considerations underlying

the . . . rule that the federal challenge to a state

statute . . . be presented first to the state courts.

Those considerations strongly indicate that we should

apply this general principle with sufficient rigor to

make reasonably certain that we entertain cases

from state courts only where the record clearly

shows that the federal issue has been properly raised

below.

The presence of an adequate and independent state

ground in the instant case precludes review.

CONCLUSION

For the foregoing reasons, the appeal should be dis-

missed.

Respectfully submitted,