Petition for Writ of Certiorari — InterContinental Life Insurance v. Lindblom

FIL

FEB 1 4 1991

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Iu the Supreme Court of the United States

OCTOBER TERM, 1990

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90-1284+

INTERCONTINENTAL LIFE INSURANCE COMPANY,

PETITIONER

Vv.

Lou R. LINDBLOM, RESPONDENT

Petition for a Writ of Certiorari to the

Supreme Court of Alabama

PETITION FOR A WRIT OF CERTIORARI

ANDREW L. FREY

Counsel of Record

THEODORE A. FLERON

Vice President &

>

General Counsel

InterContinental Life

Insurance Company

601 Walnut Street

Philadelphia, Pa. 19106

(215) 351-2953

ANDREW J. PINCUS

KATHERINE J. HENRY

Mayer, Brown & Platt

2000 Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 778-0602

JAMES C. BARTON

MICHAEL L. HALL

HOLLINGER F’. BARNARD

Johnston, Barton, Proctor,

Swedlaw & Naff

1100 Park Place Tower

Birmingham, Alabama 35203

(205) 322-0616

Counsel for Petitioner

InterContinental Life

Insurance Company

Ta TNE

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

A/¢

QUESTIONS PRESENTED

1. Whether the punitive damages award in this

case violates the Due Process Clause because the jury

instructions failed to provide any meaningful stand-

ards to be employed in setting the amount of the

punitive exaction and instead left calculation of the

penalty to the jury’s unguided discretion.

2. Whether the amount of punitive damages in

this case is excessive and disproportionate in viola-

tion of the Due Process Clause because it is not ra-

tionally related to the purposes of fairly punishing

any misconduct that occurred and appropriately de-

terring such misconduct in the future.

(I)

II

RULE 29.1 STATEMENT

Petitioner InterContinental Life Insurance Com-

pany’s (‘InterContinental’) parent corporation is

Standard Life Insurance Company, whose parent cor-

poration is InterContinental Life Corporation

(“ILCG”’). ILCO is controlled by Financial Indus-

tries Corporation (“FIC’’), through FIC’s ownership

of 40.4°. of ILCO’s outstanding common stock and

FIC’s option to purchase approximately 16.5° of

ILCO’s common stock. InterContinental has no sub-

sidiaries other than wholly owned subsidiaries.

TABLE OF CONTENTS

Page

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CONSTITUTIONAL PROVISION INVOLVED ........... 2

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REASONS FOR GRANTING THE PETITION ......... x

I. THE JURY WAS NOT GIVEN ANY MEAN-

INGFUL GUIDANCE REGARDING THE

STANDARDS TO APPLY IN FIXING THE

AMOUNT OF THE PUNITIVE DAMAGES

EEE SEES a 8

Il. THE PUNITIVE DAMAGES AWARD IS EX-

CESSIVE AND DISPROPORTIONATE IN

VIOLATION OF THE DUE _ PROCESS

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(m1)

IV

TABLE OF AUTHORITIES

Cases: Page

Browning-Ferris Industries of Vermont, Inc. V.

Kelco Disposal, Inc., 109 S. Ct. 2909 (1989) ....... 1l

Maxey V. Freightliner Corp., 665 F.2d 1367 (5th

5 ER ERA oc Ee ele ee A RR es I ae 12

Pacific Mutual Life Insurance Co. Vv. Haslip, No.

- 89-1279 (argued Oct. 3, 1990) 000000... passim

Solem v. Helm, 463 U.S. 277 (1988) ......000.0 oe. 11

Constitution and Statutes:

is I I, Mg Bcc secre ciccececencsonsie 2

ee Sy | nae PANS ID pO Rite ee 2

a cailmuidlemdondouaaiichn 11

Miscellaneous:

ABA Special Comm. on Punitive Damages, Puni-

tive Damages: A Constructive Examination

SIE sisstdicnic calansoectenaptahatiannicersdeisonadiienenablnedioneene: 12

In the Supreme Court of the United States

OCTOBER TERM, 1990

No.

INTERCONTINENTAL LIFE INSURANCE COMPANY,

PETITIONER

Vv.

Lou R. LINDBLOM, RESPONDENT

Petition for a Writ of Certiorari to the

Supreme Court of Alabama

PETITION FOR A WRIT OF CERTIORARI

~

N

InterContinental Life Insurance Company respect-

fully petitions this Court for a writ of certiorari to

review the judgment of the Alabama Supreme Court

in this case.

OPINIONS BELOW

The opinion of the Alabama Supreme Court

(App., infra, la-19a) is not yet reported.’ The order

of the circuit court (App., infra, 20a-26a) is unre-

ported.

1 The opinion reprinted in Appendix A is that issued by the

Alabama Supreme Court on November 16, 1990. As far as

we can determine, that opinion is identical to the original

opinion issued on September 28, 1990 and then withdrawn by

the Alabama Supreme Court, except for the addition of a

deadline for accepting the remittitur (App., infra, 16a).

f oon

i

JURISDICTION

The judgment of the Alabama Supreme Court was

entered on November 16, 1990. On December 14,

1990, Justice Kennedy issued an order staying the

issuance of the Alabama Supreme Court’s certificate

of judgment pending the timely filing and disposition

of a petition for a writ of certiorari. This Court’s

jurisdiction rests on 28 U.S.C. § 1257(a).

CONSTITUTIONAL PROVISION ENVOLVED

Section 1 of the Fourteenth Amendment to the

United States Constitution provides in pertinent

part:

[N]or shall any State deprive any person of life,

liberty, or property, without due process of law

* * *

STATEMENT

The plaintiff in this breach of contract action pre-

vailed on her contention that petitioner InterConti-

nental Life Insurance Company (“InterContinental”)

failed in bad faith to pay a claim on an insurance

policy. As in Pacific Mutual Life Insurance Co. v.

Haslip, No. 89-1279 (argued Oct. 3, 1990), the state

court jury’s award to the plaintiff included a tremen-

dous helping of punitive damages: the jury supple-

mented the compensatory award of approximately

$10,000 (plus more than $2,000 in interest) with

$3,000,000 in punitive damages. The Alabama Su-

preme Court subsequently ordered a remittitur to

$1,000,000.

This certiorari petition seeks vacation of the pen-

alty imposed on petition on two of the federal con-

stitutional grounds that are now pending before the

Court in Pacific Mutual—(1) that the jury instruc-

3

tions failed to afford due process because they did not

in any way confine or structure the jury’s discretion

in fixing the amount of the penalty, and (2) that the

$1,000,000 award is unconstitutionally excessive be-

cause it bears no rational relationship to the purposes

for which punitive damages are imposed under Ala-

bama law.

A. Factual Background.

On December 1, 1980, InterContinental issued a

$10,000 life insurance policy to Tommie L. Rodden-

berry, designating Roddenberry’s daughter, Lou R.

Lindblom, the respondent herein, as the beneficiary.

App., infra, 2a. Under the payment plan that was

selected, payments were due on a quarterly basis,

with the first payment due on December 1, 1980.

Ibid. However, the policy expressly granted a 31-day

grace period for late premium payments. /bid. In

addition, as a voluntary, non-contractual benefit to

its policyholders, InterContinental treated as timely

payments that arrived during a further two-week

grace period, known as the ‘‘courtesy period.” Jd. at

2a-3a, 6a. (Courtesy periods are common in the in-

surance industry. Tr. 312.) If the courtesy period

ended on a weekend or holiday, InterContinental ex-

tended the period to the next business day. /d. at 3a.

Once the courtesy period ended without receipt of the

premium, however, the policy was deemed lapsed.

Tr. 212, 374-375. InterContinental’s policyholders

were not apprised of the existence of the courtesy

period. App., infra, 3a-6a.°

2 InterContinental used a computer system to track pre-

mium payments. Payments accompanied by premi'm notices

were posted in the computer system within seven tc ten days

of receipt. Tr. 551, 553. Payments might not be posted until

4 “

On January 1, 1984, Lindblom (who handled the

payments on Roddenberry’s policy) wrote to Inter-

Continental asking it to switch the payment schedule

from quarterly to monthly, as the policy permitted.

App., infra, 3a. Together with that request, Lind-

blom included_a payment specifically designated for

the December 1983 premium; she asked that Inter-

Continental bill her for the January 1984 premium.

Ibid. InterContinental applied the payment to the

December 1°83 premium (Tr. 416) and changed the

payment schedule as Lindblom requested. However,

InterContinental apparently did not bill Lindblom for

the January premium (there is no suggestion in the

record that she was entitled to demand such billing),

and Lindblom never sent a check designated for the

January premium. The next payment received by

InterContinental was a check dated February 2, 1984

(Tr. 103), which Lindblom testified was intended to

cover the payment due February 1 (Tr. 155). (Noth-

ing in the record indicates that Lindblom instructed

InterContinental to apply this payment to the Feb-

ruary premium.) Because Lindblom had not paid the

January premium, InterContinental applied her check

to that past-due premium. App., infra, 3a.

Lindblom continued to pay premiums monthly, and

InterContinental continued to apply each payment to

later if received without premium notices, with the wrong

payment amount, on weekends, or with a request to change

the payment schedule. Tr. 554. Several times a month, Inter-

Continental’s computer system generated printouts reporting

the status of the premium payments. Tr. 474, 520. One

printout (“the final notice run sheet’’) listed all policies with

past-due premiums for which the 31-day grace period had not

yet expired. Another printout (‘the lapse listing’) listed all

policies that had lapsed for failure to pay the premiums be-

fore the end of the courtesy period. Tr. 470.

5

the previous menth’s past-due premium. App., infra,

3a-4a. The payments that Lindblom made, beginning

with the payment for December 1983, arrived at

InterContinental after the end of the 3l-day grace

period but before the expiration of the courtesy pe-

riod. Jd. at 3a. This pattern continued for a year

and a half, with Lindbiom receiving credit for prem-

ium payments through July 1985.

The courtesy period for the payment due August 1,

1985, expired on September 15. Lindblom sent a pay-

ment by check dated September 15, 1985, which was

not posted until after both the grace and courtesy

periods had ended. Tr. 166, 216, 435. InterContinen-

tal’s computer system flagged the policy as lapsed (Tr.

472, 499-500) and credited the payment to an escrow

account pending review of the policy. Tr. 258-259,

505-506. After determining that the policy had

lapsed, InterContinental notified Lindblom of that

fact. App., infra, 4a.* At Lindblom’s request, Inter-

3’ Respondent has suggested that other payments had been

received by InterContinental after expiration of the courtesy

period but had not caused it to lapse the policy. But the rec-

ord does not support that suggestion. InterContinental! posted

three payments after the date of expiration, but it appareniy

had received each of those payments (unlike the payment

dated September 15, 1985) before the courtesy period ended.

Tr. 409-410, 528. Thus, InterContinental posted the Decem-

ber 1, 1983 payment on January 17 after it completed the

paperwork switching the payment from quarterly to monthly

and well after it received the payment. Tr. 212, 264, 410,

464-466, 468, 491. InterContinental posted the March pay-

ment on April 16th, which was within the courtesy period

because April 15, 1984 fell on a Sunday. Tr. 214, 264-265,

410, 493. InterContinental also posted the July 1984 payment

(dated August 10, 1984) outside of the courtesy period, on

6

Continental reviewed its records and confirmed that

the policy had lapsed because Lindblom had not paid

the premium prior to the end of the courtesy periou.

Tr. 414-415, 582. InterContinental eventually re-

funded the payment it held in the escrow account.

App., infra, 5a. .

Roddenberry died on October 23, 1985. App., in-

fra, 4a. On November 8, 1985, Lindblom filed a claim

with InterContinental for the policy’s benefits. Tr.

133-134, 379. (There is no suggestion that Inter-

Continental was aware of Roddenberry’s illness prior

to the time it terminated the policy. Tr. 216-217,

221, 269, 430.) Because the policy had lapsed almost

two months before Roddenberry died, InterContinen-

tal denied Lindblom’s claim. App., infra, 5a.

B. The Proceedings Below.

Lindblom subsequently commenced this action

against InterContinental in Alabama state court. She

sought $10,000 in compensatory damages (the face

value of the policy), interest, and punitive damages.

Following a trial, the jury awarded $3,012,400 in

compensatory and punitive damages against Inter-

Continental for bad faith failure to pay insurance

benefits, breach of contract, misrepresentation, and

September 7, 1984. Tr. 215-216, 235, 422-423, 494. Because

InterContinental posted the payment after the courtesy

period expired, InterContinental’s computer system generated

a lapse notice. The lapse notice was never mailed because

InterContinental determined that Lindblom had timely paid

the’July premium, apparently on the basis of the date on the

check or the fact that the payment arrived unaccompanied by

a premium notice. Tr. 235, 266-267, 270, 482, 512, 513-514,

594-595.

7

fraud.‘ The trial court denied InterContinental’s mo-

tion to set aside the award of punitive damages. App.,

infra, 25a. It specifically rejected InterContinental’s

claim grounded in the Due Process Clause of the Four-

teenth Amendment. /d. at 24a-25a.

The Alabama Supreme Court affirmed. App., infra,

la-19a. It refused to recognize InterContinental’s

courtesy period because “it is not part of the written

contract and never became part of the contract. The

‘extended grace period’ argument, under the facts of

this case, appears to be merely a convenient way for

InterContinental to justify its acceptance of premium

payments outside of the 31-day grace period, insure

continued payments, and keep the policy in force, all

without the knowledge of the insured or the bene-

ficiary.” Jd. at 7a. Characterizing the courtes, pe-

riod as a “practice” of “‘continuously” applying late

payments to previously-due premiums, the court held

that InterContinental could not “arbitrarily cease this

practice and treat the policy as lapsed in August 1985

by claiming that payment was not made within the

31-day grace period.” Jbid.° The court consequently

held that InterContinental waived its right to lapse

the policy by not doing so when Lindblom failed to

make the January payment before the 3l-day grace

period expired and by accepting payments past the

31-day grace period. [bid.

*Lindblom also had sued the insurance agency that had

sold the policy to Roddenberry. The jury found the agency

not liable. App., infra, 5a-6a.

5 Of course, InterContinental did not lapse policies on the

basis of the 3l-day grace period. By holding invalid and then

ignoring the courtesy period, the court fundamentally recast

the ground relied on by InterContinental in determining that

the policy had lapsed.

8

For these reasons, the court concluded that Inter-

Continental had no right to declare the policy lapsed

on the basis of the lateness of the August 1985 pay-

ment. It further held that the jury could properly

find that InterContinental’s failure to pay Lindblom’s

claim constituted a bad faith refusal under Alabama

law. App., infra, 14a.

The court specifically considered and rejected In-

terContinental’s challenge to the punitive damages

award under the federal Constitution. Relying on its

prior decision in Pacific Mutual, the court held that

“the award is not unconstitutional.” App., infra, 16a.

Finally, turning to InterContinental’s claim that

the penalty was excessive as a matter of Alabama

law, the court concluded that the award “is excessive

and should be reduced by $2,012,400.” App., infra,

16a. I: therefore affirmed the trial court’s judgment.

conditioned on Lindblom’s acceptance of a remittitur

in that amount (which Lindblom has accepted).

REASONS FOR GRANTING THE PETITION

The questions presented in this case are essentially

identical to those now pending before the Court in

Pacific Mutual Life Insurance Co. v. Haslip, No. 89-

1279 (argued Oct. 3, 1990). Accordingly, the Court

should hold the petition in this case and dispose of it

as appropriate in light of its decision in Pacific Mu-

tual.

I. THE JURY WAS NOT GIVEN ANY MEANINGFUL

GUIDANCE REGARDING THE STANDARDS TO

APPLY IN FIXING THE AMOUNT OF THE PUNI-

TIVE DAMAGES AWARD.

One of the questions before this Court in Pacific

Mutual is whether “Alabama Law * * * violates Due

Process by allowing [a] jury to award punitive dam-

anieanaa

9

ages as a matter of ‘moral discretion,’ without ade-

quate standards as to the amount necessary to punish

and deter and without a necessary relationship to the

amount of actual harm caused.” 89-1279 Pet. i. Pre-

cisely the same question is presented in this case.

The jury instruction in this case provided no mean-

ingful standards for the jury to apply in selecting the

amount of the penalty:

I mention punitive damages, meaning punish-

ment damages. The purpose of awarding or

making an example out of somebody is to allow

money recovery to the plaintiff by a way of pun-

ishment to the defendant and for the added pur-

pose of protecting the public and others from

doing such wrong in the future. The imposition

of punitive damages is entirely discretionary by

the jury.

Should you award, you must take into con-

sideration the characterization and degree of the

wrong as shown by the evidence in the case. And

the necessity of preventing similar wrongs. You

ean only award punitive damages if you have

found the defendant guilty of [or?] one or-more

_of them to be guilty of those things that I just

read to you which would authorize you to award.

Tr. 833-834. This instruction is virtually identical to

the instruction challenged in Pacific Mutual. See 89-

1279 Pet. Br. 7-8.

The Alabama Supreme Court, relying on its prior

decision in Pacific Mutual, rejected InterContinental’s

federal due process claim that the jury instruction was

“vague, arbitrary, and imposes no standards or-lim-

its.” App., infra, 15a. Justice Maddox of that court,

who dissented in Pacific Mutual, recognized that the

federal constitutional question in this case is the same

as the one presented in Pacific Mutual:

10

[T]he issue raised in this case is the same as

that presented in [Pacific Mutual]. Therefore,

if the Supreme Court of the United States re-

verses this Court’s judgment in [Pacific Mutual],

then the judgment in this case should also be re-

versed. I must await, as everyone else must, the

decision of the Supreme Court of the United

States in Pacific Mutual * * *.

App., infra, 18a.

In sum, there can be no doubt that this case turns

on the very procedural due process issue now before

this Court in Pacific Mutual. Indeed, Justice Kennedy

implicitly recognized this identity of issues when he

granted a stay of the Alabama Supreme Court’s judg-

ment in this case. Accordingly, the petition for a writ

of certiorari should be held pending the Court’s deci-

sion in Pacific Mutual. If for any reason the issue is

not resolved in that case, the Court may wish to grant

plenary review here to address the issue.

II. THE PUNITIVE DAMAGES AWARD IS EXCES-

SIVE AND DISPROPORTIONATE IN VIOLATION

OF THE DUE PROCESS CLAUSE.

Another question before this Court in Pacific Mu-

tual is whether “the amount of punitive damages in

this case was excessive, in violation of [the insurance

company’s] Due Process right to be free of grossly

excessive, disproportionate damages awards.” 89-1279

Pet. i. The same constitutional claim is presented

here.

To begin with, InterContinental squarely raised

this argument, below. See, e.g., InterContinental Ala.

Sup. Ct. Br. 59-73; InterContinental Ala. Sup. Ct.

Reply Br. 28. The Alabama Supreme Court rejected

the contention, holding that “the evidence of Inter-

continental’s conduct warranted the punitive award

11

here and that that award is not unconstitutional.”

App., infra, 16a.

Moreover, the penalty of nearly $1,000,000 in this

case is demonstrably more disproportionate and irra-

tional than the penalty at issue in Pacific Mutual.”

The relevant factors in assessing the constitutional-

ity of a punitive damages award under the Due

Process Clause are (1) the relationship between the

punitive exaction and comparable statutory penalties

prescribed by the legislature; and (2) the relation-

ship between the punitive award and the gravity of

the defendant’s conduct, including the nature of that

conduct, the injury caused by the defendant, and the

actual or potential gain to the defendant. Cf.

Browning-Ferris Industries of Vermont, Ine. v.

Kelco Disposal, Inc., 109 S. Ct. 2909, 2933-2934

(1989) (O’Connor, J., concurring and dissenting) ;

Solem v. Helm, 463 U.S. 277, 290-300 (1983). So

measured, the award here violates due process.

The penalty in this case is much greater than the

criminal and civil fines enacted by the Alabama leg-

islature. See Am. Br. for The Business Roundtable,

et al. 21-22, Pacific Mutual Life Insurance Co. v.

Haslip, No. 89-1279. The legislatively-prescribed

sanction for a corporation convicted of an analogous

offense—violation of insurance regulations—is a fine

of $10,000. Ala. Code § 27-29-10. Indeed, the high-

est fine for any offense is $50,000.

6 As this Court is aware from the Pacific Mutual litigation,

Alabama law permits a jury to lump compensatory and puni-

tive damages together in one award. The $3,012,400 awarded

in this case unquestionably represented the $10,000 policy

benefit, plus interest, and $3,900,000 in puntive damages. The

remitted award accordingly must be deemed to be $12,400 in

compensatory damages and $987,600 in punitive damages.

12

In addition, the penalty bears no reasonable rela-

tionship whatever to InterContinental’s alleged mis-

conduct. First, it is nearly 80 times the compensa-

tory damages awarded to Lindblom. See note 4,

supra. Courts and commentators have repeatedly

suggested a ratio of three times compensatory dam-

ages as a rule of thumb for assessing the proportion-

ality of an award of punitive damages. See, e..,

Maxey v. Freightliner Corp., 665 F.2d 1367, 1377-

1378 (5th Cir. 1982) (en banc); ABA Special

Comm. on Punitive Damages, Punitive Damages: A

Constructive Examination 6-10 to 6-12 (1986).

Whether or not there is any specific or fixed ratio

required by due process, the presence of a ratio as

high as 80:1 is a clear warning sign that the award

is likely to be irrationally excessive.

Second, the extraordinary award here is not re-

motely justified by the nature of InterContinental’s

conduct. Although the Alabama Supreme Court had

the authority to determine that the failure to pay

Lindblom’s claim constituted “bad faith” as a matter

of Alabama law, the enormous penalty imposed on

InterContinental cannot rationally serve the pur-

poses of deterrence or punishment in the circum-

stances of this case. The state court’s ruling rests on

its conclusion that the company’s practice of allowing

policyholders an additional two-week courtesy period

is legally irrelevant because the practice was not set

forth in writing. Insofar as we are able to deter-

mine, that ruling constituted a new and unprece-

dented statement of Alabama law, as evidenced by

the fact that no cases were cited to support the prop-

osition. InterContinental’s violation of a legal rule

that did not exist at the time the company refused to

pay Lindblom’s claim is grounds for lessening rather

than increasing the level of punishment. For the

13

same reason, a severe punishment cannot be justified

on a deterrence rationale.

Significantly, there is no evidence that Inter-

Continental’s conduct was designed to obtain some

improper benefit at the expense of its policyholders

generally or Lindblom in particular. The company

did not know of Roddenberry’s illness and therefore

cannot be deemed to have lapsed the policy in order

to avoid paying the death benefit. Moreover, even if

InterContinental could be found to have acted in

order to avoid paying the death benefit, the nearly

$1 million nenalty is grossly disproportionate to the

size of that benefit.

This is not a case of fraud, breach of trust, or

concealed misconduct likely to go undetected and

therefore requiring a larger penalty to accomplish

appropriate deterrence. Nor does the record support

any finding of repeated misconduct threatening in-

jury to significant numbers of people. At worst, one

beneficiary may have been unintentionally lulled into

a false sense of security in believing the coverage

was being maintained despite her failure to pay

timely a premium due under the policy. Granting

that Alabama possesses the constitutional power to

impose punitive damages in such circumstances. the

punishment inflicted here is grossly disproportionate

to any harm done or to the culpability of the conduct

and therefore, is entirely irrational.

In sum, the punitive award in this case is exces-

sive and disproportionate, in violation of the Due

Process Clause. If this Court in Pacific Mutual holds

that the Due Process Clause bars excessive and dis-

proportionate punitive damages awards, the judg-

14

ment below cannot stand.‘ If the due process exces-

siveness issue remains open in the wake of Pacific

Mutual, this case would provide an excellent oppor-

tunity to address it.

CONCLUSION

The petition for a writ of certiorari should be held

and disposed of as appropriate in light of this Court’s

decision in Pacific Mutual Life Insurance Co. v. Has-

lip, No. 89-1279 (argued Oct. 3, 1990).

Respectfully submitted.

THEODORE A. FLERON ANDREW L. FREY

Vice President & Counsel of Record

General Counsel ANDREW J. PINCUS

InterContinental Life KATHERINE J. HENRY

Insurance Company Mayer, Brown & Platt

601 Walnut Street 2000 Pennsylvania Ave., N.W.

Philadelphia, Pa. 19106 Washington, D.C. 20006

(215) 351-2953 (202) 778-0602

JAMFS C. BARTON

MICHAEL L. HALL

HOLLINGER F.. BARNARD

Johnston, Barton, Proctor,

Swedlaw & Naff

1100 Park Place Tower

\ Birmingham, Alabama 35203

(205) 322-0616

Counsel for Petitioner

InterContinental Life

FEBRUARY 1991 Insurance Company

7 The foregoing analysis is not affected by the Alabama Su-

preme Court’s conclusion that the $3 million punitive award

was excessive as a matter of state law. The court provided no

explanation at all for its conclusion that a penalty of nearly

$1 million would not be excessive. As we have argued above,

such a penalty does violate the Due Process Clause’s require-

ment of rationality.

APPENDICES

la

APPENDIX A

SUPREME COURT OF ALABAMA

OCTOBER TERM, 1990-91

89-14

INTERCONTINENTAL LIFE INSURANCE COMPANY

Vv.

Lou RODENBERRY LINBLOM

Appeal from Jefferson Circuit Court

(CV-86-7156)

ON APPLICATION FOR REHEARING

[Filed Nov. 16, 1990] .

ADAMS, JUSTICE.

Our opinion of September 28, 1990, is withdrawn and

the following is substituted therefor.

This is an appeal from a jury verdict awarding

$3,012,400 to the plaintiff, Ms. Lou R. Lindblom, against

the defendant, Intercontinental Life Insurance Company

(hereinafter “Intercontinental’’), for bad faith failure to

pay insurance benefits, breach of contract, misrepresenta-

tion, and fraud. We affirm.

2a

The appellant has raised many issues on appeal deal-

ing with the denial of its post-trial motions and with

questions regarding the constitutionality of the award of

punitive damages. The record reveals the following facts

relevant to this appeal:

In November 1980 Ms. Tommie Rodenberry applied

for a life insurance policy with Intercontinental. Larry

Culver of the Culver Agency submitted the application

to Intercontinental. On December 1, 1980, Interconti-

nental issued a term life insurance policy (number

178427) to Tommie Rodenberry. The policy designated

Ms. Lou R. Lindblom as the beneficiary of the policy,

with $10,000 in benefits. The premium payments were

originally due and payable quarterly beginning in Decem-

ber 1980. The policy provided in its relevant parts as

follows:

“PAYMENT OF PREMIUMS—The first premium

is due on or before the Policy Date. You may choose

to pay your premium at 12, 6, 3, or 1 month in-

tervals. Each payment is due on or before the first

day of the payment period....

“The policy shall lapse if premiums are not paid in

full when due. Please refer to the ‘Grace Period’

provision.

“GRACE PERIOD—a grace period of 31 days after

the due date will be allowed for payment of each

premium after the first, without interest, during

which period the policy shall continue in full force.

If the insured dies during the grace period, any pro

rata premium due and unpaid will be deducted from

the amount payable under this policy. This policy

will lapse without value at the end of the grace

period.”

Intercontinental introduced evidence at trial that in ad-

dition to the written 31-day grace period, it voluntarily

granted an extended two-week (14-day) grace period at

the end of the 31-day period, making the total grace

3a

period 45 days. This “extra” grace period was not in-

cluded in the insurance contract, nor was Ms. Lindblom

ever informed of its existence. Intercontinental intro-

duced further evidence that if the end of the grace period

fell on a weekend or holiday, the period was extended

to the next business day.

From December 1980 through November 1983, Ms.

Lindblom made the quarterly payments on the policy.

Sometime in December 1983 or January 1984, she de-

cided that she desired to convert the payment plan from

the quarterly plan to a monthly plan. On January 1,

1984, she wrote to Intercontinental, informing it of her

desire to pay the premiums monthly from then on and

enclosing the monthly premium payment specifically des-

ignated for December 1983 ($32.06). This letter also

stated that she would remit the payment for January

1984 as soon as she received notice from Intercontinental.

At that time, the December 1983 payment was 31 days

past due. It appeared from the evidence at trial that

Intercontinental made no reply to Ms. Lindblom’s letter.

Ms. Lindblom’s next premium payment was made on

February 2, 1984. Intercontinental decided to back-apply

this payment to cover the January 1984, payment which

was then unpaid and 32 days past due, outside the writ-

ten 3l-day grace period but within the unwritten ex-

tended grace period. Ms. Lindblom continued to remit

payments each month from February 1984 through Oc-

tober 1985 to Intercontinental. Intercontinental accepted

each of these payments.

Evidence offered at trial showed that while Ms. Lind-

blom made each payment in the early part of each month

from February 1984 through October 1985, because of

Intercontinental’s decision to continuously back-apply

these payments to cover the missed January 1984 pay-

ment, virtually all of these payments were received out-

side the 3l-day grace period. During this time Inter-

continental contacted Ms. Lindblom on at least two oc-

4a

casions to inform her of premium increases. At no time

did Intercontinental inform her of the fact that she

had missed the January 1984 payment or of the fact that

her payments were continuously received outside the 31-

day grace period.

Intercontinental continued its practice of back applying

Ms. Lindblom’s payments through August 1985, when

problems began to develop. When Intercontinental re-

ceived a check dated August 5, 1985, it applied it to-

ward the July 1985 premium, which had not been paid.

The next check Intercontinental received was dated Sep-

tember 15, 1985. Again, Intercontinental treated this

check as the payment of the August 1985 premium.

When this check was entered into the computer system,

the computer designated the policy “terminated” and

showed “no premium applied.” Upon subsequent review

of all such computer entries by Intercontinental, em-

ployees discovered that the check had not been applied

to this policy because the policy had lapsed. Ms. Lind-

blom, who was at that time unaware of the problem,

sent in her payment for October. On October 11, 1985,

Intercontinental wrote Ms. Lindblom and informed her

of the lapse. Ms. Lindblom, who believed she was cur-

rent on the policy and could not understand how it had

lapsed, contacted Mr. Culver at the Culver Agency about

the problem. Ms. Lindblom presented Mr. Culver with

copies of the cancelled checks for the August and Sep-

tember 1985 premium payments. Mr. Culver told Ms.

Lindblom that he would take care of it. Mr. Culver in-

structed Ms. Lindblom to send him a copy of the can-

celled October 1985 premium check when she received it

from her bank. Later, when Mr. Culver received this

check and spoke with Ms. Lindblom, he informed her that

the policy was still in force.

On October 23, 1985, Tommie Rodenberry died. On

November 8, 1985, Ms. Lindblom filed a claim with In-

tercontinental for the death benefits under the policy.

5a

After Intercontinental personnel examined the claim and

the policy, they informed Ms. Lindblom, through the

Culver Agency, that the benefits could not be paid be

cause the policy had lapsed as of August 1, 1985, due to

nonpayment of premiums. At this point Intercontinental

did not refund any premiums paid after the alleged lapse.

The Culver Agency contacted Intercontinental on ¢ eral

occasions and sent Intercontinental copies of +’. can-

celled checks for Ms. Lindblom’s August, September, and

October payments. The Culver Agency apparently be-

lieved that the policy should not have lapsed and sought

to assist Ms. Lindblom. On each occasion Intercontinental

confirmed that the policy had lapsed effective August 1,

1985, and refused to pay the benefits. Intercontinental

eventually refunded the amount of two payments re-

ceived after the alleged lapse.

On November 19, 1986, Ms. Lindblom sued Intercon-

tinental, the Culver Agency, and Mr. Culver, alleging

wrongful refusal to pay the benefits under the policy and

seeking $10,000 compensatory damages and $1,000,000

punitive damages. Upon Intercontinental’s petition, the

case was removed to a federal district court. The federal

district court, however, found removal inappropriate and

remanded the case to the Circuit Court of Jefferson

County.

After remand, Ms. Lindblom amended her complaint

to allege that the Culver defendants had been guilty of

misrepresentation and concealment while acting as agents

of Intercontinental. Ms. Lindblom’s complaint, in its final

form, alleged: breach of contract, bad faith failure to

pay on the insurance contract, misrepresentation, fraud-

ulent suppression, outrage, and conversion. Interconti-

nental moved for summary judgment on all claims. The

trial court granted the motion as to the claims of out-

rage and conversion, but denied it as to the other claims.

At the end of the plaintiff’s case-in-chief and again at

the end of the presentation of all the evidence, Intercon-

6a

tinental moved for a directed verdict, which was denied.

After closing arguments, Intercontinental requested a

special verdict and requested that the jury be given ver-

dict forms to differentiate compensatory damages from

punitive damages. The trial judge denied these requests

and submitted the case to the jury.

The jury returned a verdict exonerating the Culver

defendants from any liability but assessing damages

against Intercontinental in the amount of $3,012,400. In-

tercontinental timely filed alternative motions for a judg-

ment notwithstancing the verdict, a remittitur, or a new

trial. These post-trial motions were denied by the trial

court. Because one of the issues raised in the post-trial

motions was an alleged excessiveness of the verdict, the

trial judge, pursuant to Hammond v. City of Gadsden,

493 So. 2d 1374 (Ala. 1986), conducted a hearing on

that issue ane found no excessiveness.

As noted, Intercontinental has raised several issues for

our review on this appeal. At the outset however, we

must address the nature of the insurance policy issued

by Intercontinental and the actions of the parties in-

volved. An examination of these factors will effectively

dispose of the issues raised by Intercontinental, requiring

only minimal review. Our consideration of these areas re-

quires a two-step analysis: (1) an examination of the in-

surance contract itself and (2) an examination of the

conduct of the parties.

With respect to the insurance contract, the primary

area of concern is with the grace period. As set out

above, the insurance contract contains a 31-day grace

period for the receipt of insurance premiums. Intercon-

tinental maintains that it voluntarily grants an addi-

tional grace period of two weeks (14 days) at the end of

the 31-day grace period, making the total grace period

45 days. This additional extended grace period is not

mentioned anywhere in the policy, nor was it ever re-

vealed to Ms. Lindblom. In our review of this case and

Ta

of the insurance contract, we cannot give any validity

to this extended, unwritten grace period, as it is not part

of the written contract and never became part of the

contract. The “extended grace period” argument, under

the facts of this case, appears to be merely a convenient

way for Intercontinental to justify its acceptance of

premium payments outside of the 31-day grace period,

insure continued payments, and keep the policy in force,

all without the knowledge of the insured or the bene-

ficiary.

Because Intercontinental set up a practice whereby it

continuously back-applied some 20 or more payments it

received outside the 31-day grace period and made no

attempt to treat the policy as lapsed, it could not ar-

bitrarily cease this practice and treat the policy as lapsed

in August 1985 by claiming that payment was not made

within the 31-day grace period. This Court will not

allow Intercontinental to establish such a practice and

then to suddenly change it. Allowing such a practice

gives Intercontinental virtually absolute power over the

contract and leaves persons such as Ms. Lindblom help-

less.

Moreover, a plausible alternative reading of the evi-

dence could indicate that the policy actually lapsed in

January 1984 when Ms. Lindblom informed Intercon-

tinental that she would remit the January payment as

soon as she received notice. Because Intercontinental

never notified her as to the change in payment plans, her

next check was dated February 2, 1984, and Ms. Lind-

blom made each subsequent payment on time, including

the August and September 1984 payments. We conclude

that Intercontinental waived its right to lapse the policy

by not doing so when the January payment was overdue

and by accepting payments past the 31-day grace period.

Because it impliedly agreed to accept payments made

outside the grace period for approximately two years,

8a

Intercontinental could not arbitrarily stop this practice in

August 1984. Furthermore, Intercontinental ignored the

missed January 1984 payment and back-applied all subse-

quent payments. With respect to the specific issues Inter-

continental now raises on appeal, we have consolidated

several issues for clarity and briefly address them below,

in light of the foregoing.

Intercontinental raises five issues in this appeal: (1)

Whether a judgment notwithstanding the verdict should

have been granted for Intercontinental on any of the

plaintiff’s claims; (2) whether a new trial should have

been granted for Intercontinental on the ground that the

jury returned a general verdict and at least one of the

claims against Intercontinental was insufficient; (3)

whether a remittitur or a new trial should have been

granted for Intercontinental on the ground that the jury’s

verdict was necessarily the result of bias, passion, or

other improper motive and was otherwise excessive; (4)

whether the verdict is unconstitutional under the due

process clause of the United States Constitution; and (5)

whether a remittitur or a new trial should be ordered by

this Court on appeal.

Intercontinental first argues that a judgment notwith-

standing the verdict should have been granted in its favor

with respect to the plaintiff’s claims of breach of con-

tract, bad faith, and misrepresentation. We disagree.

Our discussion of Intercontinental’s right to a J.N.O.V.

will bring into focus our view of Intercontinental’s other

claims. We begin by stating the standard of review ap-

plicable to a denial of a judgment notwithstanding the

verdict, as set out by this Court in Elrod v. Ford, 489

So. 2d 534 (Ala. 1986) :

“To be entitled to either a directed verdict or

J.N.O.V., Defendant must have proved to the trial

judge that, from the evidence before the court at the

time each motion was made, there was ‘a complete

9a

absence of proof on a material issue or [that there

were] no controverted questions of fact on which

reasonable people could differ,’ and that Defendant

was entitled to judgment as a matter of law. Deaton,

Inc. v. Burroughs, 456 Sc. 2d 771, 773 (Ala. 1984).

Stated conversely, the motions for directed verdict

and J.N.O.V. should not have been granted if reason-

able inferences in favor of Plaintiff’s claims could

have been drawn from the evidence or if there was

any conflict in the evidence for resolution by a jury.

O’Donohue v. Citizens Bank, 350 So. 2d 1049 (Ala.

Civ. App. 1977) .”

489 So. 2d at 537. With regard to each of these claims,

the plaintiff has clearly met the burden set out in Elrod.

Contrary to Intercontinental’s argument, the plaintiff

presented sufficient evidence to warrant submission of her

claims to the jury.

Intercontinental first attacks the plaintiff’s breach of

contract claim. Intercontinental contends that its actions

of accepting payments did not constitute a waiver, be-

cause, it says, the company policy was to grant an addi-

tional 14-day grace period. We have dealt with this grace

period above and only need point out here that the ex-

tended grace period has no validity. As for Intercon-

tinentai’s actions in accepting payments outside the 31-

day period, the plaintiff’s evidence raised reasonable in-

ferences supporting the argument that Intercontinental

did waive any right to “lapse” the policy due to late

payments and thereby breached the contract by lapsing

the policy and refusing to pay benefits. Furthermore, the

evidence could have supported a finding that the policy

actually lapsed in January 1984, and that all subsequent

payments were made on time, and that because Inter-

continental did nothing in January it waived any right

to lapse the policy in August. This claim was, thus,

properly submitted to the jury.

10a

The second claim Intercontinental attacks is the bad

faith claim. Intercontinental argues that even if it was

not entitled to a judgment notwithstanding the verdict on

the breach of contract claim, it was entitled to one the

bad faith claim, because, it argues, the plaintiff’s proof in

support of her contract claim does not rise to the level

entitling the plaintiff to a directed verdict. National Sav-

ings Life Insurance Co. v. Dutton, 419 So. 2d 1357 (Ala.

1982). In Dutton, as Intercontinental correctly points out,

Justice Shores stated:

“In the normal case in order for a plaintiff to make

out a prima facie case of bad faith refusal to pay an

insurance claim, the proof offered must show that the

plaintiff is entitled to a directed verdict on the con-

tract claim.”

Dutton, 419 So. 2d at 1362 (citing National Security

Fire & Casualty Co. v. Bowen, 417 So. 2d 179 (Ala.

1982)). While both parties acknowledge that the plain-

tiff did not move for a directed verdict, in reviewing the

evidence we have come to the conclusion that the plaintiff

would have been entitled to a directed verdict; thus the

Dutton requirement was satisfied. The evidence in sup-

port of that claim is overwhelming. Because Interconti-

nental had no legal justification for refusing to pay the

claim, no matter how the evidence is construed, the only

reasonable conclusion is that Intercontinental breached

the contract when it refused to pay the benefits.

Assuming, arguendo, that the plaintiff would not suc-

ceed on a motion for directed verdict, Intercontinental’s

contention still fails. This Court has addressed this issue

on numerous occasions. We have consistently noted that

there will be many cases that do not meet the qualification

of “normal” or “ordinary” spoken of in Dutton, and that

in such cases the “directed verdict on the contract claim’”’

test should not apply. See National Savings Life Insur-

ance Co. v. Dutton, 419 So. 2d 1357 (Ala. 1982) (Jones

J., concurring). See also Thomas v. Principal Financial

aa ~

lla

Group, [Ms. 88-834, August 3, 1990] —— So. 2d ——

(Ala. 1990) (wherein Justice Houston undertook an ex-

haustive analysis of the development of the “directed

verdict on the contract claim” test). The case now before

this Court is just such a case.

The two elements of a bad faith claim were set out in

Chavers v. National Security Fire & Cas. Co., 405 So. 2d

1 (Ala. 1981):

“TAjn actionable tort arises for an insurer’s inten-

tional refusal to settle a direct claim where there is

either ‘(1) no lawful basis for the refusal coupled

with actual knowledge of that fact or (2) intentional

failure to determine whether or not there was any

lawful basis for such refusal.’ ”

Chavers, 405 So. 2d at 7 (quoting Vincent v. Blue Cross-

Blue Shield of Alabama, 373 So. 2d 1054 (Ala. 1979) ).

As mentioned above, Dutton established the “great” bur-

den that is on the plaintiff in proving a bad faith claim.

Dutton, however, qualified the rule regarding this burden

so as to prevent the insurer from avoiding liability in

certain extreme situations. After Dutton, we found it

necessary on several occasions to restrict the application

of this great burden.

First, in Continental Assurance Co. v. Kountz, 461 So.

2d 802, 806 (Ala. 1984), we stated:

‘Second, even if Continental could defeat Kountz’s

directed verdict on the contract claim, this case is

not the ‘normal’ or ‘ordinary’ case described in Dut-

ton; in an extraordinary case like this the directed

verdict standard is inapplicable. Aetna Life & Cas.

Insurance Company v. Lavoie, 470 So. 2d 1060 (Ala.

1984).”

In Kountz we noted that proof of an intentional failure to

determine whether there was a lawful basis for deny'ng

payment could be used to establish that the irsur r hac

ls

12a

no legitimate reason to deny the payment. Kountz, 461

So. 2d at 807. This Court in Kountz held that the evi-

dence showed that the insurer had intentionally failed to

determine whether there was a lawful basis for denying

the claim, and that that showing supported an inference

of bad faith. Jd. at 808. See also Aetna Life & Casualty

Insurance Co. v. Lavoie, 470 So. 2d 1060 (Ala. 1984)

(extraordinary evidence of “‘reckless indifference” toward

insured in breach of duty of good faith and fair dealing

properly submitted to jury).

In Jones v. Alabama Farm Bureau Mutual Casualty

Co., 507 So. 2d 396 (Ala. 1986), the only basis of denial

rested on the resolution of the single factual issue of

what the insured had told the insurance adjuster. In

Jones we stated:

“Although the plaintiff’s burden of proof in a bad

faith action is great, it should not be insurmountable.

Precluding a plaintiff’s bad faith action by applica-

tion of the ‘directed verdict on the contract claim’

test when the disputed factual issue arises solely

from a contradicted oral conversation between the

insurer and the insured .. . puts too onerous a bur-

den on the plaintiff. Moreover, it would frustrate the

purpose of the bad faith action by allowing an in-

surer simply to misrepresent the content of an oral

conversation to avoid liability.”

Jones, 507 So. 2d at 401. Jones held that it was error

to grant a partial summary judgment because there was

a disputed factual issue to be decided by the jury. Jd.

See also United American Insurance Co. v. Brumley, 542

So. 2d 1231 (Ala. 1989) (it would frustrate the purpose

of the bad faith action to allow an insurer to prevent a

bad faith claim from going to the jury by misrepresent-

ing the content of oral or written communications). The

case now before us presents an analogous “extraordinary”

situation. Intercontinental, over the course of nearly two

years, accepted and back-applied payments outside of the

VX

13a

grace period and made no effort to investigate Ms. Lind-

blom’s payment history or to inform her of possible lapses.

Moreover, there was conflicting testimony as to whether

any “pre-lapse” notices were sent to Ms. Lindblom. At

trial, Intercontinental employees testified that such no-

tices were sent, while Ms. Lindblom denied ever receiving

them. Under the facts of this case, the existence or non-

existence of these notices raises a presumption in favor

of the plaintiff’s argument that Intercontinental inten-

tionally ignored late payments in order to keep the policy

in force, to guarantee continued payments, and failed to

determine if there was any valid reason for denying the

claim. Finally, we note that the evidence tended to show

that Intercontinental employees, upon reviewing the

denial of the claim, merely consulted a computer or other

employees and reported that the policy had lapsed due to

nonpayment of premiums. This effort by Intercontinental

is wholly insufficient to amount to an investigation into

the basis for the denial of payments. Intercontinental

has not only intentionally failed to investigate whether

there was a valid reason to deny the claim, but has also

failed to investigate any part of the policy at any time.

Under Kountz and Aetna, this intentional failure to in-

vestigate whether there was a valid reason to deny the

claim amounts to an intentional failure to determine

whether there was any lawful basis for denying the claim

and creates the inference of bad faith.

Furthermore, considering Jones and Brumley, we note

that the action of bad faith would be frustrated by per-

mitting Intercontinental to avoid liability merely by mis-

representing the existence or the content of pre-lapse

notices. The resolution of the issue whether these notices

were sent to Ms. Lindblom, is partly determinative of

Intercontinental’s investigation practices throughout the

existence of this policy. These facts illustrate why this

case is anything but ordinary or normal. The facts pre-

sented a question whether Intercontinental investigated

to determine if there was a valid reason to deny payment

l4a

of benefits, and that question was properly submitted to

the jury for resolution. We hold, therefore, that the

Dutton “directed verdict on the contract claim” test does

not apply here and that the trial judge properly sub-

mitted the bad faith claim to the jury.

Intercontinental also attacks the denial of a judgment

notwithstanding the verdict on the misrepresentation

claim. Here again, Intercontinental argues that the plain-

tiff made no skowing of any misrepresentation. Contrary

to Intercontinental’s interpretation of the facts, the rec-

ord contains numerous examples of misrepresentations to

Ms. Lindblom. The actions of Intercontinental in con-

tinuously accepting late payments and its taking no steps

to advise Ms. Lindblom of this fact or to advise her of its

so-called extended grace period, as well as the actions of

the Culver Agency, all create reasonable inferences to

support the plaintiff’s claim of misrepresentation. Thus,

we hold that the trial judge properly submitted this claim

to the jury for resolution.

The next issue raised by Intercontinental is whether a

new trial should have been granted in its favor on the

ground that the jury returned a general verdict and at

least one claim against Intercontinental was insufficient.

Intercontinental argues that if it was entitled to a directed

verdict on any cne or more of the plaintiff’s five claims

submitted to the jury, then the verdict must be set aside

and a new trial ordered. In short, we are of the opinion

that Intercontinental was not entitled toa directed ver-

dict on any of the five claims. The plaintiff’s evidence

presented differing interpretations and raised reasonable

presumptions in her favor. The trial judge properly de-

nied Intercontinental’s motion for a directed verdict and

submitted the claims to the jury. Furthermore, we see no

error in the general form of the jury verdict.

Intercontinental next argues that a new trial or a

remittitur should have been granted for Intercontinental

because, it says, the jury verdict was necessarily the

15a

result of bias, passion, or other improper motive and was

otherwise excessive. We disagree with both of its argu-

ments.

After the jury returned the verdict, the trial judge

entered his findings regarding questions of alleged ex-

cessiveness of the verdict, pursuant to Hammond v. City

of Gadsden, 493 So. 2d 1374 (Ala. 1986). After care-

fully reviewing the evidence before the jury, the trial

judge concluded that the evidence clearly established that

Intercontinental’s conduct warranted the punitive award.

As for a motive for the jury to give an excessive

verdict, Intercontinental maintains that the conduct of

the plaintiff at trial in, among other things, testifying as

to the nature of Ms. Rodenberry’s illness, the presence of

Ms. Lindblom’s retarded son, and testifying that Ms.

Lindblom remained at home to care for Ms. Rodenberry

caused the jury to disregard the legal requirements ap-

plicable to Ms. Lindblom’s claim and to decide the case

out of passion and pity for Ms. Lindblom’s situation.

This argument is unpersuasive. Much of the testimony

that Intercontinental now cites as error was either elicited

by counsel for Intercontinental or was notobjected to at

the time the testimony was given. Furthermbne much of

what Intercontinental claims caused the jury * abandon

its duty to decide the case on legal grounds d not, as

we see it, rise to a level that could have affected the jury

in the manner Intercontinental contends. This i& an

extreme case. Much of the testimony Intercontinental now

attacks is relevant and was properly put before the jury

in order for it to make an informed decision.

Intercontinental next attacks the jury verdict as un-

constitutional. Specifically, Intercontinental argues that

the law of punitive damages lacks fundamental fairness

because it is vague, arbitrary, and imposes no standards

or limits. However, as Intercontinental correctly points

out, the Supreme Court of the United States held in

Browning-Ferris Industries of Vermont, Inc. v. Kelco

l6a

Disposal, Inc., U.S. ' , 109 S.Ct. 2909, 2916

(1989), that the excessive fines clause of the eighth

amendment does not apply to punitive damages awards in

cases between private parties. This Court has, in line

with Browning-Ferris, consistently declined to hold that

the award of punitive damages is unconstitutional. See

HealthAmerica v. Menton, 551 So. 2d 235 (Ala. 1989),

cert. denied, U.S. ——, 110 S. Ct. 1166 (1990) ;

Olympia Spa v. Johnson, 547 So. 2d 80 (Ala. 1989) ;

Pacific Mutual Life Insurance Co. v. Haslip, 553 So. 2d

537 (Ala. 1989), cert. granted, US. ——, 110S. Ct.

1780 (1990). Also, the trial judge carefully reviewed the

evidence presented and the constitutional arguments

raised and concluded that the award did not violate the

Constitution. We agree with the trial court that the

evidence of Intercontinental’s conduct warranted the puni-

tive award here and that that award is not unconstitu-

tional.

Last, Intercontinental renews its argument before this

Court that the award of $3,012,400.00 is excessive and

urges this Court to order a remittitur pursuant to Ala.

Code 1975, § 12-22-71. The trial court followed the Ham-

mond guidelines and found no reason to disturb the jury

verdict. However, this Court still has the responsibility

to consider whether the award is excessive, because we

must assure some degree of uniformity in the area of

punitive awards.

After a thorough examination of the record in this

case and a comparison of verdicts in similar cases that

have come before this Court, we conclude that the award

of $3,012,400 is excessive and should be reduced by

$2,012,400. We therefore affirm the judgment of the trial

court, conditioned upon the acceptance of a remittitur of

$2,012,400 by Ms. Lindblom, within 28 days of the date

of this substituted opinion, which will result in a judj-

ment in her favor of $1,000,000.

‘rennin

17a

ORIGINAL OPINION WITHDRAWN; OPINION

SUBSTITUTED; AFFIRMED CONDITIONALLY; AP-

PLICATION OVERRULED.

Hornsby, C. J., and Jones, Almon, Shores, Houston,

and Steagall, JJ., concur.

Maddox, J., concurs specially.

Kennedy, J., concurs in part and dissents in part.

18a

MADDOX, JUSTICE (concurring specially).

I agree that under this Court’s present case law the

punitive damages award, as remitted, must be affirmed.

However, I must point out that I dissented in Pacific

Mutual Life Ins. Co. v. Haslip, 553 So. 2d 537 (Ala.

1989), cert. granted, USS. ; S.ct. ——

(1990), and that the issue raised in this case is the same

as that presented in Haslip. Therefore, if the Supreme

Court of the United States reverses this Court’s judg-

ment in Haslip, then the judgment in this case should

also be reversed. I must await, as everyone else must,

the decision of the Supreme Court of the United States

in Pacific Mutual Life Ins. Co. v. Haslip.

i...

19a

KENNEDY, JUSTICE (concurring in part and dis-

senting in part).

The jury returned a verdict favoring Ms. Lindblom,

and the trial court entered a judgment on that verdict.

The trial court denied Intercontinental’s motion for

judgment notwithstanding the verdict and conducted a

hearing, pursuant to Hammond v. City of Gadsden, 493

So.2d 1374 (Ala. 1986), in which it determined that

the verdict was not excessive. A jury’s verdict is pre-

sumed correct and will not be disturbed unless plainly it

is erroneous or manifestly unjust. United American In-

surance Co. v. Brumley, 542 So.2d 1231, 1233 (Ala.

1989); Pate v. Sunset Funeral Home, 465 So.2d 347

(Ala. 1984). That presumption of correctness is

strengthened when a motion for new trial is denied by

the trial court. Brumley, at 1233; Hill Air of Gadsden,

Inc. v. Marshall, 526 So.2d 15, 17 (Ala. 1988). A re-

mittitur is proper only when the record establishes that

the award is excessive as a matter of law or that the

verdict is based upon bias, passion, corruption, or other

improper motive. Hammond, at 1379.

The record does not indicate that the jury’s verdict

was in any way improper. To apply properly the pre-

sumption of correctness that attends the jury’s verdict

requires that the judgment of the trial court in regard

to liability be affirmed; the majority does affirm in that

regard. I concur in the portion of the opinion that af-

firms the judgment as to liability. However, the record

does not establish that the award was either excessive or

based upon bias, passion, corruption, or any other im-

proper motive; the trial court did not err in denying a

remittitur. Accordingly, I dissent from the portion of

the opinion that orders a remittitur.

20a

APPENDIX B

IN THE CIRCUIT COURT

FOR JEFFERSON COUNTY, ALABAMA

Civil Action No. CV86-7156

Lou R. LINDBLOM,

Plaintiff

v.

INTERCONTINENTAL LIFE INSURANCE COMPANY, et al.,

Defendant

ORDER ON MOTION FOR JUDGMENT

NOTHWITHSTANDING VERDICT OR,

ALTERNATIVELY, MOTION FOR NEW TRIAL

1. The defendant’s Motion For Judgment Notwith-

standing Verdict Or, Alternatively, Motion For New

Trial, is denied and overruled. The defendant’s request

for remittitur is denied and overruled.

2. One of the grounds of defendant’s motion is that

the verdict was excessive. The trial court is commande?

by Hammond v. City of Gadsden, 493 So2d 1374 (1986) ;

Jawad v. Granade, 497 So2d 471 (1986) and succeeding

cases to conduct a hearing on the factors considered in

either granting or denying a Motion For New Trial al-

leging excessiveness, or with respect to remittitur. The

Court has carefully studied the body of Alabama law re-

garding damages and remittitur:

“The trial court may not substitute its own judg-

ment for that of the jury in determining whether to

grant a remittitur.

21a

“The authority to disturb a jury verdict on the

ground of excessive damages is one which should be

exercised with great caution.

“A remittitur may be ordered in those cases where

the court can clearly see that the verdict has been

reached because of bias, passion, prejudice, corrup-

tion or other improper motives.

“The right to a trial by jury is a fundamental, con-

stitutionally guaranteed right, Article 1, Section 2,

Constitution of 1901, and, therefore, a jury verdict

may not be set aside unless the verdict is flawed,

thereby losing its constitutional protection.

“A jury verdict may be constitutionally flawed be-

cause it results, not from the evidence and applicable

law, but from bias, passion, prejudice, corruption,

or other improper motives.

“The cases have consistently held that in deciding

whether a jury verdict is excessive because it is the

result of passion, bias, corruption, or other improper

motive, a trial judge may not substitute his judg-

ment for that of the jury.

“Only where the record establishes that the award

is excessive as a matter of law, or where it is es-

tablished and reflected in the record that the verdict

is based upon bias, passion, corruption, or other im-

proper motive, may a trial court order a new trial

or remittitur.

“Alabama Courts do not favor setting aside jury

verdicts unless justice demands it, and the Supreme

Court has warned repeatedly that the authority

vested in courts to disturb a jury’s verdict on the

ground of excessiveness should be exercised in great

caution.

“To permit a trial judge to substitute his judgment

on the facts for that of the jury, or to give undue

22a

presumption to the action of the trial judge in deal-

ing with verdicts, would minimize the jury system

(and render) juries advisors of the trial judge

rather than a positive force in the administration

of justice.

“Whether remittitur of a new trial should be

granted on the grounds of excessiveness, the Ala-

bama Supreme Court has said that neither remittitur

nor a new trial is appropriate unless the verdict re-

sults from bias, passion, prejudice, or corruption or

other improper motive. This strict standard, when

the courts adhere to it, discourages judges from un-

necessarily tampering with jury verdicts and thereby

minimizes the potency of the argument that re-

mittitur merely substitutes judicial opinion for jury

opinion.”

3. This Court carefully conducted the voir dire ex-

amination and observed the parties and their respective

counsel along with the jury’s reaction during the trial.

The trial of the case was conducted on a highly profes-

sional level by competent, seasoned advocates for both

sides. Frivoiity was not present at the trial of this case.

The jury recognized the seriousness of the issues that

were being presented for their determination. At no

time did it seem or appear to the Court that any part in

this case received less than a fair, impartial trial be

fore the jury.

4. This was a case stating actions in contract, fraud

and tort of bad faith. Testimony from defendant’s own

employees that it accepted premium payments outside of

the written thirty-day grace period contained in the pol-

icy of insurance involved in excess of twenty times. The

court noted the reaction of the jury to the evasive and

inconsistent testimony of defendant’s corporate represen-

tative, James Grace, and its employee, Mary Newman.

The Court observed the expert, and uncontradicted testi-

mony presented on behalf of the plaintiff by Ed Trow-

23a

bridge of Metropolitan Life. He testified that there was

no legitimate basis for denying the claim involved in this

case and that defendant’s actions in reviewing and re-

fusing to pay the claim at issue were in violation of ac-

cepted procedures and practices in the insurance indus-

try. This court also heard inconsistent testimony from

defendant’s employees and representatives regarding

whether defendant ever established or followed a policy

of sending written “pre-lapse notices” to customers, in-

cluding the plaintiff, prior to the date the claim involved

was denied. Defendant failed to produce any documen-

tation or proof to support the testimony of its employee,

Mary Newman, that such “pre-lapse notices” were sent

to the plaintiff at any time. At no point during the trial

of this case did Intercontinental nor any of its corporate

officers admit any wrongdoing. From the facts, this court

is reasonably satisfied that the insurance company de-

liberately or recklessly suppressed material facts from

the plaintiff prior to the death of Tommie Rodenberry;

and, this court is reasonably satisfied that the insurance

company had no legitimate basis for denying the claim

made the basis of this suit and/or failed to properly in-

vestigate the Lindblom claim and subject the results of

the investigation to cognitive evaluation and review.

5. The amount of a civil fine or exemplary damages

is largely left to the discretion of the jury. Alabama Law

allows juries to fix punitive damages. ‘his court knows

of no reason why there should be any judicial invasion

into the function of the jury under the facts in this case.

The court finds nowhere in the record where it is estab-

lished that the award is excessive because it is based

upon bias, passion, corruption or other improper motive.

6. In addition to the above, the court has also con-

sidered those factors listed by the Supreme Court in

Hammond, supra, as being appropriate for the trial

court to consider. With regard to the culpability of the

defendant’s conduct, the evidence clearly established that

24a

the conduct of the defendant justified a punitive award.

The evidence presented was also sufficient to establish

that defendant’s actions or inactions were against recog-

nized and accepted insurance industry standards.

The insurance industry should be discouraged from

placing their interests above that of their customers when

processing claims and adjusting insurance policies. In-

surance companies are in a position to have knowledge

and information which the lay person does not have.

The defendant has argued that the verdict in this case

will adversely impact the insurance company. Any verdict

for any party will have an adverse impact to some extent.

The court does not find that this verdict on the defendant

is such that would require a reversal of the jury’s deci-

sion as to damages. In line with that same reasoning, the

court does not find that the impact on innocent third

parties is of such significance or consequence so as to

reverse the jury’s determination of damages.

7. The defendant raised Federal constitutional ques-

tions, in every possible and conceivable way and manner,

during the trial of the case and on all post-judgment

motions. In substance, defendant claims the award of

damages in this case violates the due process clause of

the United States Constitution in that

a. the award of punitive damages was committed

solely to the authority and standardless discretion of

the jury, Bankers Life & Casualty Co. v. Crenshaw,

486 U.S. 77, 78-79 (1988) (O’Connor, J., concur-

ring) ;

b. the standardless discretion of the jury in award-

ing punitive damages constitutes arbitrary action of

the government, which is forbidden by the due process

clause of the United States Constitution, Browning-

Ferris Industries of Vermont, Inc. v. Kelco Disposal,

Inc., 57 U.S.L.W. 4985, 4991-92 (U.S. June 26,

1989) (Brennan, J., concurring) ; and

ee ee a

25a

ce. the unbridled discretion of the jury in award-

ing punitive damages in this case amounts to un-

constitutional vagueness and procedural due process

violation, Jd. at 4992 (O’Connor, J., concurring).

The court considered the constitutional issues when

raised by defendant, both during the trial of the case

and during the post-judgment arguments. This Court

holds that the award by this jury of punitive damages

did not violate the due process clause of the United States

Constitution.

8. On post-judgment motion defendant submitted a

sparse affidavit which says by implication that the verdict

against the defendant would adversely impact the insur-

ance company because its net income has been reduced.

Yet, plaintiff, in post-judgment hearing, introduced an-

nual statements of defendant filed with State of Alabama

Department of Insurance showing that the defendant has

millions and millions of dollars in assets. Therefore, this

court finds that Green Oil Co. v. Hornsby, 539 So2d 218,

does not apply. In Green Oil the trial judge on post-

judgment Hammond motion had evidence of the company’s

and partners’ worth and he found the punitive damages

award was excessive because of its effect upon Green Oil

and the partners. In the Supreme Court’s words: “The

Green Oil Company overcome the presumption of correct-

ness that attached to the jury’s award of punitive dam-

ages.”

This court finds that this defendant did not overcome

said presumption of correctness and the trial verdict

stands.

9. It is therefore ORDERED, ADJUDGED AND DE-

CREED that defendant’s Motion For Judgment Notwith-

standing The Verdict Or, In The Alternative, For A

Remittitur Or New Trial is denied and overruled.

All court costs taxed against said defendant.

26a

DONE AND ORDERED this the 1st day of September,

1989.

/s/ Josh Mullins

JOSH MULLINS

Circuit Judge

ec: All counsel of record