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LOYAL AMERICAN LIFE INS. v. MATTIACE5/24/1996
The defendant, Loyal American Life Insurance Company, Inc., appeals from a judgment entered on a jury verdict in favor of the plaintiff, Sue M. Mattiace. The jury found that Loyal American had breached a life insurance contract and had acted in bad faith by failing to pay the insurance claim submitted by Sue Mattiace. We affirm.
I. Facts
In February 1990, Joseph F. Mattiace, who was then age 32, met with one of Loyal American's agents and applied for a life insurance policy with a face value of $32,200. As a part of the process, the agent asked Joseph a set of questions listed on the application form and recorded his answers. One of the questions asked was: "To the best of your knowledge and belief, has . . . any person on whom insurance is applied for in this application: . . . ithin the past 5 years been arrested or convicted for the use of, or driving under the influence of alcohol or drugs? (if yes, give driver's license number and details.)" Joseph's answer to that question was recorded by the agent as "no."
Loyal American's agent, at that meeting with Joseph, reviewed Joseph's application and approved the policy as "standard," meaning that Joseph would pay the standard rate of premiums. The policy was issued with a $32,200 face value, and Joseph's mother, Sue Mattiace, was the beneficiary. The first yearly premium was paid to Loyal American by a loan from Joseph's credit union.
On March 2, 1990, Joseph was killed in an automobile accident. Blood and urine tests indicated that Joseph was legally intoxicated at the time of his death. Loyal American was notified of Joseph's death on March 12. Thereafter, it issued a check to Joseph's credit union for the amount of the unearned premium on the policy.
Sue Mattiace made a claim on Joseph's life insurance policy in August 1990. Loyal American responded by stating that because Joseph had died within two years of the policy's issue date, it would conduct an investigation to determine the truthfulness of his answers on the application form. As a part of the investigation, Loyal American obtained a "motor vehicle report" on Joseph, which revealed that he had been convicted of DUI on June 14, 1989, approximately eight months before he applied for the life insurance policy. Loyal American informed Sue Mattiace that it was rescinding Joseph's life insurance policy, based on his DUI conviction. It also informed her that it was denying her claim for policy benefits.
In response, Sue Mattiace's attorney contacted Loyal American's vice president of claims, George Lyles, and sought an explanation of Loyal American's underwriting practices that would justify the denial of her claim. On January 22, 1991, Lyles wrote a letter to Sue Mattiace's attorney, stating:
"Pursuant to our telephone conversation yesterday, I am enclosing a page from our underwriting manual which shows that we would have charged an extra premium of $3.00 per $1,000.00 of insurance for the first three years of the contract had we known about his previous driving record. Since we would not have issued the policy at the premium rate as applied for, it was proper that the policy be rescinded [based on Ala. Code 1975, § 27-14-7]."
(Emphasis added.) However, it is uncontested that the page enclosed with the "Lyles letter" was not a page from a Loyal American underwriting manual. Loyal American does not have its own underwriting manual. Instead, it utilizes numerous underwriting manuals prepared by various reinsurance companies and relies upon "subjective underwriting" based on its underwriters' background and knowledge.
The page enclosed with the "Lyles letter" was actually a page from the und
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