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LOYAL AMERICAN LIFE INS. v. MATTIACE5/24/1996
ast a debatable reason for denying the claim.
The majority opinion says that Loyal American had no mechanism to ensure that applicants were treated uniformly during the underwriting process. This ignores the undisputed testimony of all the underwriters that, unless there were extenuating circumstances, Loyal American "rated" all policies in which the applicant disclosed a DUI conviction within 12 months of the date of the application. The policy was rated when the company considered the applicant a higher risk. A "rated" policy resulted in a higher premium. Loyal American applies different "ratings" depending on the amount of enhanced risk. If Loyal American did not have a standard policy concerning DUI convictions, why then did the standard set of questions on the application form contain a question about prior DUI convictions?
A DUI rating would have been based upon Loyal American's standard procedure and on the Hudson manual page used by Ms. Wilkerson and Ms. Dollarhide. The rating would have been consistent and uniform with Loyal American's standard procedure, provided there were no extenuating circumstances.
The plaintiff argues that Loyal American's lack of a written requirement that the Hudson
manual be used proves that Loyal American had no consistent procedure. However, this argument mischaracterizes the evidence and advances form over substance. Ms. Dollarhide and Ms. Wilkerson kept the Hudson manual page at their desks and relied upon it only when considering "driving criticisms." Ms. Dollarhide and Ms. Wilkerson both testified that the Hudson manual was the required guideline.
Evidence was produced concerning 27 other policyholders who had disclosed on their applications previous DUI convictions. In 14 of those instances the DUI conviction had occurred more than 12 months before the date of the application, and in those instances "standard policies" were issued, in compliance with the Hudson guideline and the policy established by the underwriters' testimony. The remaining 13 policyholders had had a DUI conviction within 12 months of the application. Loyal American issued 10 of those policies on a higher risk-rated basis. The three remaining policies had been issued "standard," based upon extenuating circumstances. The key difference between Joseph Mattiace and the other 27 policyholders is the fact that Mr. Mattiace did not disclose his previous DUI conviction, and the other 27 did. Not only did he have a prior DUI that, without an extenuating circumstance, would have required that he be issued a rated policy, but he failed to disclose that fact to Loyal American.
Under Alabama law, if an insurance carrier has a debatable reason for denying the claim, then there is no bad faith failure to pay, as a matter of law. See National Savings Life Insurance Co. v. Dutton, 419 So.2d 1357 (Ala. 1982); National Security Fire & Casualty Co. v. Bowen, 417 So.2d 179 (Ala. 1982); and Burns v. Motors Insurance Corp., 530 So.2d 824 (Ala.Civ.App. 1987). Because Loyal American had at least a debatable reason to deny the claim, it was entitled to a judgment as a matter of law on the bad faith claim. This Court should reverse the judgment of the trial court and remand with instructions to enter a judgment in favor of Loyal American on both the breach of contract and bad faith claims.
Today, the majority allows a beneficiary of a life insurance policy to recover punitive damages against an insurer even though there was a legitimate dispute between the beneficiary and the insurer as to whether any benefits were payable under the terms of the policy. The law does not and should not permit this to happen. Therefore, I dissent.
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