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LOYAL AMERICAN LIFE INS. v. MATTIACE5/24/1996
aim, I would have no problem with that statement, but the majority is talking about the elements of establishing a bad faith claim. This holding punishes an insurance company for refusing to pay a claim because the policyholder had intentionally misrepresented a fact on the application for insurance.
A reading of the majority opinion, especially of a footnote in that opinion, convinces me that the majority today completely abandons the "directed verdict test" of Chavers. In Chavers, the majority of the Court unequivocally stated that the plaintiff must show that the insurance company had no legal or factual defense to payment of the insurance claim. 405 So.2d at 7. The test set out today is quite different, and when the two tests are placed side by side, it is obvious that the legal principles set out in Chavers cannot co-exist with the legal principle upon which today's case is decided, because they are directly contradictory one to the other.
Consequently, I must disagree with the majority's permitting the recovery of punitive damages in this case, in which the record shows so plainly that the insured represented to the insurance company that he had had no prior DUI convictions, and in which it is quite clear that the plaintiff, no matter what view is taken of the evidence, was not entitled to a directed verdict on the contract claim. The closer question is whether, in view of the insured's misrepresentation, the insurer itself was entitled to a directed verdict on the contract claim and had the right, as a matter of law, to rescind the policy and make a refund of the premiums, as Loyal American contended in the trial court and in this Court. See, Ala. Code 1975, § 27-14-7. Clearly, the law should not allow for the recovery of punitive damages for breach of an insurance contract when there is a dispute between the parties whether the beneficiary of the contract was entitled to any benefits under the policy, a fact not determined until the jury returned a verdict in the plaintiff's favor. Permitting such a recovery, it seems to me, raises federal constitutional questions that implicate the due process clause of the Fourteenth Amendment. In BMW of North America, Inc. v. Gore, ___ U.S. ___, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996), the United States Supreme Court held that a state's imposition of economic penalties on those who violate its laws, whether the penalties are legislatively authorized fines or judicially
imposed punitive damages, must be supported by the State's interest in protecting its own citizen-consumers and its economy. How can this judicially imposed penalty support the State public policy of punishing illegal conduct, while prohibiting an insurer from rescinding a contract where policyholder is guilty of misconduct. See, Ala. Code 1975, § 27-14-7.
Although I believe that the learned trial judge properly refused to direct a verdict on the contract claim, I believe that he erred in refusing to direct a verdict on the bad faith claim. I can understand the frustration the trial judge must have had in ascertaining whether this was a "normal" or an "abnormal" bad faith case, and I do not fault him in view of the fact that this Court keeps changing the rules regarding what constitutes conduct that warrants the imposition of punitive damages. The trial judge was bound by the decisions of this Court, and although normally I would not continue to dissent when this Court has established a principle, but I will continue to dissent in most of these bad faith cases because I firmly believe that punitive damages are not appropriate in these cases, especially when the right to recover on the contract claim is disputed.
Because I believe that the majority has
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