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LOYAL AMERICAN LIFE INS. v. MATTIACE5/24/1996
erican acted within its legal rights when it rescinded Joseph's insurance policy and refused to pay Sue Mattiace's claim for policy benefits. In other words, was Loyal American entitled to rescind Joseph's policy, as a matter of law?
We believe not. Sue Mattiace presented substantial evidence, which is discussed in detail below, that Loyal American's underwriting department does not have its own underwriting manual and does not follow a set of standards that are binding on its underwriters, but instead follows a practice of subjective underwriting whereby each individual underwriter makes decisions based on personal experience. These facts warrant a jury's determination whether Loyal American breached its insurance contract. Accordingly, the trial court properly denied Loyal American's motions for a directed verdict and a J.N.O.V. as to Sue Mattiace's breach of contract claim.
B. Bad Faith
The elements of an action against an insurance company for bad faith refusal to pay a claim are:
"(a) an insurance contract between the parties and a breach thereof by the defendant;
"(b) an intentional refusal to pay the insured's claim;
"(c) the absence of any reasonably legitimate or arguable reason for that refusal . . .;
"(d) the insurer's actual knowledge of the absence of any legitimate or arguable reason;
"(e) if the intentional failure to determine the existence of a lawful basis is
relied upon, the plaintiff must prove the insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim."
National Security Fire & Cas. Co. v. Bowen, 417 So.2d 179, 183 (Ala. 1982). See Miller v. Preferred Risk Mut. Ins. Co., 572 So.2d 1260 (Ala. 1990) (citing Chavers v. National Security Fire & Cas. Co., 405 So.2d 1 (Ala. 1981), and see Metmor Financial, Inc. v. Commonwealth Land Title Ins. Co., 645 So.2d 295 (Ala. 1993). In bad faith cases involving an insurer's refusal to pay a claim on a policy, this Court has established the "directed verdict on the contract claim" standard. In National Savings Life Ins. Co. v. Dutton, 419 So.2d 1357, 1362 (Ala. 1982), this Court 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 contract claim and, thus, entitled to recover on the contract claim as a matter of law. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the claim and, thus, the legitimacy of the denial thereof, the tort claim must fail and should not be submitted to the jury."
(Emphasis added.) Following the rule of Dutton, in order to decide whether the trial court erred in denying a directed verdict in favor of Loyal American on the bad faith claim, we must determine whether Sue Mattiace met her burden of proving that she was entitled to a directed verdict on the contract claim.
Thus, a critical issue is whether Loyal American was legally entitled to rescind Joseph's policy based on his failure to inform Loyal American of his DUI conviction. If Loyal American's actions were justified under § 27-14-7, then Sue Mattiace did not meet the "directed verdict on the contract claim" standard and her bad faith claim must also fail.
1.
Loyal American argues that Sue Mattiace failed to prove that she was entitled to a directed verdict on her contract claim and, thus, was not entitled to have her bad faith claim submitted to the jury. First, Loyal American contends t
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