Court: Louisiana Court of Appeal; October 1, 2014; Louisiana; State Appellate Court
The case involves the reformation of a disability benefits insurance policy issued by Mutual of Omaha Insurance Company to Daniel Hyatt. The trial court ruled the policy language was ambiguous and allowed Mr. Hyatt full recovery of benefits, awarding penalties and attorney fees, while denying a reduction of benefits due to Mr. Hyatt's social security benefits. However, the court granted Mutual's request for remittitur based on a settlement between its agent, Larry Perron, and Mr. Hyatt, classifying them as solidary obligors. Mutual appealed the judgment, and Mr. Hyatt countered by seeking reversal of the remittitur and additional attorney fees for appellate work.
Mr. Hyatt, a truck driver, applied for an income replacement policy in January 2000, reporting a salary of $60,000. The policy provided $2,000 monthly benefits for two years if he became disabled. After experiencing health issues, he sought benefits in September 2006 but did not provide requested information, leading to no claim processing. He reapplied in March 2008, claiming inability to work as of February 1, 2008. Mutual assessed his 2006 and 2007 tax returns and initially reduced benefits to $200 monthly based on his reported income, later adjusting to $436 after receiving his 2007 tax returns. Mutual refunded 90% of his premiums due to his non-qualification for benefits. Despite ongoing requests for continuation forms, Mr. Hyatt's file was closed in November 2008, and he did not receive further benefit checks.
On July 17, 2008, Mr. Hyatt initiated a lawsuit against Mutual and Larry Perron, seeking $2,000.00 monthly disability benefits, along with damages, penalties, and attorney fees. He later amended his petition to reform the policy to align with the original intent of providing $2,000.00 in monthly disability coverage, as Mr. Perron had indicated that the application required reporting his gross annual income. On February 23, 2009, Mr. Hyatt filed for social security benefits, claiming disability effective September 1, 2007, which the Social Security Administration confirmed.
A bench trial occurred in May 2013, resulting in a settlement of $25,000.00 with Mr. Perron. The trial court ruled on May 16, 2013, declaring the policy ambiguous regarding the term 'earnings,' reforming it to reflect that Mr. Hyatt was entitled to $2,000.00 monthly benefits for two years. The court awarded Mr. Hyatt $48,000.00 in penalties and $27,204.00 in attorney fees. Following Mutual’s motion for remittitur, the court reduced Mr. Hyatt’s award by $25,000.00 due to his settlement with Mr. Perron, who was found to be a solidary obligor with Mutual. The final judgment was signed on October 13, 2013.
The central issue on appeal was the definition of 'earnings' for calculating benefits. Mutual contended that net earnings should be used, while Mr. Hyatt argued for gross earnings. The trial court ruled that the policy was ambiguous and determined that Mr. Perron was aware of Mr. Hyatt’s intent to purchase a policy covering his truck note. Consequently, the court reformed the policy to use Mr. Hyatt’s gross earnings for benefit calculations. The ruling emphasized that insurance policies are contracts governed by the parties' intent as expressed in the policy language, adhering to general contract interpretation principles. Clear and explicit contract terms should be enforced as written without further interpretation.
An insurance policy must be interpreted according to its unambiguous terms and not beyond what is reasonably contemplated. Definitions within the policy are controlling, and when ambiguity arises due to multiple interpretations or unclear intent, parole evidence may be used to clarify. The court must interpret ambiguous provisions based on the parties' intent, surrounding circumstances, and similar contracts, with the determination of ambiguity being a legal question. Factual findings by the trial court regarding contract interpretation are upheld unless there is manifest error.
In the current case, the trial court found the term 'earnings' in Mr. Hyatt's insurance policy ambiguous regarding its application to gross versus net earnings. The policy stipulates that disability benefits are calculated based on the insured's earnings at the onset of disability, but the definition of 'earnings' only includes salaries and related compensation without specifying whether to use gross or net amounts. Mr. Hyatt's income from driving is categorized as gross income. The central issue is whether the policy's definition of 'earnings' is clear or ambiguous in determining the calculation of benefits.
The definition of 'earnings' does not require the deduction of business expenses. Mr. Hyatt's application requested 'Gross annual earned income from your occupation (after business expenses),' which adds complexity. According to Louisiana Revised Statutes 22:881, applications attached to insurance policies become part of the policy, and the intent to incorporate the application must be clearly stated. The policy's first page indicates that the application influences the policy's validity. However, the application refers to 'gross income' while implying it excludes business expenses, creating confusion that could have been avoided by requesting net income directly.
The policy is deemed unclear regarding whether gross or net income should determine benefit amounts. Judith Edwards, a claims specialist for Mutual, acknowledged that Mr. Hyatt would qualify for $2,000 monthly if his gross earnings were used, noting the policy does not require the deduction of business expenses or the addition of depreciation as Mutual did. Mr. Hyatt sought income protection to cover his truck note in case of disability and believed he was providing gross income on the application. His wife corroborated this understanding.
The trial court found Mr. Hyatt's testimony credible regarding his intent to secure insurance for the truck payment, and it concluded that the policy is ambiguous concerning the calculation of disability benefits. Both parties argued for reformation of the policy to reflect their intentions; however, the court determined that an existing ambiguity negated the need for policy reformation to align with the parties' agreements.
An insurance policy's ambiguous provisions must be interpreted against the insurer and in favor of the insured, according to La.Civ. Code art. 2056. The court found ambiguity in the policy issued to Mr. Hyatt, leading to the conclusion that gross earnings should be used to calculate his disability benefits, rather than net earnings. Mutual Insurance Company contested the trial court's reliance on the gross receipts of Hyatt Trucking, LLC to determine Mr. Hyatt’s income. However, Mr. Hyatt's tax returns for 2005, 2006, and 2007, along with testimony from his CPA, confirmed that as a sole member of the LLC, its income was reported on his personal tax returns. The law recognizes the LLC as a separate entity but mandates that profits and losses be allocated to its members. Consequently, the trial court rightly used Mr. Hyatt's gross earnings as per his tax filings, confirming his entitlement to a monthly benefit of $2,000.
Mutual argued against the trial court's finding of Mr. Hyatt as totally and permanently disabled, citing post-2008 tax returns indicating he continued to work. Despite acknowledging Mr. Hyatt's credibility issues, the trial court deemed the physician's statement regarding his inability to work from February 1, 2008, sufficient to establish his disability without additional documentation. For appellate review of factual determinations, a two-part test is applied: first, whether a reasonable factual basis exists for the finding, and second, whether the finding is clearly wrong or manifestly erroneous. Under Mutual's policy, benefits cover loss of earnings due to sickness, defined as any condition causing loss while the policy is effective, provided it is not excluded from coverage. Total loss of earnings is recognized when the insured cannot earn more than 30% of average earnings due to medical conditions.
There is no requirement for Mr. Hyatt to provide monthly notice of his continuing disability under the policy. The trial court correctly determined that Mr. Hyatt's doctor’s statement regarding his permanent disability sufficiently substantiated his claim of being unable to work. Mr. Hyatt did not drive the truck in 2009, although he was confronted with conflicting testimony from his deposition. His wife, Mrs. Hyatt, obtained her commercial driver's license in 2012 but had a learner's permit beforehand, allowing her to drive under supervision. Testimony revealed that another company used the truck prior to her licensing, but she could not recall the company’s name or provide records due to destruction by fire.
Geraldine Duplantis from the Office of Motor Vehicles confirmed Mrs. Hyatt's commercial license date as June 11, 2012. Mr. Hyatt’s condition, spinal muscular atrophy, has progressively worsened since his diagnosis in 2002, leading to his disability application in 2006. After a period of attempting to work, he reapplied for disability benefits in 2008. An examination by a doctor noted the severe prognosis of Mr. Hyatt's condition, which ultimately results in death due to respiratory muscle weakness with no effective treatment available.
Although the Hyatts possess credibility issues, the evidence supports the trial court’s conclusion that Mr. Hyatt is totally and permanently disabled under Mutual's policy. The policy stipulates that benefits must be offset by other income replacement benefits, including social security disability, which Mr. Hyatt applied for again during the discovery phase, prompting Mutual to obtain and introduce his social security file at trial.
Mr. Hyatt objected to evidence regarding his social security disability benefits, arguing that Mutual failed to plead offset as an affirmative defense. Mutual contended that it only sought to enforce the policy terms, asserting that offset is integral to benefit calculations and not an exclusion. Louisiana law requires affirmative defenses to be specifically pled in the answer, with the determination of such defenses being fact-specific. Mutual's claim for offset was deemed an affirmative defense, necessary to be pled since it constitutes a new matter not raised by Mr. Hyatt. Despite being aware of Mr. Hyatt's social security benefits, Mutual did not amend its answer to include the offset defense. Consequently, the trial court correctly excluded the evidence of offset. Additionally, Mutual challenged the trial court's ruling on penalties and attorney fees under La.R.S. 22:1821, which mandates timely payment of claims unless justifiable grounds for delay exist.
The insurer is obligated to make payments to the insured at least every thirty days during the covered disability period. A failure to comply results in a penalty of double the owed benefits, plus attorney fees determined by the court. Jurisdiction for disputes lies with courts in the insured's domicile, excluding justice of the peace courts. Mutual contends its refusal to pay Mr. Hyatt was based on a reasonable interpretation of the policy; however, it bears the risk of misinterpreting its policy. The determination of whether an insurer has valid grounds for refusal is fact-specific and should not be overturned unless there is manifest error. The policy does not clearly define how to assess gross or net income for benefits or treat sole proprietors differently. Additionally, it does not require the insured to provide monthly updates on their disability status. Mr. Hyatt provided adequate proof of his claim, while Mutual based its denial on internal procedures. The trial court's decision to impose penalties and attorney fees was upheld.
Regarding remittitur, Mr. Hyatt seeks to reverse a $25,000 reduction in judgment against Mutual following a settlement with Mr. Perron. Mutual argued that the judgment should be reduced because he was a solidary obligor. Under Louisiana Civil Code, a settlement with one obligor benefits the others, but a plaintiff loses rights against the released obligor. The reduction should be proportional to the fault of the released party, and a non-settling tortfeasor must prove the released party's fault to qualify for a judgment reduction. The trial court found no fault attributed to Mr. Perron, despite Mutual’s claims of solidarity between him and Mutual.
The court did not determine any percentage of fault attributable to Mr. Perron and upheld that he was not assessed any fault, a finding not appealed by Mutual. Consequently, Mutual is deemed 100% liable to Mr. Hyatt due to the ambiguity in its insurance policy, unrelated to Mr. Perron’s actions. As a result, Mutual cannot claim credit for any payments made by Mr. Perron. The trial court's granting of Mutual's motion for remittitur was found to be erroneous.
Regarding attorney fees, Mutual contested the trial court's decision to assign 100% of the fees to it, arguing that unrelated amounts for work on Mr. Hyatt's claim against Mr. Perron should have been excluded. However, under Louisiana Code of Civil Procedure Article 1920, the party cast in judgment is generally responsible for all costs, and the trial court has discretion in apportioning them. The court found no abuse of discretion in assigning all attorney fees to Mutual, which was fully responsible for the disability benefits due to its policy's ambiguity.
Mr. Hyatt requested additional attorney fees for work performed during the appeal, which the court deemed appropriate, awarding him an extra $5,000. The court reversed the trial court's remittitur of $25,000 and amended the judgment to include the additional attorney fees, affirming all other aspects of the trial court's judgment. All appeal costs are to be borne by Mutual of Omaha Insurance Company. The judgment is reversed in part and affirmed as amended.
