Randall G. Dueringer v. General American Life Insurance Company

Citations: 842 F.2d 127; 1988 U.S. App. LEXIS 4970; 1988 WL 26447Docket: 86-4929

Court: Court of Appeals for the Fifth Circuit; April 15, 1988; Federal Appellate Court

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Randall G. Dueringer filed a lawsuit against General American Life Insurance Company for breach of contract and bad-faith denial of his insurance claim under a group policy from his former employer. The jury awarded Dueringer $5,852.18 in actual damages and $360,000 in punitive damages. The appeal centers on General American's denial of coverage under the policy's extended medical benefits provision, which required continuous disability from the date of injury until the claim arose.

Dueringer was employed by Richardson Equipment Company until he suffered serious injuries in a car accident on November 11, 1982, which rendered him temporarily unable to work. He received disability and major medical payments until his termination on May 1, 1983, when Richardson removed him from the policy. Despite efforts to find work in the swimming pool industry, Dueringer remained impaired and could not perform his regular duties due to knee problems and facial disfigurement from the accident.

Seeking coverage for reconstructive surgery, Dueringer communicated to the claims agent that he could walk and work, leading to the conclusion that he was not "totally disabled." Consequently, his surgery was not covered. In January 1984, Dueringer submitted a claim for $5,852.17, which General American denied, citing a lack of records indicating "total disability." Following his removal from the group policy in May 1983, the only applicable coverage was the extended benefits provision, which defined "disabled" as being unable to perform regular work due to injury or sickness.

General American initially denied coverage for Dueringer's claims, leading to his attorney's request for payment on April 27, 1984. Following this, General American reopened the case and sought input from Dueringer's physician, Dr. Nix, who indicated that Dueringer was not totally disabled, and from Richardson personnel, who confirmed no records of total disability after May 1, 1983. On September 11, 1984, General American informed Dueringer that his operations were not covered under the policy, citing a lack of evidence of his disability at that time. Dueringer subsequently filed a lawsuit in federal court for breach of contract and bad faith denial of insurance benefits. The jury ruled in favor of Dueringer, awarding him $5,852.18 in actual damages and $360,000 in punitive damages. General American's motion for judgment notwithstanding the verdict was denied.

On appeal, General American raised three primary arguments: ERISA preemption of the state common law action, lack of evidence for punitive damages, and challenges to the breach of contract award due to insufficient evidence of Dueringer's disability. The Supreme Court's decision in Pilot Life Insurance Co. v. Dedeaux established that ERISA preempts certain state law actions, prompting General American to assert that this should apply to the current case. However, the court determined that General American had waived the preemption defense by failing to raise it at trial, as preemption is an affirmative defense that must be timely asserted. The court rejected General American's justification that it was barred from asserting the defense due to the prior Fifth Circuit ruling, noting that the ruling occurred after General American's answer was due and that it did not attempt to raise the defense while the case was pending. Thus, General American could not introduce the preemption argument on appeal.

General American contests the jury instruction regarding bad-faith denial of an insurance claim, asserting that the evidence does not support such a claim. The Mississippi Supreme Court defines an insurer's tortious injury as occurring when a refusal to pay a valid claim is egregious enough to be labeled an independent tort. Punitive damages are applicable when an insurer acts with malice or gross negligence. A directed verdict in favor of General American hinges on whether there was sufficient evidence for the jury to establish malice or gross neglect. A bad-faith claim can only be presented to a jury if reasonable minds could disagree on the legitimacy of the insurance company's denial.

The details of Dueringer's claim reveal that he sought payment for surgery performed in September 1983, but General American initially denied the claim, citing termination of coverage and a lack of evidence for total disability. Following further investigation prompted by Dueringer's attorney, General American found that both his physician and employer indicated he was not totally disabled, leading to a reaffirmation of the denial. Dueringer did not counter this information before initiating the lawsuit.

Given that General American had credible evidence suggesting Dueringer was not continuously disabled, and he provided no evidence to dispute this interpretation, the court concludes that the insurer's denial cannot constitute bad faith. Consequently, the jury's punitive damages award of $360,000 is reversed.

General American's argument against the finding of breach of contract is rejected. Evidence presented at trial, including testimony and work records, demonstrated that Dueringer was physically disabled and unable to perform regular work. This included his inability to sell pools due to disfigurement and the refusal of pool contractors to hire him based on his physical impairments. The jury had sufficient evidence to conclude that General American breached its policy by denying coverage. The jury's verdict on actual damages is upheld, but the award for punitive damages is reversed. The case is remanded for judgment consistent with this opinion. General American acknowledged that the relevant standard is whether Dueringer could perform "regular" work, not "total" disability. Although Dueringer suggested that this misinterpretation might justify punitive damages, the court found that General American's alleged error constituted negligence, which does not warrant punitive damages. The district court's judgment is affirmed in part and reversed in part.

General American's denial of benefits to Dueringer was based on evidence indicating he was not "totally disabled." Records showed Dueringer worked for a pool contractor post-accident, and his physician suggested he could return to work by June 23, 1983. General American maintained its denial of benefits on the grounds that Dueringer had not provided evidence of continuous disability, leading to a dispute regarding his eligibility. Under Mississippi law, when an insurer has reasonable evidence suggesting a claim is not covered and the insured provides no contrary evidence, punitive damages cannot be awarded for denial of the claim. Therefore, the jury's $360,000 punitive damages award was reversed.

Conversely, Dueringer presented evidence supporting his claim of physical disability and inability to perform regular work, including testimony and work records indicating he could only work intermittently and faced hiring challenges due to his disfigurement. This evidence provided a sufficient basis for the jury to conclude that General American breached its contract by denying coverage. The jury's verdict on actual damages is upheld, while the punitive damages award is reversed. The case is remanded for judgment consistent with this opinion, affirming the district court's judgment in part and reversing it in part. General American's argument regarding a misinterpretation of "totally disabled" versus "regular work" was deemed irrelevant, as any error was classified as negligence, insufficient for punitive damages.