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Donnelly v. Washington Nat'l Ins. Co.

OPINION FILED AUGUST 14, 1985.

JOSEPH R. DONNELLY, JR., ET AL., PLAINTIFFS-APPELLEES AND CROSS-APPELLANTS,

v.

WASHINGTON NATIONAL INSURANCE COMPANY, DEFENDANT-APPELLANT AND CROSS-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. James A. Geroulis, Judge, presiding.

PRESIDING JUSTICE WHITE DELIVERED THE OPINION OF THE COURT:

Plaintiffs, the children of Joseph R. Donnelly, Sr., brought suit against defendant Washington National Insurance Company (Washington National) alleging in count I of their amended complaint that Washington National refused to pay a valid claim for life insurance, and alleging in count II that the insurance company's actions were fraudulent. The jury returned verdicts against defendant for $100,000 on count I and $1,000,000 on count II. The court denied defendant's post-trial motions for judgment notwithstanding the verdict and for a new trial; the court also denied plaintiffs' post-trial motion for interest, attorney fees and costs. Defendant appeals from the judgments entered on both counts, and plaintiffs cross-appeal from the court's denial of their motion for interest, attorney fees and costs. We affirm the judgment on count I, reverse on count II, and affirm the order denying interest, attorney fees and costs.

Joseph R. Donnelly, Sr. (Donnelly), worked in the sales department of Consolidated Packaging Corporation (Consolidated) from 1973 until July 16, 1976. Consolidated had group life and group health insurance policies with Washington National. Under the terms of those policies, if Donnelly was totally disabled when he left Consolidated, his coverage under both policies continued until the disability ended. He also had the right to convert his coverage under the group policies to individual coverage within 31 days of the termination of his employment with Consolidated.

Donnelly began working for St. Regis Paper shortly after he left Consolidated. St. Regis had group life and group health policies with another insurer, but under the terms of those policies a new employee was not covered until he had been working for St. Regis for 60 days.

On August 9, 1976, within the 31-day conversion period, Donnelly went to Washington National's office and he spoke to Linda Hoffmann, a conversion clerk for Washington National. He filled out an application to convert his health insurance to individual coverage, and he paid a premium of $90.86, which covered the period from July 16, 1976, to October 1, 1976. He brought to that office a card from Consolidated which showed that the limit for his life insurance coverage was $36,000. Washington National conceded at trial that the limit for his life insurance coverage should have been at least $73,000. Donnelly did not convert his life insurance, and there is a dispute between the parties as to what did transpire between Donnelly and the office employees of Washington National. However, Washington National's records indicate that it did not close Donnelly's life insurance file until September 2, 1976, 15 days after the 31-day period for conversion expired. As a standard practice, Washington National allowed a 15-day extension of the conversion period, and sent a follow-up letter, whenever a client asked for further information regarding his conversion rights. Thus, there is uncontradicted evidence that on August 9, 1976, Donnelly had incorrect information regarding the limit for his life insurance coverage, and Donnelly asked Washington National's representative for further information regarding his right to convert his life insurance.

On August 16, 1976, Donnelly went to see Dr. Floyd Shewmake, complaining of pain in his legs. On the advice of Dr. Shewmake, Donnelly entered a hospital the next day. On August 17, 1976, Dr. Shewmake informed Donnelly that Donnelly had lung cancer. On September 21, 1976, Donnelly died of bronchogenic carcinoma of the right lung with metastases, survived by six children. The children are the plaintiffs in this case. The oldest child was 20 years old at that time; the youngest was nine. Their mother had died two years earlier. Washington National paid Donnelly's hospital bills in accordance with the converted individual health insurance policy Donnelly obtained on August 9, 1976. However, Washington National refused to pay Donnelly's life insurance claim.

Plaintiffs allege in count I of their amended complaint that on Donnelly's visit to Washington National's offices on August 9, 1976, an agent of Washington National promised to send Donnelly a letter containing the information he would need to convert his life insurance policy, and plaintiffs allege that the letter was not sent. In count II plaintiffs allege that the promise to send the letter was made for the purpose of deceiving and with the intent of defrauding Donnelly by inducing him not to convert his group life insurance policy and that Donnelly in reliance on the promise was thereby prevented from converting the policy to an individual policy.

By the evidence deposition of its employee, Linda Hoffmann, Washington National established that, according to its records, Washington National sent Donnelly a follow-up letter. At trial plaintiffs introduced evidence to show that no such letter was sent. Plaintiffs produced testimony of four witnesses who were members of the Donnelly household in August and September 1976; none remembered seeing any letters from Washington National during that time. Plaintiffs also produced evidence that Donnelly continued to attempt to get information regarding conversion. Tom Wallner, who worked with Donnelly at Consolidated, testified that he visited Donnelly in the hospital on August 17 or 18. During that visit, he telephoned Cynthia Colagrossi, a secretary for Consolidated, and asked her to check on the status of Donnelly's insurance. He testified that she told him that she could not find out anything definite. Colagrossi testified that, pursuant to Wallner's request, she called Diane Norris and Charlotte Ramos, employees of Consolidated who handled insurance matters for salaried employees, and she asked them to determine the status of Donnelly's coverage. She understood that they would contact Washington National regarding Donnelly's insurance. She testified that she called them several times, and each time she was told that they were checking into Donnelly's health insurance.

Several other witnesses for plaintiffs testified that they attempted to find further information regarding Donnelly's insurance. Donnelly's sister testified that she spoke to Robert Golbier, an insurance salesman for Washington National, on September 9, 1976, one week after Donnelly's extended conversion period expired. She asked him if Donnelly was covered. She next asked Golbier if Donnelly could become covered, and if there was any grace period. She did not testify concerning Golbier's responses because the trial court ruled that such testimony was inadmissible hearsay. Donnelly's brother-in-law testified that on September 13, he spoke to Donald Poklop and Jacqueline Anthony, who worked in Washington National's claims department, and they told him that Donnelly was not covered. Robert Golbier and Jacqueline Anthony, who were no longer employed by Washington National at the time of trial, were not presented as witnesses.

Washington National responded to plaintiffs' witnesses with evidence that they sent Donnelly their usual follow-up letter regarding insurance conversion. Robert Prochnow, general supervisor of the group premium accounting division at Washington National, testified that people in his department began searching for a copy of the letter to Donnelly shortly after suit was filed in 1979. The search continued until August 1982, when Linda Hoffman discovered a document which she identified as a carbon copy of the letter she sent to Donnelly in August 1976. The name "Bill Razor" is handwritten in red on the document.

Willis Razor, a senior account executive for Washington National who handled the Consolidated account in 1976 and 1977, testified that according to Washington National's practice at the time, if a Consolidated employee disputed the amount of coverage he was entitled to convert, William Razor would be contacted. Razor further testified that he had no idea why his name was on the carbon of the letter. He testified that he did not know the amount of life insurance Donnelly would have been allowed to convert, but Razor admitted, under cross-examination, that in his deposition he stated that Donnelly was entitled to convert to $90,000 or $100,000 in life insurance.

A few months after Donnelly died, Consolidated's employee Diane Norris prepared a summary of Washington National's and Consolidated's activities relating to claims on Donnelly's insurance and plaintiffs introduced this summary into evidence at trial. According to the summary, Donnelly asked Linda Hoffmann on August 9, 1976, about his conversion privileges for life insurance. She explained the privilege to him, and he asked to have the rate sent to him in writing. According to the Norris summary, Hoffmann sent the required letter within two days of meeting Donnelly. By late August 1976, Norris, Ramos and Colagrossi, all employees of Consolidated, were aware that Donnelly was hospitalized and that he was trying to find out the status of his insurance coverage.

The report further shows that Razor of Washington National met with Norris and other employees of Consolidated two days after Donnelly's death. Razor was "furious because [Consolidated's] internal administration [of the insurance coverage did] not correspond to the contract * * * with Washington National." He said that the mistakes almost rendered Washington National liable on Donnelly's claim. They were safe because Donnelly died five days after the expiration of his coverage under Consolidated's contract, and he did not take the conversion option.

Linda Hoffmann testified in her deposition that she could not remember meeting Donnelly, but she testified that the written records indicate that Donnelly asked her to send him a letter stating the rates for conversion, and as a standard practice, she would have promised to send him a letter stating those rates, and she would have informed him that he had 15 days beyond the end of the initial conversion period in which to convert his insurance. According to her records, she sent him the letter on August 11, 1976; however, she had no independent recollection of the letter or any other aspect of her transaction with Donnelly. She testified that in 1982 she found the carbon of the letter sent to Donnelly. She testified that it was not properly filed; it was in a box labelled "1975" instead of "1976."

If a customer challenged the maximum amount of coverage shown on the conversion card from his employer, she testified that she would say something like: "I can't say this is how much you can convert to, until I find out for sure," or "I'll look into this further * * * and I'll advise you by letter."

Defendant moved for directed verdicts on both counts of the complaint at the close of all the evidence. The motions were denied. The jury returned general verdicts for plaintiffs on both counts, and it returned two special verdicts on count I, finding that (1) Donnelly was not disabled when his employment with Consolidated terminated, and (2) Washington National failed to send Donnelly a letter ...


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