Elder Law FAX - January 3, 2005

Punitive Damage Award Against Life Insurance Company Set Aside
Pamela K. Ginn purchased a $50,000 life insurance policy on her husband through American Heritage Life Insurance Company. When applying for the insurance, Ms. Ginn told the insurance salesman, Daryle Gross, that her husband Tony was in "basic good health."

Ms. Ginn knew that Tony had been diagnosed with diverticulitis in 1991 before they were married in 1992. Her husband was prescribed antibiotics and the diverticulitis "cleared up and he was fine." The diverticulitis flared up again in 1998. This time, Mr. Ginn, who was 5'6" and weighed 190 pounds, lost approximately 60 pounds. Mr. Ginn was treated by a physician who prescribed antibiotics and instructed Mr. Ginn to eat a lot of fiber.

Unfortunately, the fiber seemed to make matters worse and, according to Ms. Ginn, her husband's health went "downhill." Mr. Ginn nevertheless continued to work at a paint and body shop and engage in recreational activities with his three children. Mr. Ginn eventually went to the emergency room when his symptoms did not improve. By that time, he was unable to keep food down and when he did, he had diarrhea.

After being treated by various physicians, Mr. Ginn was instructed by another doctor to quit taking fiber. Mr. Ginn then started to improve and regained approximately 20 pounds. Mr. Ginn stopped taking antibiotics in January of 1999 and seemed to be feeling fine, although he continued to take five milligrams of diazepam every day for stomach spasms.

Tony Ginn died a few weeks after the life insurance went into effect. American Heritage denied his widow's demand for the life insurance proceeds, claiming that she had materially misrepresented her husband's health.

Plaintiff sued American Heritage and Mr. Gross. The jury found the defendants breached their contract with Ms. Ginn. The jury also found that the refusal to pay was done in bad faith, assessing a 25% bad faith penalty. The jury also concluded the defendants had violated the Tennessee Consumer Protection Act. Compensatory damages were set at $73,855.15. Pursuant to the Consumer Protection Act, the trial court then trebled the damages and awarded attorney fees. When all was said and done, the amount of the judgment awarded to Ms. Ginn totaled $284,980.60.

Both sides appealed various aspects of the trial court's judgment.

The Tennessee Court of Appeals let stand the jury's finding that the insurance company had breached its contract with Ms. Ginn to pay death benefits under the policy. As the appeals court said, "We believe there was a clear factual issue presented to the jury on whether Plaintiff materially misrepresented that her husband was in 'basic good health.' This Court is not to weigh the evidence, and we cannot say that Mr. Ginn's health at the relevant time was so bad that we must hold, as a matter of law, that there simply was no way Plaintiff could honestly and subjectively have believed her husband to be in 'basic good health.'"

However, the appeals court set aside the trial court's judgment upholding the jury's 25% bad faith penalty and that the insurance company had violated the consumer protection act. As the appeals court put it, there was no evidence of bad faith by the insurance company, and there were substantial legal grounds supporting the insurance company's position that Ms. Ginn materially misrepresented her husband to be in "basic good health" when applying for the life insurance. The company simply was not able to convince the jury of that.

Mrs. Ginn was therefore awarded the proceeds of the $50,000 policy, plus costs and prejudgment interest, totaling $73,415.15.

Ginn v. American Heritage Life Insurance Co., December 29, 2004.

2005 Medicaid Long-Term Care Figures
Minimum Community Spouse Resource Allowance -- $19,020
Maximum Community Spouse Resource Allowance -- $95,100
MMMNA (Standard Maintenance Amount)* -- $1562
Maximum Shelter Allowance (30% of MMMNA) -- $468.60
Maximum Community Spouse Income Allocation -- $2378
Personal Needs Allowance -- $40
Income Cap -- $1737
Average Nursing Home Cost (Vendor Rate) -- $3394
*Changes on July 1, 2005. Source: Tenn. Dept. of Human Services

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