In Lemons v. Principal Life Insurance Company, the Eleventh Circuit Court of Appeals once again shorted Alabama policyholders by holding that mental anguish damages are not recoverable for breach of a long-term disability insurance contract by an insurance company. The case involved a physician who could no longer perform the duties of his occupation because of a degenerative neurological condition. The court relied without analysis on the recent decision of Walker v. Life Ins. Co. of North America, another Eleventh Circuit decision decided last year, that reached the same conclusion.
Walker illustrates the dangers of deciding a case simply by rote rather than by reasoning. In Walker, the Eleventh Circuit relied on a 1979 Alabama case involving a long-term disability policy to hold that mental anguish damages could not be awarded for a breach of this type of policy. However, it has long been the law in Alabama that mental anguish can be awarded for breach of contract “where the contractual duty or obligation is so coupled with matters of mental concern or solicitude, or with the feelings of the party to whom the duty is owed, that a breach of duty will necessarily or reasonably result in mental anguish or suffering.”
In a couple of decisions, Independent Fire Insurance Company v. Lunsford, and Pate v. Rollison Logging Equipment, Inc., both decided in 1993, the Alabama Supreme Court had signaled that insurance contracts were, in fact, contracts that are “so couple with matters of mental concern or solicitude.” Lunsford upheld a jury verdict allowing mental anguish damages concerning a breach of an insurance policy relating to the refusal to pay for a damaged awning on a mobile home and cited the “mental concern or solicitude” language as justification. Pate, a case involving a credit life disability policy, took this one step further and specifically stated that “in Independent Fire Insurance Co. v. Lunsford, 621 So.2d 977 (Ala.1993), this Court affirmed a judgment awarding damages for mental anguish based on a breach of a contract of insurance, thus implicitly modifying the rule stated in Vincent v. Blue Cross–Blue Shield of Alabama, Inc., 373 So.2d 1054, 1056 (Ala.1979) (“the law in this state does not permit recovery for personal injury, inconvenience, annoyance, or mental anguish and suffering in an action for breach of a contract of insurance”) and similar cases.”
The policyholder in Walker correctly pointed to Lunsford and Pate as changing the law. The Walker court dismissed these two cases by not discussing their reasoning and mischaracterizing their holdings. It explained away Lunsford by explaining it away as a case involving “a mobile home that was damaged in a windstorm” and “properly understood as one of the several instances when the Supreme Court of Alabama has applied the mental anguish damages exception to a contract concerning the habitability of a dwelling.” The court neglected to mention that the damage involved in Lunsford was to an awning attached to the mobile home, hardly a matter affecting the habitability of the home.
The dismissal of Pate was even more disingenuous. The Eleventh Circuit said that Pate had been based on the special nature of the “the special nature of credit disability insurance” and did not explain how the failure to make a loan payment on a tractor (the facts involved in Pate) would cause more mental anguish than the failure to pay a long term disability policy when one is no longer able to work (the facts in Walker and Lemons). Worse, the court ignored Pate’s clear statement that “in Independent Fire Insurance Co. v. Lunsford, 621 So.2d 977 (Ala.1993), this Court affirmed a judgment awarding damages for mental anguish based on a breach of a contract of insurance, thus implicitly modifying the rule stated in Vincent v. Blue Cross–Blue Shield of Alabama, Inc., 373 So.2d 1054, 1056 (Ala.1979) (“the law in this state does not permit recovery for personal injury, inconvenience, annoyance, or mental anguish and suffering in an action for breach of a contract of insurance”) and similar cases.” Importantly, Vincent v. Blue Cross-Blue Shield was one of the 1979 cases that the Walker court relied on to reach its holding.
The Walker and Lemons courts got it wrong. Insurance contracts are by nature contracts that cause mental anguish when they are violated. People and businesses buy insurance for peace of mind. Insurers know this and market based on this knowledge. Insurance is designed to protect policyholders when they are vulnerable and this is no different for disability policies. Please feel free to contact me if you have any questions or need any help.