This section contains the nature of the case and procedural background.

P first purchased an insurance policy from D in 1971. Over the ensuing years, P purchased various policies from D. In 1986, after P was laid off from her nursing position. P allowed her policies to lapse because she could not afford to pay the premiums. In 1993, P decided that she needed life insurance to insure her own life and the life of her son, David Ogle, a disabled adult. Ogle was an overweight, cigarette-smoking schizophrenic. P telephoned the local D office and asked to speak with a salesman about purchasing a life insurance policy. D sent insurance agents Tim McLain and Keith Mahone to P's mobile home to discuss her purchase of life insurance. P purchased a policy insuring her own life. The policy had a face amount of $10,000 and had a monthly premium amount of $54.22. P asked Mahone about purchasing a homeowner's insurance policy. The next day, Mahone returned to the mobile home with the paperwork for a fire insurance policy insuring P's mobile home. Approximately three weeks later, P telephoned Mahone and asked him about purchasing a life insurance policy on Ogle. On March 23, Mahone met with P and Ogle at the mobile home. P and Ogle informed Mahone that Ogle was a schizophrenic and a smoker. Mahone completed the application for the life insurance policy. Mahone told her the policy insuring Ogle would be the same as the one she purchased insuring her own life, and that she would receive $10,000 if anything happened to her son, and that Mahone told her that the policy would be effective when she paid the first premium. P delivered the first month's premium, and Mahone tendered the application and premium to D, which rejected P's application because Mahone quoted the wrong premium amount. D canceled that policy and returned the premium. In April 1993, P asked Mahone to complete another application. P again brought Ogle home to meet with Mahone, and again told Mahone that Ogle was a schizophrenic and a smoker. She told Mahone that she wanted the policy because she would not have the money to bury Ogle unless she had insurance. Mahone asked Ogle the questions on the application for life insurance. One of the questions was whether the applicant suffered from a 'brain disease.' Ogle responded, 'Yes.' On April 19, Mahone completed, and Ogle signed, the application for insurance on Ogle's life. The next day, April 20, 1993, Sanders paid the monthly premium of $192. Sanders testified that on April 20, 1993, Mahone 'assured [her that] the policy was effective when I gave him the money. A Mr. Hurst was also present, assuring P that the policy was effective immediately.' On April 23, 1993, D issued P a policy. On April 24, 1993, Ogle died of natural causes. P sent the 'death claim,' and Mahone told P that she would receive a $10,000 check in the mail from Liberty National. D mailed a check in the amount of $ 193.30, comprising the one premium Sanders had paid plus 10% interest on that premium. P sued D. The application stated, that the policy would pay the full face-value benefit of $10,000 during the first three years of the policy only if the applicant died from an accidental cause, and that the policy would not pay the full face-value benefit of $ 10,000 if the applicant died of natural causes before the expiration of those first three years, but would pay only the sum of premiums then paid plus ten percent for death from natural causes during that initial three-year waiting period. P testified that Mahone never told her about the three-year waiting period. P got the verdict for $145,000, including punitive damages. Ds appealed.

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