Opinion
CIVIL ACTION NO. 02-1608, SECTION "K" (1).
June 11, 2003.
ORDER AND REASONS
Before this Court is the Defendant Monumental Life Insurance Co.'s (hereinafter "Monumental") Motion for Summary Judgment, (Rec. Doc. 7), which seeks dismissal of Plaintiff's claims for mortgage life insurance benefits under a policy issued by Monumental. Monumental contends that the Court should dismiss the plaintiff's claims because the policy is contestable and was only issued as a result of misrepresentations made by the decedent about her health condition during the application process. For the following reasons, the Motion is hereby GRANTED, in part, and DENIED, in part.
BACKGROUND
The Plaintiff, Michele Doughty, Individually and on behalf of the Estate of Augustine Hills Doughty, brought a claim against defendant Monumental in relation to Group Mortgage Life Insurance Policy No. MZ 3500112HO176F with a Certificate No. 117115473-7. The policy and certificate were issued to the decedent, Augustine Doughty (hereinafter "Ms. Doughty") and contained an initial monthly premium of $88.20 and an indemnity benefit providing full payment of the mortgage on Ms. Doughty's home upon her death.
On September 20, 1995, Ms. Doughty applied for coverage under Monumental's policy. Monumental received Ms. Doughty's application on September 25, 1995, and issued coverage certificate No. 11715473-7 to her on November 21, 1995. In order to solicit information regarding any pre-existing medical conditions, Monumental's application asked two questions relating to the medical history of the applicant. Specifically, Ms. Doughty the questionnaire asked whether she had ever been diagnosed or treated for "any disease or disorder of the heart, blood, lungs, liver, kidneys; AIDS or AIDS Related Complex; any mental, nervous, circulatory, digestive or immune disorder; high blood pressure, cancer or tumor, diabetes, drug or alcohol abuse," and whether, excepting those conditions covered in the first question, she had undergone "an examination that was caused by any illness, injury, or abnormal physical condition, or a follow-up of a diagnosed condition" within the last three years prior to her application. As reflected on her application, Ms. Doughty checked "No" to each of these questions. Rec. Doc. 7, Exhibit 1, Exhibit "A."
Based upon her application, Monumental approved Ms. Doughty as a certificate holder under the group policy. Under the certificate, the effective date of coverage for Ms. Doughty was listed as March 1, 1996. The issue date was listed as November 21, 1995. Ms. Doughty died of cardiac arrest and septic shock on December 16, 1997. As next of kin, Plaintiff Michele Doughty submitted a claim to Monumental for mortgage life insurance benefits per the terms of the policy. During its investigation of Michele Doughty's claim, Monumental obtained medical records from Central City Mental Health Clinic stating that Ms. Doughty had been treated for mental health related problems starting in January, 1993 and continuing through January, 1996. Based on this information and the corresponding misrepresentations in Ms. Doughty's application, Monumental rescinded the life insurance certificate, denied Michele Doughty's claim for benefits, and tendered a refund of premiums paid back to Ms. Doughty's estate. Subsequently, Michele Doughty filed a claim with this Court alleging the insurance policy to be incontestable under Louisiana law and seeking specific performance, damages, a bad faith penalty, and attorney's fees. Monumental now moves for summary judgment.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriately granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is not genuine issue for trial." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Substantive law determines the materiality of facts, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The moving party "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] . . . which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant meets this burden, the burden shifts to the non-movant "to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322. "[M]ere allegations or denials" will not defeat a well-supported motion for summary judgment. Fed.R.Civ.P. 56(e). Rather, the non-movant must come forward with "specific facts" that establish an issue for trial. Id. When deciding a motion for summary judgment the Court must also avoid a "trial on affidavits." Anderson, 477 U.S. at 255. "Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts" are tasks for the trier-of-fact such that the Court must resolve disputes over material facts in the non-movant's favor. Id. "The party opposing a motion for summary judgment, with evidence competent under Rule 56, is to be believed." Leonard v. Dixie Well Service Supply, Inc., 828 F.2d 291, 294 (5th Cir. 1987).
DISCUSSION
Plaintiff alleges that Monumental breached its contract with Ms. Doughty when it denied benefits and rescinded the policy upon Ms. Doughty's death because, at the time it rescinded the policy, the policy was incontestable. Plaintiff contends that the policy was incontestable because Ms. Doughty's coverage had been in force for more than two years from its date of issue (November 11, 1995) and the date of Ms. Doughty's death (December 16, 1997). Plaintiff further alleges that even if Ms. Doughty's death was found to be within the two-year statutory window of contestability, there remains a genuine issue of material fact as to whether or not Ms. Doughty's representations were sufficient to warrant rescission of the certificate.
A. Incontestability
Group insurance policies must contain certain terms and conditions to be legally sold in Louisiana. La. Rev. Stat. Ann. § 22:176 (2003). Policies are required to include "in substance" a provision whereby "the validity of the policy shall not be contested . . . after it has been in force for two years from its date of issue . . ." La. Rev. Stat. Ann. § 22:176(2) (2003). The purpose of an incontestable clause is to annul all warranties and conditions that might defeat the right of the insured after the lapse of the stipulated time. Smith v. New York Life Ins. Co., 579 F.2d 1267, 1269 n. 4 (5th Cir. 1978). Thus, all defenses based on misrepresentations are cut off if the policy is not affirmatively repudiated within the contestable period. Smith, 579 F.2d 1267, 1269 n. 4 (citing Northwestern Mut. Life Ins. Co. v. Pickering, 293 F. 496 (5th Cir. 1923), cert. denied, 263 U.S. 720 (1924)). Additionally, in cases of doubt over ambiguous policy terms, "that construction of the policy will be adopted which is most favorable to the insured." La. Rev. Stat. Ann. art. 2056 (2003); see also Mutual Life Insurance Co. v. Hurni Packing, 263 U.S. 167, 174 (1923); Credeur v. Luke, 368 So.2d 1030 (La. 1979). Whether a contract is ambiguous is a question of law. Aycock v. Allied Enterprises, Inc., 517 So.2d 303 (La. 1987), writs denied, 518 So.2d 512 and 513 (1988).
Monumental argues that Ms. Doughty's policy is contestable under Louisiana law because her death on December 16, 1997 occurred within two years after the policy's effective date of coverage, listed on the face of the insurance certificate as March 1, 1996. Although the certificate also bears a stated "issue date" of November 21, 1995, Ms. Doughty's coverage under the policy was not effective until March 1, 1996 when payment of her first premium was made. Monumental argues that since it was not until March 1, 1996 that Ms. Doughty was covered under the terms of the policy, this court should adopt March 1, 1996 as the date from which the two-year statutory incontestability provision runs. Adopting the March 1 date would comply with the spirit of La. R.S. 22:176(2) which, although specifically mentioning "date of issue," is normally interpreted to mean the date from which the insurer, having accepted the first premium, effectively assumes the risk of the insuring the insured. See Smith, 579 F.2d 1267.
While courts have held that the use of the term "date of issue" in an incontestability clause "ordinarily refers to the date appearing on the face of the policy," when two dates appear on a policy in question such that the issue date cannot be assumed identical to the policy's effective date, courts have consistently looked at the precise moment of assumption of the risk on behalf of the insurer to determine the date from whence the incontestability statute should toll. Smith, 579 F.2d 1267, 1270 (citing Manufacturers Life Ins. Co. v. Capitol Datsun, Inc., 566 F.2d 354 (D.C. Cir. 1977). The date of payment of the first premium is generally held to be proof that such risk has been assumed. Id. Unsurprisingly, in the case at bar the listed "effective date" of March 1, 1996 coincides with Ms. Doughty's payment of her first premium.
Plaintiff counter-argues that Monumental should not be able to escape the "plain and unambiguous language" of the statute which uses the specific terms date of issue (here, November 21, 1995), La. R.S. 22:176(2) (emphasis added), rather than the "effective date" of March 1. Plaintiff would have the Court hold Monumental to the literal terms of the issued certificate, thus rendering Plaintiff's claim for benefits incontestable. However, the Court is unwilling to accept Plaintiff's position.
Plaintiff's argument that the insurance certificate must be interpreted literally because the language of La. R.S. 22:176(2) uses "date of issue" terminology fails because such an interpretation neglects the underlying purpose and intent of the incontestability clause. The language of the statute uses not only the terms "date of issue" but also repeatedly uses the terms "in force." Taken in its entirety, the incontestability clause clearly runs only when coverage under the policy is in effect, or more precisely, "in force." La. R.S. 22:176(2). To hold otherwise would effectively force insurers to bear the risk of insuring those from whom they have received no consideration. Under such reasoning, by virtue of Monumental's receipt and approval of Ms. Doughty's completed application, Monumental would become liable without Ms. Doughty ever having paid a premium.
Based on the record, there remains some confusion as to whether March 1, 1996 is the correct "effective date" of the policy. See Rec. Doc. 7, p. 5, 17 It appears that the original effective date for coverage to Ms. Doughty under the insurance certificate was January 1, 1996; however Ms. Doughty's mortgage company, through whom the premiums were collected, contacted Monumental at some point and requested that the effective date be changed to March 1, 1996. Even if January 1, 1996 were granted as the original effective date, the statutory protections provided in the two year incontestability clause still would not be triggered. More notably, since premiums were neither due nor received on Ms. Doughty's policy until the March 1, 1996 date, the Court finds that this latter date will control.
Plaintiff additionally argues that Monumental's policy and certificate of insurance are both ambiguous and confusing to the insured because they contain multiple dates and do not contain the "date of issue" language. As such, Plaintiff argues that because the documents fail to contain the correct mandatory provisions provided for in La. R.S. 22:176, they should be construed in favor of Plaintiff. But, while it is true that an ambiguity in a policy of insurance is construed against the insurer and in favor of the insured, Fisher v. Morrison, 519 So.2d 805 (La.. 1987), courts should not strain to find an ambiguity where none exists merely to provide insurance coverage for a party. Cell-O-Mar, Inc. v. Gros, 479 So.2d 386 (La. 1985), writs denied, 481 So.2d 1332 and 1333 (La. 1986).
Plaintiff contends that because the wording of the incontestability clause in both Monumental's policy and certificate document fails to include the specific language "date of issue" found in the precise text of La. R.S 22:176(2), the clause is both noncompliant with the state statute and ambiguous. Both of these contentions must reasonably fail. Although the language used by Monumental in its documents does not precisely mimic the exact language of the Louisiana statute, the statute itself does not require it to do so. Rather La. R.S. 22:176 simply states that "each policy of group life insurance . . . shall contain in substance the following provisions or, at the option of the insurer, provisions which in the opinion of the commissioner of insurance are not less favorable to the policyholder." La. R.S. 22:176 (emphasis added). The language used in Monumental's policy and certificate is more than a reasonable facsimile of the Louisiana statute. Indeed it is tantamount to a more succinct and less confusing recitation of the statute's intent to provide protection for beneficiaries who, assuming a history of timely and regular premium payments, proceed to make a claim for benefits anytime after coverage has been in force for two years.
The Certificate of Insurance contains the following incontestability clause:
INCONTESTABILITY After coverage has been in force for two years, it can only be contested for nonpayment of premiums. No statement you made can be used in a contest after your insurance has been in force two years during your lifetime, unless it is writing and signed by you.
The master group policy contains almost identical language except when referring to the policy holder, the term "an/the Insured" is used in place of the term "you" above. Similarly, L.a. R.S. 22:176(2) provides that policies must include the following:
Incontestability: A provision that the validity of the policy shall not be contested, except for nonpayment of premiums, after it has been in force for two years from its date of issue and that no statement made by an individual insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of two years during such individual's lifetime nor unless it is contained in a written instrument signed by him.
Comparison of the two provisions reveals that Monumental's clause sufficiently and succinctly complies with both the substance and intent of Louisiana law in a way that cannot possibly be considered any less confusing to the insured than the terms of the statute itself. See Rec. Doc. 7, Exhibit "A."
Finally, plaintiff's argue that Monumental's policy is confusing because the certificate contains two dates-an issue date of November 21, 1995 and an effective date of March 1, 1996. Plaintiff believes that even if Monumental's clause meets with statutory compliance, because Monumental does not sufficiently define "issue date," "effective date," and the difference between them in the terms of the policy, it is too confusing for the average insured to understand when exactly they are covered under the policy. However, the record reflects that the last paragraph of the application Ms. Doughty signed on September 20, 1995 explicitly states "I/We understand that no insurance is in effect unless this application is approved by the Insurance Company, and the first premium is paid." (Rec. Doc. 7, Exhibit "A") (emphasis added). The Court finds that under these terms a reasonable person would understand that no coverage was in effect unless and until the first premium had been tendered to Monumental. Premiums were not collected on Ms. Doughty's policy until March 1, 1996. Thus it is no great leap to presume that Ms. Doughty was aware her coverage was not in force until that date.
Additionally, the record reflects that Ms. Doughty paid and was eventually refunded approximately $1,852.20 under the Monumental policy. Assuming the monthly premium payment of $88.20 (Rec. Doc. 1, p. 9), Ms. Doughty's refund works out to exactly 21 months in premiums under the policy in question, Ms. Doughty could not have been outside of the two-year contestability window. Ms. Doughty had not been effectively covered by the policy for a period greater than two years. Thus Plaintiff's claim remained contestable under both the terms of the policy and Louisiana law.
"Courts are bound to give legal effect to the terms of an insurance policy according to the true intent of the parties, and that intent is to be determined from the words of the contract when they are clear and explicit and lead to no absurd consequences." Harris v. First Assur. Life of America, 526 So.2d 245 (La. 1988). The Court today holds that the true intent of both Ms. Doughty and Monumental was such that no contractual relationship was entered into until March 1, 1996. As such, the Court finds that Plaintiff's claim for benefits under the certificate stemming from Ms. Doughty's death was made less than two years after the effective date of coverage and thus is contestable under both the terms of the certificate, master group policy, and Louisiana law.
B. Requirements for Rescission of an Insurance Contract
Monumental further argues that it is entitled to summary judgment because the misrepresentations made by Ms. Doughty in the application were sufficient to warrant rescission of the certificate. In Louisiana, insurers may only rescind a policy for misrepresentation in an application if (1) the representations in the application were false; (2) the representations materially affected either the acceptance of the risk or the hazard assumed by the insurer; and (3) the representations were made with actual intent to deceive. La. Rev. Stat. Ann. § 22:619(B). (2003). The burden is on the insurer to prove that a false statement was both material to the insurer's acceptance of the risk, and it was made with the intent to deceive. Antill v. Time Ins. Co., 460 So.2d 677 (La. 1984). Should the three prongs all be met, rescission is proper and the insurance contract is void in its entirety. Jamshidi v. Shelter Mut. Ins. Co., 471 So.2d 1141 (La. 1985).
1. Were Ms. Doughty's Representations False?
In Ms. Doughty's application for insurance coverage she specifically denied having any of the medical conditions listed by checking "No" in the boxes following both questions 1 and 2. Rec. Doc. 7 Exhibit "A." Pursuant to Monumental's investigation of Plaintiff's claim for benefits the medical records obtained with Plaintiff's permission from Central City Mental Health Clinic revealed that Ms. Doughty had been seen multiple times over a three-year period, beginning in January 5, 1993, for treatment in connection with "nerves and anxiety disorder." Rec. Doc. 7, pp. 16-17, para. 8-10. Based on the evidence submitted, the representations made by Ms. Doughty on her application specifically denying that she suffered from any of the listed medical conditions are also clearly false. As such, Monumental has sufficiently proven the existence of misrepresentations made by Ms. Doughty on her application, satisfying the first prong necessary for rescission.
The questions asked and Ms. Doughty's responses listed on the Application for Mortgage Life Insurance are as follows:
1 Have you ever been diagnosed with or treated for: any disease or disorder of the heart, blood, lungs, liver, kidneys; AIDS or AIDS related Complex; any mental, nervous, circulatory, digestive, or immune disorder; high blood pressure, cancer or tumor, diabetes, drug or alcohol abuse?
Answer: No.
2 Other than those conditions covered in Question 1, during the last three years have you had an examination that was caused by an illness, injury, or abnormal physical condition, or a follow-up of a diagnosed condition?
Answer: No.
Rec. Doc. 7, Exhibit "A" (emphasis added).
Plaintiff alleges that because there exist no doctors' testimony nor attachment of certified medical records in the record that use of the copies of Ms. Doughty's records which were obtained by Monumental during its investigation of Plaintiff's claim by the Court constitutes inadmissible use of hearsay evidence. Plaintiff's argument fails because Ms. Doughty's records, previously authenticated as true and correct copies obtained and kept by Monumental as a part of their business records, constitute an exception to the hearsay rule. Fed.R.Evid. 803, 902. Furthermore, per the correspondence dated February 9, 23, and 27, 1998 sent by Monumental to Plaintiff, Monumental's obtainment of the copies in question was seemingly possible only with Plaintiff's cooperation and permission. Rec. Doc. 7, Exhibit "B."
2. Were Ms. Doughty's Representations Material to Monumental?
Monumental must also prove that the misrepresentations made by Ms. Doughty in her application were of material risk to its underwriting of her coverage. Under La. R.S. 22:619(B), the insurance company must establish that the insured's misstatements materially affected the risk assumed by the insurer. "Material" means that the statement must have been of such a nature that, had it been true, the insurer either would not have contracted or would have contracted only at a higher premium rate. Henry v. State Farm Mut. Auto. Ins. Co., 465 So.2d 276 (La. 1985). However, if the information given by the applicant were false and yet the insurance company would have still issued the policy, then such misrepresentation is not material for the purposes of the statute. Jamshidi v. Shelter Mut. Ins. Co. 471 So.2d 1141 (La. 1985) (citing Davis v. State Farm Mut. Auto. Ins. Co., 415 So.2d 501 (La. 1982). Thus the test in the instant case is not, as Plaintiff suggests, whether Ms. Doughty died of the condition that she lied about, but rather would Monumental, had it known of Ms. Doughty's nervous disorder, issued her a policy anyway.
In an Affidavit dated January 24, 2003, Theresa Morfe, Individual Underwriting Manager for Monumental, testified that had Monumental known of Ms. Doughty's mental health problems, Monumental would have declined Ms. Doughty's application per its underwriting guidelines. Rec. Doc. 7, Exhibit "1" para. 1, 12. Morfe further testified that Monumental particularly relied upon Ms. Doughty's denial of any medical conditions in approving her application. Rec. Doc. 7, Exhibit "1" para. 5. While Ms. Morfe's affidavit testimony is uncontradicted, the Court is reluctant to engage in the potential appearance of a "trial on affidavits." Anderson, 477 U.S. at 255. Because "credibility determinations" are traditionally tasks for the trier-of-fact, the Court must resolve disputes over material facts in the non-movant's favor. Id. Although Ms. Morfe testifies to having intimate knowledge with the criteria Monumental follows in determining whether to accept or reject applications, Rec. Doc. 7, Exhibit "1" para. 2, the importance of avoiding the appearance of self-serving bias, as well as Plaintiff's legitimate concerns over the exact nature of Monumental's underwriting guidelines in other cases involving similar medical issues, leads the Court to find that there exists a genuine issue of fact for trial with regards to the materiality of Ms. Doughty's misrepresentations to Monumental.
3. Were Ms. Doughty's Representations Made with an Intent to Deceive Monumental?
Because the Court finds that Monumental failed to meet its burden as to the materiality of Ms. Doughty's misrepresentations and because all three elements must be found in order for, rescission to be proper under La. RS:619(B), a discussion of intent to deceive would ordinarily be unnecessary. However, even if the Court were to find that Monumental has met its burden on the materiality of Ms. Doughty's misrepresentations, Monumental's motion for summary judgment would still fail because there remains an issue of fact as to Ms. Doughty's intent to deceive Monumental.
The difficulty of proving intent to deceive is substantial, especially when the person whose intent is being questioned has died. Thus, courts look to the surrounding circumstances indicating the insured's knowledge of the falsity of the representation made in the application and the insured's recognition of the materiality of his misrepresentations, or to circumstances which create a reasonable assumption that the insured recognized the materiality. See Henry, 465 So.2d 276; Davis, 415 So.2d 501; Cousin v. Page, 372 So.2d 1231 (La. 1979). In showing such intent, strict proof of fraud is not necessary. Watson v. United of Omaha Life Ins. Co., 735 F. Supp. 684, 685 (M.D. La. 1990).
Monumental argues that because Ms. Doughty is deceased the Court must look to the circumstances surrounding Ms. Doughty's completion of her application. Monumental urges the Court to infer that Ms. Doughty, by checking "No" to the only two questions regarding her medical history on the application, must have not only known her answers to be false, but must also have reasonably known that her answers were material to the risk assumed by Monumental. Monumental argues that since the application was short and Ms. Doughty knew it was for life insurance, it is reasonable to assume that she would have recognized the materiality of her medical history to Monumental's determination of whether to extend coverage. However the Court is less certain. "The information required by an insurance company to process an application is not always apparent to a layman." Cousin v. Page, 372 So.2d 1231, 1234 (1979) (quoting Cousin v. Page, 367 So.2d 875, 880 (1978) (Edwards, J. dissenting)). Although a reasonable person would expect that their medical history would be pertinent when applying for a life insurance policy, nowhere in Monumental's short application form does it mention that coverage may be denied should the applicant be found to have any of the medical conditions listed. Furthermore, given the laundry-list fashion of the conditions mentioned in the application's questions, as well as their small type and position of less prominence on the page, the Court finds evidence of sufficient weight that reasonable and fair minded persons, in the exercise of impartial judgment, might reach different conclusions about whether Ms. Doughty knew that her answers to Monumental's questions were material. A fact is "at issue" if there exists any reasonable doubt as to its existence. Durrosseau v. Century 21 Flavin Realty, 594 So.2d 1036 (La. 1992). The Court finds from the evidence presented that there remains sufficient doubt as to whether Ms. Doughty's knew of the materiality of her misrepresentations and whether she made the misrepresentations with the intent to deceive Monumental such that Monumental's rescission of her coverage was proper.
Accordingly,
IT IS ORDERED that Monumental's Motion for Summary Judgment is GRANTED, in part, as to the issue of the incontestability of Ms. Doughty's insurance policy and certificate.
IT IS FURTHER ORDERED that Monumental's Motion for Summary Judgment is DENIED as to the issue of dismissing Plaintiff's claims for mortgage life insurance benefits under Ms. Doughty's insurance policy and certificate.