Opinion
00-CV-2400 (ILG).
March 1, 2002
Michelle J. d'Arcambal, Esq., Morgan d'Arcambal, New York, New York.
Michael J. Burke, Esq., Matarazzo Blumberg Associates, P.C., New York, New York.
Norman R. Ferren, Esq., Babchick Young, White Plains, New York.
MEMORANDUM AND ORDER
SUMMARY
Plaintiff New England Life Insurance Company ("New England") brings this diversity action seeking rescission of a life insurance policy it issued to decedent, Raymond DelPrete ("DelPrete"), and a declaratory judgment that the policy is void ab initio, based on alleged material misrepresentations made by DelPrete. Defendant and third-party plaintiff Madeline Taverna ("Taverna"), the sister of DelPrete and the beneficiary of the life insurance policy, has filed a third-party complaint against Mitchell Hersh ("Hersh"), an agent of New England, alleging negligence and intentional "misadvise" and breach of contract. New England and Hersh separately move for summary judgment. For the reasons that follow, the motions are granted.
BACKGROUND
The relevant facts, viewed in the light most favorable to plaintiff (as this Court must do on a motion for summary judgment by the defendantsee Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir. 1987)), are as follows. On or about March 25, 1998, DelPrete filled out Part I of an application for a New England Term Life Policy with the assistance of one of New England's agents, Hersh. (See Application, attached to Christopher Demeo Affidavit ("Demeo Aff.), as Ex. B; Mitchell Hersh Affidavit ("Hersh Aff.") ¶ 4.) After completing Part I, Delprete declared just above his signature that "To the best of my knowledge and belief the answers recorded are true and complete." (See Application.) The signature page also contained a "Limitation on Authority of Agents and Examiners" clause which stated that neither agent nor examiner could determine insurability, change any term in the application for insurance or make a contract on behalf of the insurance company. (Id.) The following day, DelPrete submitted to a paramedical examination where Part II of the insurance application was filled out. (Id.) There is no indication that Hersh was present at this examination. On or about April 1, 1998, an underwriter from New England conducted a personal history interview with DelPrete which completed the application process. (See Personal History Interview, attached to Demeo Aff. as Ex. B.) About one month later, in May 1998, New England issued DelPrete a Variable Life Insurance Policy with a face amount of $700,000. (See Policy, attached to Demeo Aff. as Ex. A.) The policy included a clause, stating: "This Policy is a legal contract between the Owner of the Policy (called `you') and New England Variable Life Insurance Company, (called `the Company'). The Policy, which includes the attached Application . . . is the entire contract between you and the Company." (Id. at 6.) As of August 27, 1998, Taverna was the named beneficiary under the policy. (See Defs.' Local Rule 56.1 Statement ¶ 3.) DelPrete died on or about April 17, 1999. (See Death Certification, attached to Demeo Aff. as Ex. C.)
"Part I" of the application filled out by DeiPrete on the first day actually includes a part I and a part II. Plaintiffs reference in its papers to "Part I" appears to include both sections, including part I and part II. The paramedics report, which was filled out on the second day, is also labeled "Part II." Plaintiffs reference to "Part II" relates to this report and not to the second part of "Part I."
Because DelPrete's death occurred within two years after the policy was issued, New England conducted a customary investigation concerning the truth of the representations made by DelPrete in his application (See Demeo Aff. ¶ 30). That investigation revealed that DelPrete had made various false statements in his application and at his personal interview, some of which are not contested by Taverna in this action. Specifically, New England alleges that DelPrete misrepresented his employment stats, salary, and net worth; medical and hospitalization history; and history of drug dependency.
Employment Misrepresentations
On Part I of the application, DelPrete provided his business name and address as "Taverna Sales" in Brooklyn, New York, and stated under "Occupation and Financial" that he worked in "sales" for Taverna Sales; that he earned $125,000 per year; and that he had a net worth of $500,000. (See Application Part I, 8(b), 33, 34.) He also stated during his personal history interview that he had earned $117,000 in 1994, $120,000 in 1995, and $125,000 in 1996. (See Personal History Interview, "Employment Duties".) Taverna does not dispute that her brother lied about his employment status, prior earnings, and net worth. In fact, she told an International Claims Specialists ("ICS"), hired by New England in this matter, that DelPrete was unemployed and was being supported by his mother, which she again confirmed at her deposition. (See ICS Notes, dated 5/10/99, and Madeline Taverna Deposition ("Taverna Dep.") at 25, attached to Demeo Aff. as Exs. F and G.)
Also parts of the record clearly establishes that DelPrete lied in this regard. A medical report dated the same day DelPrete filled out Part I of the application states that DelPrete told his doctor he was not currently working. (See Medical Report, dated Mar. 25, 1998, attached to Demeo Aff. as Ex. D.) Moreover, copies of DelPrete's and his wife's jointly filed tax returns for the years 1995, 1996, and 1997 show that their combined income never exceeded $22,000 per year. (See Tax Returns, attached to Demeo Aff. as Ex. E.)
New England's underwriting consultant, Christopher Demeo, filed an affidavit in support of New England's motion, describing the relevant sections of New England's underwriting guidelines. According to Demeo, the underwriting guidelines require that applicants for variable life insurance policies meet certain financial requirements. (See Demeo Aff. ¶ 34.) For the type of variable life policy at issue here, with a face value of $700,000, New England requires that an applicant "be reasonbly capable of withstanding the risk of fluctuating values associated with investment in the variable accounts." Id.; Memorandum regarding suitability for Variable Life Insurance, dated Jan. 21, 1997 ("Suitability Mem."), attached to DemeoAff.as Ex. H.) The guidelines also state that the NASD Rules of Fair Practice require that each issuance of a variable life insurance policy be "suited to the customer, as determined by information provided by the customer about his/her financial situation." (See Suitability Mem.) One of the key determinations of suitability is that "the customer . . . be able to afford the investment in the case of a single premium payment or, if the variable contract requires periodic payments, the customer [has] the capacity to make payments over an extended period of time." (Id..) In addition, New England requires that an insured's annual premium be no more than 10% of his annual salary. (See Demeo Aff. ¶ 34; Suitability Mem. (1)(b).) DelPrete's premium was $4,800 and therefore, to qualify for the policy, he must have earned at least $48,000 per year. (See Demeo Aff. ¶ 34.) The underwriting guidelines states that, "[i]f suitability is not established, clarifying information must be obtained . . . [and] if the response does not explain the situation to the reviewer s satisfaction, the application must be rejected. . . ." (See Suitability Mem.) According to Demeo, had DelPrete been truthful about his unemployment status or his insufficient annual income, his application for this policy would have been rejected. (See Demo Aff. ¶ 34.)
Medical History Misrepresentations
Question 45(d) of Part I and question 6(d) of Part II of the application asked DelPrete to state whether he had been treated or diagnosed as having a "disease or disorder of the kidneys; lungs; stomach; liver; digestive system or urinary system." (See Application Part I, 45(d), Part II, 6(d).) DelPrete answered "no" to this question. (Id..) However, the ICS investigation revealed that DelPrete had been diagnosed with and hospitalized for kidney stones and "acute left renal colic" in 1995, and had been again admitted to the hospital in August 1998, because he was experiencing "knife-like chest and epigastric pain, coupled with "nausea and vomiting." (See Medical Notes, attached to Demeo Aff. as Ex. I.) The doctor who examined DelPrete in 1998 noted that DelPrete had a history of renal colic 2-3 years ago "which had the same presentation" and a history of "nephrolithiasis" (kidney stones) approximately 1-2 years earlier. (Id.)
Demeo's affidavit refers to this question as 43(b) of Part I; however, the question regarding diseases and disorders is question 45(d) in the application. (Compare application and Demeo Aff. ¶ 9.)
Pain Management and Elective Surgery Misrepresentations
Question 46 of Part I of the application asked DelPrete whether he had, "within the past five years, had a check-up or consultation; been a patient in a medical facility; or been advised to have any diagnostic test other than an HIV test, hospitalization or surgery?" (See Application Part I, 46) (emphasis added). DelPrete answered "no" to this question. (Id..) At his personal history interview, DelPrete stated that he was not currently taking any medications or under any treatment or therapy and that he had never been hospitalized. (See Personal History Interview.) However, in February 1998, one month before filling out the application, DelPrete saw a neurosurgeon who recommended that he undergo elective back surgery. (See Examination Report by Doctor Steven L. Ravich dated Feb. 25, 1998, attached to Demeo Aff. as Ex. I) Apparently, DelPrete had been suffering from back pain ever since he injured himself in June of 1997. DelPrete had consulted with at least two doctors, Drs. Ravich and Bakshi, for his back pain nine times from June 1997 to March 1998, including a consultation on March 25, 1998, the same day he filled out Part I of the application. (See Medical Examination Reports, attached to Demeo Aff. as Exs. D, K and L.) Moreover, as indicated above, DelPrete had been hospitalized within the past five years when he underwent treatment for kidney stones in 1995.
According to Demeo, DelPrete underwent elective back surgery shortly after completing the application for life insurance. (See Demeo Aff. ¶ 39.)
According to Demeo, New England's underwriting guidelines are based on the "mortality risk" associated with each applicant, and recognizes the specific risks associated with elective surgery. (See Demeo Aff. ¶¶ 39, 43.) The mortality risk is weighed in relation to the necessity of the surgery, which "may far outweigh the extra risks of the operation and anesthesia." (See Underwriting Guidelines at G33, attached to Demeo Aff. as Ex. M.) Taverna points out that the guidelines do not specifically list elective back surgery as a high, middle or low risk operation. (Id.) According to Demeo, however, the elective surgery contemplated by DelPrete is considered "too risky, and would have rendered [him] uninsurable," especially when coupled with DelPrete's documented history of back problems. (See Demeo Aff. ¶ 39.)
Drug Dependency Misrepresentations
In response to question 43(b) of Part I of the application which asked, "[h]ave you ever: used cocaine or other drugs except as prescribed by a physician or a licensed practitioner?," DelPrete answered in the negative. (See Application Part 1, 43(b).) In addition, DelPrete stated at his personal history interview that he had never "sought treatment for or [had] been advised to seek treatment for drug or alcohol dependency." (See Personal History Interview, "Habits.") However, DelPrete had been prescribed Percocet for his pain associated with his back injury in 1997, and was advised at that time of precautions with taking addictive medication. (See Medical Examination Report, dated June 11, 1997, attached to Demeo Aff. as Ex. K.) In February 1998, DelPrete was warned by Dr. Ravich about the "possibility of being addicted" to the medication. (See Medical Report, dated Feb. 5, 1998, attached to Demeo Aff. as Ex. K.) Later that month, Dr. Ravich again advised DelPrete to "wean himself off of the medication," which DelPrete had promised he would do. (See Medical Examination Report, dated Feb. 26, 1998, attached to Demeo Aff as Ex. J.) In March 1998, DelPrete informed Dr. Bakshi that Dr. Ravich would not prescribe him any more Percocet, and so Dr. Bakhshi gave DelPrete one more prescription for fifty pills. (See Medical Examination Report, dated Mar. 25, 1998, attached to Demeo Aff. as Ex. D.) According to Dr. Bakhshi, DelPrete wanted more than fifty pills, but Dr. Bakhshi refused to increase the quantity. (Id..) Despite answering on the application that he was not currently receiving any treatment or medication, DelPrete took from six to seven pills of Percocet a day. (See Application Part II,; Medical Report, dated Mar. 25, 1998, attached to Demeo Aff. as Ex. D.) In April 1998, one month after completing the life insurance application, DelPrete enrolled himself in a detoxification and rehabilitation program to help him "stop using . . . addictive drugs." (See Patient Consent for Ambulatory Detoxification form, attached to Demeo Aff. as Ex. O.) Evidently, failing to heed the various warnings about addiction, on April 30, 1999, DelPrete died of "acute methadone intoxication." (See Death Certificate, attached to Demeo Aff. as Ex. C.)
Both Demeo's affidavit and plaintiffs Local Rule 56.1 Statement of Undisputed Facts incorrectly state that Dr. Ravich's medical report, dated February 26, 1998, is attached to Demeo's affidavit as Ex. K. (See Derneo Aff. ¶ 40; Local Rule 56.1 Statement ¶ 40.) Curiously, plaintiffs "Corrected Memorandum of Law" states that the medical report is attached as Ex. D. In fact, as indicated above, this report is actually attached as Ex. J.
Question 7 of Part II asked "[a]re you now receiving treatment or medication?" DelPrete answered "no." (See Application Part II, 7.)
Taverna disputes this fact in her Local Rule 56.1 Statement in which she states that New England's underwriting guidelines do not state that drug or alcohol abuse renders an applicant uninsurable. (See Pl. Local Rule 56.1 Statement ¶ 21.) Taverna also seems to argue that a genuine issue of fact exists because the guidelines do not specifically list methadone, codeine or Percocet individually (the drugs taken by DelPrete) in the guideline's list of narcotics, which does list "heroin, cocaine, morphine and related drugs, opium and its derivatives, Demerol, etc." (See Underwriting Guidelines Manual DA I, attached to Demeo Aff. as Ex. M.) The Court finds that there are no triable issues presented here because the underwriting guidelines at DAI states that any current narcotics usage renders an applicant uninsurable, and Percocet is an opioid which is defined as a synthetic narcotics analgesic with opium-like properties. See Physician's Desk Reference, 1211 (55th ed. 2001); 4 Attorney's Dictionary of Medicine, 0-66 (1995).
According to Demeo, certain high-risk activities, such as drug or alcohol abuse render an applicant uninsurable. (See Demeo Aff. ¶ 43.) New England's underwriting guidelines require that a life insurance policy be declined if the applicant is currently using narcotics, or has been a habitual user within the past two years? (See Underwriting Guidelines DA 1, attached to Demeo Aff. as Ex. M.) In addition, an applicant's employment record is one of the factors used by New England in determining the severity of the drug problem. (Id..) Demeo avers that, had New England known about DelPrete's "sketchy employment history," and his dependency on narcotics, New England would not have issued him the policy. (See Demeo Aff. 6 43.)
On or about July 6, 2000, New England Underwriting Officer William R. Hurley stated: "If we had known on 3/25/98, one day before the insurance exam of 3/26/98 that the insured had consulted Dr. Sanjay Bakhshi on 3/25/98 for pain management and that he had also consulted Dr. Steven Ravich[,] both Drs. consulted nine times from 9/17/97-3/25/98[,] and also that he was not working as of 3/25/98 we would have declined to issue insurance." (See Claim Referral form, attached to Demeo Aff. as Ex. I.)
Facts Relating to Third-Party Defendant Hersh
Mitchell Hersh is a New York State licensed insurance agent who assisted DelPrete in filling out his application for life insurance on behalf of New England. (See Hersh Aff. ¶¶ 3-4.) Hersh avers that he never advised DelPrete to lie about any aspect of his application, and that he cautioned DelPrete to answer the questions truthfully. (Id. ¶¶ 5, 9.) Taverna alleges however that DelPrete told both her and her husband that Hersh knew that DelPrete did not work as the manager for Taverna Sales and did not earn $125,000 per year, and that Hersh told DelPrete to lie on his application regarding these questions. (See Madeline Taverna Affidavit ("Taverna Aff.") ¶¶ 7-8.) Neither Taverna nor her husband were present during the meeting between Hersh and DelPrete. (See Taverna Dep. at 29; Hersh Aff. ¶ 8.) Taverna admits that she does not know whether Hersh told DelPrete to lie about any other aspect of the application. (See Taverna Dep. at 29.)
After assisting DelPrete in March 1998, Hersh filled out an Agent's Certificate, which he was required to do in order to be paid his commission. (See Agent's Certificate, dated Mar. 25, 1998, attached to Hersh Aff. ) As indicated on New England's claim referral form dated July 30, 1999, New England intended to pay Taverna life insurance upon receipt of DelPrete' s death certificate. (See Claim Referral form, dated Jul. 30, 1999, attached to Pl. Local Rule 56.1 Statement as Ex. C.) Taverna points out that the claim referral form noted that there was no agent's contestable insurance statement, and this omission raises issues of fact as to whether Hersh knew that DelPrete had lied on his application (Id.). According to Hersh, however, on agent only is required to fill out an Agent's Certificate at the time the application is filed, and New England only sends a contestable insurance form to an agent when an insured dies under suspicious circumstances. (See Hersh Aff. ¶¶ 10, 11). In this case, New England sent Hersh a contestable insurance form after DelPrete's death, which Hersh filled out and returned to New England. (Id.. ¶ 11.) Question 3 on that form asked: "Where was the application completed?" and "Who supplied the information on the application?" Hersh answered DelPrete's home for the first part of the question, and left the second part of the question blank. (See Agent's Statement, dated Aug. 12, 1999, attached to Pl. Local Rule 56.1 Statement as Ex. D.) Question 4 on the form asked: "At any time of taking the application, did the insured or Applicant disclose any information to you or were you aware of any information which is inconsistent with the information shown on the application?" (Id.) In response to this question, Hersh checked the box labeled "no." (Id.)
Plaintiffs exhibit is marked by a tab labeled "J," although it is apparent that Hersh's Statement would be exhibit "D" in sequence.
In April 2000, New England filed a complaint against Taverna and the Estate of DelPrete, seeking a declaration that the policy be rescinded and voided ab initio due to the allegedly material misrepresentations made by DelPrete on his application. Shortly after, Taverna filed a third-party complaint against Hersh, alleging that, in the event she is prevented from collecting under the life insurance policy due to misrepresentations in the application or at the underwriter's interview, such lack of coverage is due to the "negligence and carelessness and intentional misadvise of. . . . Hersh" and/or the "breach of contract of . . . Hersh in his role as insurance agent and broker" Taverna seeks damages against Hersh in the amount of the life insurance policy, $700,000.
DISCUSSION
I. Summary Judgment Standard
Summary judgment "shall be rendered forthwith if the pleadings, depositions... together with the affidavits . . . show that there is no genuine issue as to any material fact and... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A "moving party is entitled to judgment as a matter of law [if] the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof" Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1985) (internal quotation marks and citations omitted). In deciding a summary judgment motion, a court should not resolve disputed issues of fact; rather, it simply must decide whether there is any genuine issue to be tried. Eastman Mach. Co. v. United States, 841 F.2d 469, 473 (2d Cir. 1988). A disputed fact is material only if it might affect the outcome of the suit under the governing law. A genuine factual issue exists if there is sufficient evidence favoring the nonmovant such that a reasonable jury could retum a verdict in her favor. Anderson, 477 U.S. at 248-49. The motion "will not be defeated merely . . . on the basis of conjecture or surmise." Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir. 1991). "In assessing the record to determine whether there is a genuine issue of fact, the court is required to draw all inferences in favor of the party against whom summary judgment is sought." Ramseur v. Chase Manhattan Bank, 865 F.2d 460, 465 (2d Cir. 1989).
II. New England v. Taverna
As an initial matter, New England asserts that it may contest the payment of death benefits under the policy because it is within the prescribed two year contestable period Pursuant to New York Insurance Law § 3203(a)(3), "the policy shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue." N.Y. Ins. Law § 3203(a)(3) (McKinnney's 2000). The policy in this case was issued to DelPrete in May 1998, and New England filed its complaint in April 2000. Because New England brought this action before the expiration of two years from the date the policy was issued, it properly may contest the policy in this proceeding.
Under New York law, any material misrepresentation, even an innocent one, allows "`the insurer to avoid the contract of insurance or defeat recovery thereunder.'" Mutual Benefit Life Ins. Co. v. JMR Electronics Corp., 848 F.2d 30, 32 (2d Cir. 1988) (per curtain) (quotingProcess Plants Corp. v. Beneficial Nat'l Life Ins. Co., 53 A.D.2d 214, 216, 385 N.Y.S.2d 308, 310 (1st Dep't 1976), affd, 42 N.Y.2d 928, 397 N.Y.S.2d 1007 (1977)). "[I]t is the applicant's duty to disclose . . . every fact bearing on or pertaining in any way to the insurability of [his] life, especially where specific questions are put to the applicant calling for such information." Cohen v. Mutual Benefit Life Ins. Co., 638 F. Supp. 695, 698 (E.D.N.Y. 1986) (quoting Klapholtz v. N Y Life Ins. Co., 218 A.D. 695, 699, 210 N.Y.S. 64, 67 (1st Dep't 1926)). "[A]n applicant's only partial disclosure `is as much a misrepresentation as a false affirmative statement.'" Id.. (quoting Vander Veer v. Cont'l Cas. Co., 34 N.Y.2d 50, 52, 356 N.Y.S.2d 13, 14 (1974)). Taverna concedes that her brother misrepresented his employment status and net worth on his life insurance application, but argues that such misrepresentations are not material and, alternatively, that Hersh is responsible for allowing her brother to lie. She disputes however New England's assertion that DelPrete answered untruthfully to the questions regarding medical and hospitalization history and drug usage, but argues, in any event, that these alleged misrepresentations are not material. Taverna does not allege that Hersh had anything to do with DelPrete's answers to these questions.
This matter is governed by New York insurance law because a federal court sitting in diversity generally applies the law of the forum state and the parties here both apply New York law in their papers. See Merrill Lynch Interfunding. Inc. v. Argenti, 155 F.3d 113, 121 n. 5 (2d Cir. 1998) (applying forum law, in this case, New York law, in diversity action when parties both present arguments based on New York law); see also JMR Electronics Corp., 848 F.2d at 32 (applying New York law in diversity action brought by insurance company seeking to rescind life insurance policy).
A. Medical. Hospitalization and Drug Dependency Misrepresentations
In response to question 45(d) on Part I of the application, which inquired as to whether the applicant had ever been treated for or diagnosed as having a disease or disorder of the kidneys, stomach, liver, digestive system or urinary system, DelPrete answered in the negative, despite the fact that he had been hospitalized for "kidney stones" and "acute left renal colic" in 1995, and for "knife like chest and epigastric pain," and "nausea and vomiting" in August 1998. Question 46 asked the applicant whether he has "within the past five years: had a check up or consultation; been a patient in a medical facility; or been advised to have any diagnostic test other than an HIV test, hospitalization, or surgery?" to which DelPrete answered "no," despite his prior hospitalizations and the fact that he recently had been advised to undergo elective back surgery. Taverna argues that DelPrete's negative answers to these questions raise issues of fact as to whether DelPrete lied about his medical history. Taverna asserts that a one time incident of kidney stones or renal colic may or may not be a "disease or disorder" of the type listed in the question, and chest and gastric pains are not necessarily indicative of any disease or disorder. She also argues that her brother answered truthfully to question 46, which based on her own reading of that question did not require disclosure of prior hospitalizations. According to Taverna, the "other than" in question 46 was meant to exclude disclosure of HIV tests, hospitalization and surgery, and therefore DelPrete was not required to disclose his prior hospitalizations.
"A misrepresentation is defined by statute as a false `statement as to past or present fact, made to the insurer . . . at or before the making of the insurance contract as an inducement to the making thereof." JMR Electronics, 848 F.2d at 32 (quoting N.Y. Ins. Law § 3105(a) (McKinney 1985)). Moreover, the insured must "furnish truthful, accurate and complete responses in order to allow the insurer to adequately evaluate any risks revealed." Schondorf v. SMA Life Assurance Co., 745 F. Supp. 866, 871 (E.D.N.Y. 1990) (emphasis added). The Court rejects Taverna' s arguments that questions of fact exist as to whether DelPrete gave false statements regarding his medical history. The wording of question 45 makes clear that New England wanted to know if DelPrete had "ever" been treated for a disease or disorder of the kidneys, and a truly responsive answer to that question would have disclosed a one time diagnosis of kidney stones which unquestionably relates to the kidneys. This answer, coupled with DelPrete's untruthful answer to the next question concerning prior hospitalizations or future surgery, leaves this Court with no doubt that DelPrete misrepresented his medical history on his life insurance application. Based on the wording of question 46, New England undoubtedly was interested in whether the applicant had ever been hospitalized or had been advised to undergo surgery within the past five years, and the "other than" language, excepting an applicant's full disclosure, applied only to whether or not he had been advised to have an HIV test. There also can be no doubt that DelPrete lied in question 46 because, in addition to inquiring about hospitalization and surgery, the question asked whether the applicant had had a medical checkup or consultation or had been a patient in a medical facility within the past five years. Taverna does not address these parts of the question, which were clearly ignored by DelPrete when he responded in the negative to this question.
With respect to drug dependency, Taverna argues that an issue of fact exists as to whether DelPrete misrepresented his drug usage based on his arguably truthful answer in the application. Question 43(b) asked the applicant whether he has "ever used cocaine or other drugs except as prescribed by a physician or a licensed practitioner?" to which DelPrete answered "no." Taverna argues that, because DelPrete was prescribed codeine, Percocet and methadone by his doctor, his negative answer to the question was arguably truthful. Even if DelPrete's answer was truthful based on the fact that he was prescribed Percocet by a doctor, the Court finds as a matter of law that DelPrete failed to disclose his use of narcotics as part of his pain management regimen because he failed to do so in other parts of the application. In response to question 7 of Part II of the application, DelPrete answered that he was not currently receiving any treatment or medication, an answer that was clearly false. Moreover, at his personal interview, he again denied that he was taking any medication or was under any treatment or therapy, or that he had ever been advised to seek treatment for drug dependency. It is beyond dispute, based on DelPrete's medical records submitted by New England, that DelPrete was not only being treated for and taking serious narcotic pain medications for his back pain, but that he had been warned about the possibility of addiction to his pain medications on several occasions.
Having conceded that DelPrete misrepresented his employment status and salary history, and the Court having now concluded that DelPrete failed to disclose the truth about his medical and hospitalization history, his being advised to undergo elective back surgery and his apparent drug dependency, the Court must now determine whether such misrepresentations were material as a matter of law. Should it be determined that the misrepresentations were material, the Court must grant summary judgment for New England. See JMR Electronics, 848 F.2d at 32.
B. Materiality of Misrepresentations
A misrepresentation is material if it "seriously interferes with the exercise of the insurance company's right to accept or reject the application," Process Plants Corp., 53 A.D.2d at 216, 385 N.Y.S.2d at 311, and "knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract." JMR Electronics, 848 F.2d at 32 (quoting N Y Ins. Law § 3105(b)). The test therefore "is not whether the company might have issued the policy even if the information had been furnished; the question in each case is whether the company has been induced to accept an application which it might otherwise have refused.'" Id.. (quoting Geer v. Union Mutual Life Ins. Co., 273 N.Y. 261, 269 (emphasis in original)); accord Jackson v. Travelers Ins. Co., No. 94-CV-5895, 1996 WL 350677, at *5 (S.D.N.Y. Jun. 26, 1996); Aetna Casualty Sur. Co. v. Retail Local 906 of AFL-CIO Welfare Fund, 921 F. Supp. 122, 131 (E.D.N.Y. 1996). The burden of establishing that misrepresentations are material rests with the insurer seeking to rescind the policy. See, e.g., Dipippo v. Prudential Ins. Co. of Am., 88 A.D.2d 631, 450 N.Y.S.2d 237 (2d Dep't 1982).
Generally, materiality is a question of fact to be determined at trial; however, "where the evidence concerning materiality is clear and substantially uncontradicted, the matter is one of law for the court to determine." JMR Electronics, 848 F.2d at 32 (quoting Process Plants Corp., 53 A.D.2d at 216, 385 N.Y.S.2d at 310-11); accord Cohen, 638 F. Supp. at 697; L. Smirlock Realty v. Title Guarantee Co., 79 A.D.2d 455, 462, 421, N.Y.S. 2d 232, 227 (2d Dep't 1979). To determine whether an insurer would have issued the life insurance policy had all relevant disclosures been made, courts may look to evidence of the insurer's practice with respect to similar risks. See Cohen, 638 F. Supp. at 697. Such evidence usually takes the form of sworn affidavits or testimony of a qualified underwriting agent who testifies that the insurer would not have issued the particular contract it did had the facts been disclosed, as well as underwriting guideline manuals or rules See e.g., Schondorf, 745 F. Supp. at 870; Cohen, 638 F. Supp. at 697; Friedman v. Prudential Life Ins. Co. of Am., 589 F. Supp. 1017, 1027 (S.D.N.Y. 1984); L. Smirlock Realty Corp., 70 A.D.2d at 463, 421 N.Y.S.2d at 237.
As an initial matter, Taverna argues that New England failed to satisfy its burden of establishing materiality based on the affidavit of New England's underwriter, Demeo, and portions of the underwriting guidelines. Taverna essentially relies on Dipippo, supra and Sonkin Assocs. Inc. v. Columbia Mutual Life Ins., Co., 150 A.D.2d 764, 541 N.Y.S.2d 611 (2d Dep't 1989), in which the courts held that the insurer had failed to satisfy its burden because the evidence in the record was "conclusory" in nature. Dipippo, 88 A.D.2d at 631, 450 N.Y.S.2d at 237-38 (holding that the evidence consisting only of a "conclusory" statement by a senior underwriting consultant and a section from the underwriting manual "which [was] not adequately described" was insufficient to demonstrate materiality as a matter of law); Sonkin, 150 A.D.2d at 765, 541 N.Y.S.2d at 612 ("The evidence in the record [which was not described by the court] . . . is conclusory in nature and does not establish as a matter of law, that the defendant would have rejected the insured's application if the insured's application had been truthful."). Contrary to Taverna's contentions, New England has provided a highly detailed affidavit of one of its underwriting agents describing the various attached portion of the underwriting guidelines and concluding, based on those guidelines, that New England would never had issued the precise insurance policy it did with a face value of $700,000 had DelPrete been truthful about any one of his misrepresentations. In appropriate circumstances, courts in this Circuit frequently have found misrepresentations to be material as a matter of law. See, e.g., Jackson, 1996 WL 350677, at *6; Retail Local 906, 921 F. Supp. at 132;Saint Calle v. Prudential Ins. Co. of Am., 815 F. Supp. 679, 686 (S.D.N.Y. 1993); Schondorf, 745 F. Supp. at 873; Cohen, 638 F. Supp. at 699. Based on New England's clear and substantial evidence, the Court must conclude that, at least some, if not all, of DelPrete' s misrepresentations had induced New England to issue the policy it did and New England may therefore properly rescind the contract. See Schondorf, 745 F. Supp. at 866 (granting summary judgment because "at least some of the misrepresentations [were] material as a matter of law").
The Court also is not persuaded by the other cases relied upon by plaintiff which provide either minimal or no analysis in support of their conclusions that issues of fact exist as to materiality. See Cont'l Ins. Co. v. RL1 Ins. Co, 161 A.D.2d 385, 387-88, 555 N.Y.S.2d 325, 328 (1st Dep't 1990); Equitable Life Assurance Society of the United States v. Rocanova, 162 A.D.2d 265, 266, 556 N.Y.S.2d 624, 625 (1st Dep't 1990).
1. Employment and Net Worth
Taverna urges the Court to find that questions of fact exist as to whether DelPrete's misrepresentations regarding his employment status and net worth are material. She argues that the underwriting guidelines are ambiguous and never actually define a minimum required salary for variable life insurance eligibility or address matters of unemployment. She also argues that the suitability section relied upon by Demeo in support of his conclusion that New England would have rejected DelPrete's application does not in fact mandate an outright rejection when suitability is questioned, but first requires further inquiry into the applicant's financial situation (other sources of income). Thus, she argues that DelPrete's statement is unsubstantiated by the guidelines. Her arguments are specious. It is beyond question that New England's underwriting guidelines require applicants for variable life insurance policies to meet certain financial requirements. Although it does not directly state any minimum income or net worth requirement, the language in the guidelines clearly requires applicants to "be reasonably capable of withstanding the risk of fluctuating values," and "must be able to afford the investment in the case of a single premium payment or, if the variable contract requires periodic payments, the customer must have the capacity to make payments over an extended period of time." (See Demeo Aff. ¶ 34; Suitability Mem.) Thus, at a minimum, some financial stability on the part of the applicant is required. Contrary to Taverna' s assertion that such provisions are ambiguous, the Court finds as a matter of law that these guideline provisions require the applicant to have some minimal financial resources to cover premium costs and other variables associated with this particular type of life insurance policy. The fact that DelPrete earned no income at all and did not have a net worth of $500,000, or anywhere near that figure, makes it difficult to believe that DelPrete would have been able to carry this burden.
Moreover, the undisputed fact that DelPrete lied about his employment and earnings deprived New England of essential information necessary to make a reasonable determination regarding DelPrete's suitability or, at least, to put New England in a position to know that it needed to inquire further. See Schondorf, 745 F. Supp. at 873 (misrepresentations are material if they prevent the insurer from being able to adequately assess the risk involved in issuing the policy); Process Plants Corp., 53 A.D.2d at 216, 385 N.Y.S.2d at 311 (materiality rests on whether insured "seriously interfere[d] with the exercise of the insurance company's right to accept or reject the application"). The fact that the guidelines do not provide for an outright rejection of an applicant who is unemployed does not persuade this Court that Demeo' s conclusion regarding DelPrete's insurability was baseless. As noted above, materiality rests on whether the misrepresentation prevented the insurer from being able to assess the risks of insuring the individual, which DelPrete's falsehoods clearly did. Moreover, had DelPrete been truthful, prompting New England to seek clarifying information about his financial situation, there is no indication in the record nor does Taverna allege that DelPrete would have provided New England with the requisite "clarifying information" that would have guaranteed his insurability under this policy. Thus, this Court is driven to conclude that DelPrete's misrepresentations were material as a matter of law and summary judgment must be granted in favor of New England.
2. Estoppel
As a last resort, Taverna argues that New England is estopped from seeking rescission of the policy because its agent, Hersh, had knowledge of the misrepresentations. Taverna relies on a New York rule which states that an insurance company is estopped from seeking rescission when it has accepted premiums after learning of an event allowing for cancellation of the policy. See, e.g., Cont'l Ins. Co. v. Helmsley Enterprises. Inc., 211 A.D.2d 589, 622 N.Y.S.2d 20, 21 (1st Dep't 1995); Zeldman v. Mutual Life Ins., Co. of N.Y., 269 A.D. 53, 56, 53 N.Y.S.2d 792, 794 (1st Dep't 1945). Relying on Tannenbaum v. Provident Mutual Life Ins. Co. of Philadelphia, 41 N.Y.2d 1087 (1977), which applied principles of estoppel against an insurance company based on an agent's misrepresentations made in violation of statutory law. Taverna argues that Hersh's knowledge of DelPrete's misrepresentations is imputed to New England, and therefore New England may not now seek rescission of the policy under which it had received premium payments.
This argument now presented by Taverna was squarely addressed by the court in Friedman v. Prudential Life Ins. Co. of Am., supra, which found it to be meritless. Finding the reasoning in Friedman and cases cited therein to be sound, this Court too finds Taverna's claim to lack merit. In Friedman, the life insurance policy beneficiary challenged the insurance company's rescission of the policy based on material misrepresentations concerning the insured's medical history, arguing that the company waived its right to rescission because the agent was aware of or should have been aware of the insured's medical history. The Friedman plaintiff also relied on Tannenbaum in support of her claim. The court rejected plaintiffs argument on three grounds. First, the Court held that any alleged affirmative statements made by the agent were irrelevant as a matter of law because the plaintiff had signed the application which included a clause just two lines above her signature limiting the agent's authority with respect to the insurance contract, and, under New York law, any alleged knowledge by an agent is not imputable to the insurer when the insured is on notice that the agent does not have the authority to waive terms of the policy. Friedman, 589 F. Supp at 1023. Second, the plaintiff declared that the statements made on the application were true and complete and therefore she could not later claim that the misrepresentations were attributable to the paramedic or agent. (Id.) Third, the contract contained a clause stating that the application and the policy formed the entire contract between the parties and therefore extraneous evidence could not be introduced to modify the terms of the contract. Id. at 1023-24. Accordingly, the insurance company could not be charged with knowledge of the insured's medical condition that was not disclosed on the application, even if the insurance agent was aware of that condition. Id..
In this case, New England's contract also contained a clause limiting the agent's authority which was located on the same page as the applicant's signature; DelPrete signed the application declaring that all of his statements were true and complete; and the policy included a clause stating that the application and the policy formed the entire contract of insurance. Accordingly, any knowledge of misrepresentations by Hersh cannot be imputed to New England, and are irrelevant as a matter of law. Friedman, 589 F. Supp at 1023-24.
The law that a life insurance application containing a material misrepresentation attached to the policy, may be avoided by the insurer, even if the agent had knowledge of the misrepresentation, has been upheld time and again by New York courts. See, e.g., Axelrod v. Metro. Life Ins. Co., 267 N.Y. 437, 447-48 (1935); Stanulevich v. St. Lawrence Life Ass'n, 228 N.Y. 586, 587 (1920); Simon v. Gov't Employees Life Ins. Co. of N.Y., 79 A.D.2d 705, 706, 434 N.Y.S.2d 447, 449 (2d Dep't 1980); Bloom v. Mutual of Omaha Ins. Co., 161 A.D.2d 1047, 1049, 557 N.Y.S.2d 614, 616 (3d Dep't 1990).
The Friedman court also specifically rejected plaintiffs argument underTannenbaum and others similar cases, holding that those cases were inapposite as they involved agents who explicitly violated Insurance Department regulations concerning the issuance of replacement policies by misrepresenting the law and misleading applicants, and that the plaintiff in this case had not alleged that the agent had violated any regulations. Friedman, 589 F. Supp at 1024. Here, too, Taverna's reliance on Tannenbaum is misplaced. Like the plaintiff in Friedman, Taverna does not allege that Hersh violated any Insurance Department regulations or that he in any way misrepresented the law.
Moreover, uncontroverted evidence in this case shows that DelPrete had made similar misrepresentations regarding his employment and earnings history at his personal history interview when Hersh was not present. Taverna's estoppel argument also must be rejected based on the Court's finding, see infra, that DelPrete made material misrepresentations regarding his medical history and drug dependency, which again had nothing to do with Hersh.
The Court cannot refrain from remarking that Taverna's argument is breath taking for its disingenuousness. Simply put, Taverna acknowledges that her brother lied, knowingly (whether allowed to or not), but nevertheless claims that she is entitled to $700,000 whether from New England or Hersh which she would not have received had her brother told the truth.
3. Medical History. Hospitalizations, and Drug Dependency
As discussed above, DelPrete failed to disclose any of his prior medical problems,
including his bout with kidney stones and chest and gastric pains, his numerous visits to doctors for pain management treatment resulting from a previous back injury, his being advised to undergo elective back surgery, and his dependency on his narcotic pain medication, thereby giving New England the false impression that he was the perfect model of health. Based on the undisputed medical records submitted in this case, nothing could be further from the truth. Pursuant to Section 3105(d) of New York Insurance Law:
A misrepresentation that an applicant for life . . . insurance has not had previous medical treatment, consultation or observation, or has not had previous treatment or care in a hospital or other like institution, shall be deemed, for the purpose of determining its materiality, a misrepresentation that the applicant has not had the disease, ailment or other medical impairment for which such treatment or care was given or which was discovered by any licensed medical practitioner as a result of such consultation or observation. If in any action to rescind any such con tract or to recover thereon, any such misrepresentation is proved by the insurer, and the insured or any other person having or claiming a right under such con tract shall prevent full disclosure and proof of the nature of such medical impairment, such misrepresentation shall be presumed to have been material.
N Y Ins. Law § 3501(d) (McKmnney's 2001) (emphasis added). Having determined above that DelPrete's concealment of his medical and drug problems were misrepresentations of the truth, see Cohen, 638 F. Supp. at 698, the Court must presume under the statute that such misrepresentations are material. Case law defining when misrepresentations are material also supports this conclusion See e.g., Friedman, 589 F. Supp. 1017 (failure to disclose diagnosis and treatment for heart disease is material misrepresentation as matter of law); Vander Veer, 34 N.Y.2d 50 (failure to disclose heart condition and medication, despite having revealed other treatment for other disorders, was material misrepresentation as matter of law); Process Plants Corp., 53 A.D.2d 214, 358 N.Y.S.2d 308 (failure to disclose treatment for hypertension material as matter of law).
Indeed, had DelPrete disclosed the fact that he had been taking Percocet when asked whether he was "currently receiving treatment or medication," the underwriting guidelines mandate the denial of his application on this basis alone because of the risk of addiction. (See Underwriting Guidelines, "Drug Abuse," attached to Demeo Aff. as Ex. M). That DelPrete had been warned several times about the risk of addiction, had enrolled in a drug detoxification program shortly after executing the application and ultimately had died fo a drug overdose illustrates what can happen to an individual who takes an addictive narcotic drug and provides the justification for New England's underwriting rules. Contrary to Taverna's suggestion therefore, Demeo's statement regarding DelPrete's drug usage can hardly be considered conclusory or unsubstantiated. Moreover, DelPrete's failure to disclose the fact that he had been advised to undergo elective back surgery and had problems with kidney stones and chest and gastric troubles "seriously interfere[d]" with New England's ability to assess the risk of insuring DelPrete at the price it did. See Process Plants Corp., 53 A.D.2d at 216, 385 N.Y.S.2d at 311. Therefore, based on the multiple material omissions made by DelPrete, the Court concludes that, had DelPrete been truthful, New England would not have issued the $700,000 life insurance policy. Accordingly, New England properly may rescind the policy ab initio.
III. Taverna v. Hersh
Taverna fails to provide any substantive arguments in opposition to third-party defendant Hersh's motion for summary judgment. Instead, she urges the Court to deny his motion because he failed to file his own affidavit, and instead filed the affidavit of his attorney who stated that Hersh did not advise DelPrete to lie. Taverna argues that the attorney's affidavit is insufficient for the purpose of summaryjudgment. In reply to Taverna's brief, Hersh filed a sworn affidavit averring that he never advised DelPrete to lie.
Rule 56(e) of the Federal Rules of Civil Procedure requires that affidavits be made on personal knowledge. Fed.R.Civ.P. 56(e). Although Hersh should have filed his own affidavit with his motion for summary judgment, his failure to do so in this instance is not fatal to his motion. As discussed above, whether or not Hersh advised DelPrete to lie on his insurance application regarding his employment history and net worth is immaterial to the outcome of the case because New England would not have issued this policy based on other material omissions. See Anderson, 477 U.S. at 248-49 (summary judgment must be denied only when issues of fact are material to the outcome of the case).
In any event, Taverna's breach of contract and negligence claims must be rejected as baseless. Because DelPrete and Hersh were never parties to a contract, Hersh can not be in breach of any contract with DelPrete. Second, even if Hersh negligently and intentionally advised DelPrete to lie about his employment status, it is undisputed that Hersh did not tell DelPrete to misrepresent his medical history and drug dependency, both of which would have permitted New England to rescind the policy.
CONCLUSION
For the foregoing reasons, the motions for summary judgment by plaintiff and third-party defendant are granted.
SO ORDERED: