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stating that "[t]he care required of a common carrier is the highest that reasonably can be exercised consistent with the mode of transportation used and the practical operation of its business as a carrier" and the requirement is to be "measured in the light of the best precautions" that were in "common, practical use in the same business and had been proved to be effective"
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Editorial Note:
This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA9 Rule 36-3 regarding use of unpublished opinions)
Argued and Submitted March 8, 1999.
Appeal from the United States District Court for the Northern District of California Fern M. Smith, District Judge, Presiding.
Before NOONAN and TASHIMA, Circuit Judges and RESTANI , Judge.
The Honorable Jane A. Restani, United States Court of International Trade, Sitting by Designation.
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as may be provided by 9th Cir. R. 36-3.
BACKGROUND
This case arises out of a disability income insurance policy that Francavilla purchased from Great-West in 1988. In 1991, after sustaining injuries in a municipal bus accident, Francavilla submitted a claim to Great-West, which made payments on the policy until 1992, when Great-West discovered that Francavilla's application contained numerous misrepresentations. Great-West filed an action against Francavilla for fraud, rescission, breach of contract and the covenant of good faith and fair dealing. Francavilla counter-claimed for breach of contract and the covenant of good faith and fair dealing, bad faith, and fraud. The parties filed cross-motions for summary judgment. The district court granted in part and denied in part Francavilla's motion for summary judgment and granted in part and denied in part Great-West's motion for summary judgment. Great-West now appeals and Francavilla cross-appeals.
STANDARD OF REVIEW
A summary judgment order is reviewed de novo. See Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir.1994). An appellate court must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there were any genuine issues of material fact, and whether the district court correctly applied the relevant substantive law. See id.
DISABILITY
First, Great-West argues that the district court erred in granting summary judgment to Francavilla on his contract claim for full policy benefits from the date he filed his claim, May 21, 1991, to the date of the summary judgment order, May 25, 1995. Francavilla argues that Great-West waived the defense that Francavilla was not disabled because Great-West did not raise it in its complaint or summary judgment motion. We disagree. Great-West in fact raised the issue of whether Francavilla was disabled throughout the litigation, including in its answer to Francavilla's Second Amended Complaint, the Joint Statement of Undisputed Facts in Support of Francavilla's Motion for Summary Judgment, and the Joint Pretrial Statement filed by both parties, among other places. Because there exists a genuine issue of material fact regarding whether Francavilla was disabled and Great-West did not waive this issue, we conclude that the district court erred in determining on summary judgment the amount of damages to which Francavilla was entitled.
RESCISSION AND FRAUD CLAIMS
Next, Great-West argues that it was entitled to rescind Francavilla's policy based on the misrepresentations in his application and that the district court erred in holding that the incontestability clause prevented Great-West from rescinding the policy. The clause provides in relevant part that "[a]fter the policy has been in force for two years, ... [Great-West] cannot contest the statements in the application." Great-West argues that Francavilla is estopped to assert the incontestability clause based on his fraud after issuance of the policy in 1988. Specifically, Great-West claims that, upon suffering covered losses in 1989 and 1990, Francavilla was obligated to disclose to Great-West the identity of his treating physicians, his medical treatment history, and his other disability policies, even though he made no claim against Great-West. We disagree.
The Notice of Claim provision in the policy provides that "[w]ritten notice of claim must be given within 60 days after a covered loss starts or as soon as reasonably possible." We agree with the district court that Francavilla had a duty to submit notice of a claim, not of all potentially covered losses. While estoppel may arise from silence where there is a duty to speak, here Francavilla had no duty to speak. Great-West's reliance on Ferguson v. UnionMutual Stock Life Ins. Co., 501 F.Supp. 247 (E.D.Ark.1980), aff'd 673 F.2d 253 (8th Cir.1982), is unavailing. That case, in which an insured's failure to comply with the policy's notice of claim requirements estopped him from relying on the incontestability clause, is inapposite because the insured in that case, unlike Francavilla, filed a claim in violation of the notice of claim provision. See id. at 255. Francavilla was not estopped to raise the incontestability clause.
Great-West also argues that Francavilla breached his duty of good faith and fair dealing when he failed to submit claims in 1989 and 1990, while submitting claims to his other insurers. We conclude, however, that Francavilla did not violate a duty of good faith and fair dealing because he had no duty to file a claim.
Next, Great-West argues that Francavilla fraudulently concealed the claims information relating to his 1989 and 1990 injuries. The elements of a claim for fraudulent concealment are: "1) suppression of a material fact; 2) by one who is bound to disclose it ... 3) with intent to deceive a person unaware of the concealed fact and who would not have acted had he known of the fact." Melanson v. United Air Lines, Inc., 931 F.2d 558, 563 (9th Cir.1991). However, as discussed above, Francavilla was not bound to disclose information of all potentially covered losses. Thus, the second element of fraudulent concealment is lacking.
Finally, Great-West asserts that, because Francavilla's condition manifested itself before the policy was issued, it was not an "injury" within the meaning of the policy. However, the policy's pre-existing condition limitation provides that "[a]fter the policy has been in force for 2 years, any Pre-Existing Condition not excluded by rider will be covered." Great-West argues that the pre-existing condition limitation is subject to the incontestability clause, which applies only to a claim for disability that "starts" after the 2-year period, not one that was evident or manifested before the period expired. This interpretation, however, would effectively render the pre-existing condition limitation meaningless. We agree with the district court that Francavilla's disability was covered under the policy regardless of whether it was attributable to a pre-existing condition or not.
In sum, we conclude that the district court was correct in determining that Francavilla was not estopped to raise the incontestability clause and that summary judgment was thus warranted against Great-West's rescission and fraud claims.
INSURABLE INTEREST
Great-West argues that the policy is void ab initio because Francavilla lacked an insurable interest at the time of the application. Disability income insurance protects an insured's income, not his life or health. As where a third party insures another, the insurable interest is "an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health, or bodily safety of another person and consequent loss by reason of that person's death or disability...." Cal. Ins.Code § 10110.1(a). Great-West argues that, because all of Francavilla's income was insured before he took out the Great-West policy, no income was left for Great-West to insure. However, Great-West has cited no case law, nor has the court found any, which stands for the proposition that prior disability insurance acts to negate the existence of an insurable interest in a subsequent policy. We conclude that the district court was correct in holding that Francavilla had an insurable interest in his income and that the contract was not void ab initio.
BAD FAITH & PUNITIVE DAMAGES
Francavilla argues that the district court's granting of summary judgment to Great-West on Francavilla's bad faith claim was erroneous because Great-West legally had no defense or basis to bar the application of the incontestable clause. We disagree. Under California law, "[t]he ultimate test of [bad faith] liability ... is whether the refusal to pay policy benefits was unreasonable." Dalrymple v. United Servs. Auto. Ass'n, 40 Cal.App.4th 497, 520, 46 Cal.Rptr.2d 845, 857 (Cal.Ct.App.1995). Bad faith liability cannot be imposed where there "is a genuine issue as to the insurer's liability." Id. We conclude that, although the incontestable clause ultimately acts to preclude denial of coverage after the two-year period based on application fraud, Great-West did not act unreasonably when, faced with overwhelming evidence of such fraud, it chose to cease payments and receive a judicial determination of its rights and obligations. We therefore affirm the district court's grant of summary judgment on Francavilla's bad faith claim.
Francavilla also argues that the district court erred in awarding summary judgment to Great-West on Francavilla's punitive damages claim. "To justify an award of punitive damages, the defendant must be guilty of oppression, fraud, or malice." Travelers Ins. Co. v. Lesher, 187 Cal.App.3d 169, 200, 231 Cal.Rptr. 791, 807 (Cal.Ct.App.1986). "Punitive damages aren't available in California for simple breaches of contract, no matter how willful." Slottow v. American Casualty Co., 10 F.3d 1355, 1361 (9th Cir.1993). Francavilla alleged that Great-West made an unannounced visit to his home, threatened to report him to the IRS if he did not relinquish his policy for $5,000, and later threatened to report him to the Fraud Bureau if he did not relinquish the policy for $10,000, which a reasonable trier of fact could find demonstrated a disregard for the rights of the insured. However, because Francavilla failed to offer any admissible evidence supporting these allegations, we conclude that the district court properly held that Francavilla could not recover punitive damages.
REVERSED IN PART and AFFIRMED IN PART and REMANDED.