Opinion
Case No. 5:00-CV-39.
March 22, 2001.
ORDER
IT IS HEREBY ORDERED that Defendant, Banner Life Insurance Company's, Motion for Summary Judgment Pursuant to Federal Rule of Civil Procedure 56 (Dkt. No. 48) is GRANTED .
OPINION
This matter is before the Court on Defendant, Banner Life Insurance Company's ("Banner"), Motion for Summary Judgment Pursuant to Federal Rule of Civil Procedure 56. Banner is the insured, and Plaintiff's deceased husband, Dr. Martin, was the insured. Defendant claims it is entitled to summary judgment because no genuine issues of material fact exist regarding: (1) Dr. Martin's misrepresentation in his application for insurance; (2) the materiality of this misrepresentation under Michigan Compiled Laws § 500.2218; and (3) Banner's reliance on Dr. Martin's misrepresentation when deciding whether to issue him a standard non-tobacco policy.
FACTUAL BACKGROUND
On November 3, 1998, Dr. Martin completed and signed Part I of a Banner application for a $500,000 "Preferred Non-Tobacco" ten-year life insurance policy. Dr. Martin then had a medical examination as required, and on January 7, 1999, signed Banner's required Personal Information Statement about his personal finances. Dr. Martin also completed and signed a "Special Activities Supplement to Application" form because he was a private pilot.
Because of his pilot status and past medical history, Dr. Martin did not qualify for a "Preferred Non-Tobacco" policy. Banner did, however, approve Dr. Martin for a "Standard Non-Tobacco" policy, which it issued on February 23, 1999. On March 10, 1999, Dr. Martin signed an Amendment to Application which changed it to a "Standard Non-Tobacco" application.
Question 23 of Dr. Martin's Application read "Have you used cigarettes, pipes, cigars, tobacco, snuff or tobacco in any other form within the past 12 months? (If yes, give full details below, including types and frequency.)" Dr. Martin answered "No" and provided no explanation regarding his answer. The Application also contained the following statements: (1) "all answers to the questions in this application are complete and true," and (2) "it is agreed that all answers to such questions . . . will be the basis of any policy issued."
On July 21, 1999, Dr. Martin died of heart failure brought on by "severe arteriosclerosis of coronary arteries." The medical examiner's report stated that "the decedent smoked an occasional cigar," and this information had been provided by a family member.
As the named beneficiary, Plaintiff filed her claim with Banner for insurance proceeds. Banner interviewed family members and reviewed Dr. Martin's medical records. On February 16, 2000, Banner denied Plaintiff's claim and refunded the premiums Dr. Martin had paid. Banner's claim denial letter stated:
"This action is taken because the application for the policy contains [a] material misrepresentation. It failed to disclose, among other things, that your husband used tobacco. If we were aware of his use of tobacco, we could not have issued this policy. . . . If you think this decision is based on misinformation, or you have additional information which you wish us to consider, please forward it to [Banner] promptly."
In deposition, James Landino, Banner's Senior Vice President in charge of underwriting, stated that Banner would not have issued the policy in question had it known that Dr. Martin smoked, even if it was only one cigar. Mr. Landino also stated that Banner relied on Dr. Martin to provide true and complete answers on the Application. Mr. Landino further stated that he advised Banner's Senior Claims Analyst that Banner would not have issued the policy if it had known that Dr. Martin smoked. Instead Banner would have offered Dr. Martin a standard tobacco policy and "the cost would be significantly higher."
Banner also deposed Plaintiff, Dr. Martin's sister, and all of Dr. Martin's children. Each of Dr. Martin's children and his sister stated that Dr. Martin had smoked cigars during the twelve-month period between November 3, 1998, the date of his Application, and November 3, 1997.
Specifically, Plaintiff stated that Dr. Martin kept cigars in the house and often received them as gifts. Plaintiff also stated that she did not recall ever seeing Dr. Martin smoke a cigar. When asked how she explained the fact that he had a cigar at his 50th birthday party, Plaintiff replied that she did not remember actually seeing him smoke the cigar at the party. Plaintiff further stated that she had seen Dr. Martin holding a cigar at a wedding.
Dr. Martin's sister, Linda Beshears, stated that she would classify Dr. Martin as an "occasional cigar smoker," and she had seen him smoke cigars on at least four occasions in the year preceding his death. Ms. Beshears testified that in August 1998, Dr. Martin and she went to Colorado, and Dr. Martin smoked a cigar while in Colorado. She further testified that on November 8, 1997, Dr. Martin smoked a cigar at his 50th birthday party. According to Ms. Beshears, she found 5 — 8 cigars in Dr. Martin's refrigerator shortly after his funeral.
All of Dr. Martin's children testified that they saw Dr. Martin smoke a cigar at his 50th birthday party on November 8, 1997. Dr. Martin's daughter, Katrina King, also testified that her father told her that he smoked cigars. Ms. King further testified that she often bought cigars for Dr. Martin, and he would indicate to her whether he had liked them. For example, Ms. King bought Dr. Martin cigars when she went to the Bahamas in the spring of 1998, and Dr. Martin told her that he particularly enjoyed these cigars. Ms. King also saw cigars in her father's refrigerator shortly before his death and shortly after his funeral.
Dr. Martin's son, Jared, testified that, in addition to the 50th birthday party, he saw Dr. Martin smoke a cigar at two weddings, one in the summer of 1997 and one in the summer of 1998. Jared also saw his father buy cigars in 1997 and 1998.
Another of Dr. Martin's sons, Joel, testified that he saw his father smoke every year during the opening of hunting season in November. Specifically, Joel saw his father smoke a cigar during the opening of hunting season in late November of 1997. Dr. Martin's other son, Jason, also testified that he saw his father smoke cigars during the second deer season of 1997.
Dr. Martin's other daughter, Patricia Dahan, testified that she remembered her father smoking cigars when she was a child. She also testified that she bought her father cigars for Christmas 1997, and Dr. Martin told her that he had enjoyed them. Ms. Dahan also testified to finding cigars in her father's house shortly after his death.
In addition to this testimony, the evidence contains two photographs of Dr. Martin at his 50th birthday party. In one picture, Dr. Martin is holding a cigar, and in the other picture he has a cigar in his mouth.
After interviewing Dr. Martin's family, Banner denied Plaintiff's claim. Plaintiff then filed a complaint in state court, and Banner removed it to this Court. Banner filed its Motion for Summary Judgment on January 16, 2001.
LEGAL STANDARDS
In reviewing a motion for summary judgment, this Court will only consider the narrow question of whether there are "genuine issues as to any material fact and [whether] the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A motion for summary judgment requires that the Court view the "`inferences to be drawn from the underlying facts . . . in the light most favorable to the party opposing the motion.'" Matsushita Electric Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)). The opponent, however, has the burden of showing that a "rational trier of fact [could] find for the non-moving party [or] that there is a `genuine issue for trial.'" Matsushita , 475 U.S. at 587. "The mere existence of a scintilla of evidence in support of plaintiff's position[, however,] will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986).
ANALYSIS
Banner claims it is entitled to summary judgment because Dr. Martin made a misrepresentation on his insurance application, and the misrepresentation was material. The first question is what law applies. Based on their briefs, it appears that the parties have assumed that Michigan law governs. Because the contract was executed and performed in Michigan, and any other alleged basis for recovery occurred in Michigan, it does appear that Michigan law governs. "When deciding a diversity case under state law, a federal court must apply the law of the state's highest court." Garden City Osteopathic Hosp. v. HBE Corp., 55 F.3d 1126, 1130 (6th Cir. 1995) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938)). Therefore, the Court will apply Michigan law.
The next question is whether, under Michigan law, an insurance company can receive summary judgment when an insured makes a material misrepresentation on his or her insurance application.
A. Can Banner Receive Summary Judgment If Dr. Martin Made a Material Misrepresentation?
The Michigan Supreme Court has interpreted Michigan law and determined that insurers are permitted under Michigan Compiled Law § 500.2218 "to void a policy where there has been a material misrepresentation of fact which affected either the acceptance of the risk or the hazard assumed by the insurer." Wiedmayer v. Midland Mut. Ins., 414 Mich. 369, 374 (1982). See also, Mannino v. Dominion Life Assurance Co., 539 F. Supp. 323 (E.D.Mich. 1982) (misrepresentation that insured had not been hospitalized or consulted with physician during three years prior to application grounds to void policy); New York Life Ins. Co. v. Dizik, 43 F. Supp. 874 (E.D.Mich. 1940) (failure to reveal that insured had consulted physician for lung disease and that he suffered from pulmonary tuberculosis was grounds to void policy); Wickersham v. John Hancock Mut. Life Ins. Co., 413 Mich. 57 (1982) (undisclosed paroxysmal tachycardia grounds to void policy); Cartwright v. Maccabees Mut. Life Ins. Co., 398 Mich. 248 (1976) (failure to disclose arthritis grounds to void policy); Gen. Am. Life Ins. Co. v. Wojciechowski, 314 Mich. 275 (1946) (misrepresentation that insured had not received medical or surgical advice within the 5-year period preceding the application was grounds for policy's recission); Prudential Ins. Co. v. Ashe, 266 Mich. 667 (1934) (misrepresentation that proposed insured was in good health when actually suffering from tuberculosis grounds to void policy).
Michigan Compiled Law § 500.2218 provides, in part:
(1) Material misrepresentation; refusal to insure. No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless the misrepresentation was material. No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make the contract.
(2) Definitions, representation, misrepresentation. A representation is a statement as to past or present fact, made to the insurer by or by the authority of the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof. A misrepresentation is a false representation, and the facts misrepresented are those facts which make the representation false.
Mich. Comp. Laws § 500. 2218(1), (2) (1999).
Thus, to be entitled to summary judgment, there must be no genuine issue of material fact of whether Dr. Martin made a material misrepresentation that affected the risk Banner accepted or the hazard it accepted by insuring him with a Standard Non-Tobacco policy.
B. Did Dr. Martin Make a Misrepresentation?
According to Michigan law, a misrepresentation is a false representation, and a representation is a statement as "to past or present fact, made to the insurer . . . as an inducement to the making [of an insurance contract]." Mich. Comp. Laws § 500. 2218(2) (1999). Banner claims Dr. Martin made a misrepresentation when he answered "No" to a question that asked whether he had used tobacco products, including cigars, within the year previous to the application. Banner claims Dr. Martin made a misrepresentation because he knew that he had smoked cigars within the one year previous to the application.
In her Response, Plaintiff claims that Dr. Martin did not make a misrepresentation because the language of the contract was ambiguous. Plaintiff attempts to argue that the word "use" means to consume or take regularly and cites to various dictionaries in support thereof. Plaintiff further argues that it is a fact question as to whether Dr. Martin's seemingly sporadic smoking of cigars constitutes his regular use of cigars so that he should have answered the question "yes."
The Court disagrees with this untenable argument. The Court first notes that Plaintiff provided the Court with definitions, albeit partial ones, of the word "use" instead of the action verb tense "used" which was found in the contract. Webster's New World Dictionary, for example, includes "to consume, . . . smoke, or chew (tobacco)" in its definition of "use" and "used." Webster's New World Dictionary 1469 (3d. ed. 1988). Furthermore, common understanding of the word "used" when relating to tobacco products merely means to consume and does not imply the duration or regularity of such use. In addition, if a contract, even if inartfully worded, "fairly admits of but one interpretation it may not be said to be ambiguous, or, indeed, fatally unclear." Cottrill v. Mich. Hosp. Serv., 359 Mich. 472, 476-77 (1960) (citations omitted). Thus, Plaintiffs attempt to place ambiguity on the word "used" is not persuasive, regardless of the fact that Banner did not provide a definition of "used" to Dr. Martin.
Second, the Court notes that Plaintiff's attempt to compare Banner's application to another insurance company's application and definitions is without merit. Plaintiff's argument that another insurance company allows for use of an occasional cigar without it affecting an applicant's status has no bearing on the instant case. Furthermore, Plaintiff offers no authority for such a proposition, and neither is such information about the second insurance company in the evidentiary record of the case. Plaintiff has not produced more than "[t]he mere existence of a scintilla of evidence in support of" her position, Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986), and Plaintiff cannot successfully argue that Dr. Martin did not make a misrepresentation.
Plaintiff also attempts to argue that each and every witness who testified that Dr. Martin smoked cigars during the relevant twelve-month period was not telling the truth and is not credible. "Credibility judgments and weighing of the evidence are prohibited during the consideration of a motion for summary judgment. . . ." Ahlers v. Schebil, 188 F.3d 365, 369 (6th Cir. 1999) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). Perhaps if Plaintiff had produced some evidence to rebut the witnesses, this would be a genuine issue of material fact for the jury. All Plaintiff has produced is an affidavit from Patrick Walsh. Although Patrick Walsh states that he did not see Dr. Martin smoke a cigar during the "last one, possibly two years of his life," Patrick Walsh does not make any statements regarding Dr. Martin's 50th birthday party.
Given the fact that the Court has pictures of Dr. Martin at his party with a cigar in his mouth, Plaintiff has not produced more than "[t]he mere existence of a scintilla of evidence in support of" her argument. Anderson, 477 U.S. at 252 .
C. Was Dr. Martin's Misrepresentation Material?
According to Michigan law, no misrepresentation is material "unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make the contract." Mich. Comp. Laws § 500.2218 (1999). The Court must ask whether Banner would have issued the policy Plaintiff has sued upon in the absence of certain misrepresentations by Dr. Martin. See Mannino, 539 F. Supp. at 327. In Kaji v. The Prudential Ins. Co. of Am., 1996 WL 426535 at *4 (E.D.Mich. Jan. 31, 1996), the Court defined materiality as whether the misrepresented facts would have increased the chances of loss insured against so that the insurer would reject the risk or would charge an increased premium. The Kaji court relied upon the Michigan Supreme Court's decision in Keys v. Pace, 358 Mich. 74, 82 (1959).
The Sixth Circuit has also addressed materiality in Michigan insurance contracts and has relied upon Keys . In United of Omaha Life Ins. Co. v. Rex Toto Corp., 126 F.3d 785 (6th Cir. 1997), the Sixth Circuit stated that "[w]hen an insurer sets a premium rate on the basis of representations made in an insurance application, the rate will be a direct reflection of the degree of risk the representations have led the insurer to believe it is assuming." United of Omaha, 126 F.3d at 788. The Sixth Circuit further stated that if disclosure of the facts wrongfully withheld would have resulted in a higher premium, the information would have a material effect on the insurer's acceptance of the risk or assumption of hazard. Id . at 789 (citing Mich. Comp. Laws § 500.2218).
Banner claims it is entitled to summary judgment because Michigan law and subsequent case law indicates that Dr. Martin's misrepresentation was material. Mr. Landino testified that Banner would not have issued the policy to Dr. Martin because he was a smoker. Mr. Landino further stated that Banner would not have issued the non-tobacco policy had it known of Dr. Martin's cigar use during the twelve months preceding his application. Mr. Landino also testified that, had Banner known of Dr. Martin's cigar use, it would have issued him a standard tobacco policy, which would have charged Dr. Martin a substantially higher premium.
Banner also cites to various case law from other districts and circuits, all of which have held that an applicant's misrepresentation regarding smoking was material. Although this authority is persuasive to this Court, this Court declines to follow these cases or hold that a misrepresentation regarding smoking is material as a matter of law.
Plaintiff attempts to argue that because Banner would have issued Dr. Martin a standard tobacco policy, Banner is not entitled to summary judgment. In support of her argument, Plaintiff relies on Zulcosky v. Farm Bureau Life Ins. Co. of Mich., 206 Mich. App. 95 (1994), wherein the Michigan Court of Appeals held that the issue was only whether the insured's application would have been rejected altogether had the true facts been known. Zulcosky , 206 Mich. App. at 96. Plaintiff argues that Banner cannot receive summary judgment because its own employees have stated that Banner would have issued Dr. Martin a standard tobacco policy at a higher premium had it known the truth, as opposed to totally rejecting his application.
The Court does not agree with Plaintiff, nor is it persuaded by Plaintiff's cite to a Michigan Court of Appeals' case. Neither the Eastern District of Michigan, nor the Sixth Circuit has followed Zulcosky when interpreting Michigan state law. See United of Omaha Life Ins. Co. v. Rex Toto Corp ., 126 F.3d 785 (6th Cir. 1997); Kaji v. The Prudential Ins. Co. of Am., 1996 WL 426535 at *4 (E.D.Mich. Jan. 31, 1996). Furthermore, both of those court stated that it was unlikely the Michigan Supreme Court would follow Zulcosky. See United of Omaha, 126 F.3d at 789; Kaji, 936 F.2d at *4. The Court agrees with both the United of Omaha and Kaji courts. The Court does not read Michigan law as saying that Banner's willingness to make a different contract at a higher premium renders the misrepresentation immaterial.
Rather, the Court holds that Dr. Martin's misrepresentation regarding his use of cigars was material as defined by Michigan Compiled Laws § 500.2218(2). It was material because Banner would have refused to issue Dr. Martin the policy upon which Plaintiff sues had it known of his cigar use. It is clear to the Court that whether Dr. Martin smoked cigars, even occasionally, affected the risk Banner accepted. It has also been shown that Banner would not have issued Dr. Martin a non-tobacco policy had it known of his cigar use. Therefore, no genuine issue of material fact exists and Banner is entitled to summary judgment.
In her Response, Plaintiff questions whether Dr. Martin used cigars within the twelve-month period asked about on the application. Particularly, Plaintiff argues that Dr. Martins 50th birthday did not fall within the twelve-month period. Dr. Martin signed the application on November 3, 1998, and the twelve-month period would include the twelve months preceding November 3, 1998, i.e. November 3, 1997, through November 3, 1998. Thus, Dr. Martin's 50th birthday, November 8, 1997, and the party on that day does fall within the twelve-month period referenced in the application.