Hays v. Jackson National Life Ins. Co.
| Decision Date | 27 January 1997 |
| Docket Number | No. 96-5089,96-5089 |
| Citation | 105 F.3d 583 |
| Parties | 97 CJ C.A.R. 172 Virginia Kay HAYS; Sandra Matthews, as mother and next friend of Garrett Reid Hays, a minor child; Deana Lori Hays, aka Deana Lori Simonsen, beneficiary; Lou Emma Doppelmayr, beneficiary, Plaintiffs--Appellants, v. JACKSON NATIONAL LIFE INSURANCE COMPANY, a Michigan corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Harry Scoufos (Thomas W. Condit, with him on the briefs), Law Offices of Harry Scoufos, P.C., Sallisaw, Oklahoma, for Plaintiffs-Appellants.
Richard C. Ford (Anton J. Rupert, on the brief), Crowe & Dunlevy, Oklahoma City, Oklahoma, for Defendant-Appellee.
Before ANDERSON, LUCERO, and MURPHY, Circuit Judges.
Plaintiffs are beneficiaries of James T. Hays under a life insurance policy issued by Jackson National Life Insurance Company. In this diversity action, they appeal the district court's order granting Jackson National summary judgment on plaintiffs' contract and tort claims, which generally alleged that Jackson National wrongfully refused to pay death benefits under the policy. Jackson National denied payment because of alleged misrepresentations and omissions on the insurance application regarding Mr. Hays' medical history.
We hold that Oklahoma law requires a finding that the insured intended to deceive the insurer before a misrepresentation or an omission on an insurance application can serve as grounds for nonpayment. Because a genuine issue of material fact exists with respect to Mr. Hays' intent, we reverse the dismissal of the breach of contract claim. We affirm, however, the dismissal of plaintiffs' bad faith, outrage, and reformation claims.
In the fall of 1991, with the help of Jackson National's agent, Mr. Hays completed an application for a Jackson National life insurance policy. Part Two of the application required Mr. Hays' responses to a series of questions regarding his medical history. The agent filled out Part Two based on responses provided by Mr. Hays. Part Two contains the following pertinent questions and answers:
3. Have you, in the past five years:
a. Consulted or been treated by a physician or other medical practitioner? Yes
....
c. Had an electrocardiogram, X-ray or other diagnostic test? No
d. Been advised to have any diagnostic test, hospitalization, or surgery which was not completed? No
Appellants' App. Vol. I at 39. The application instructed Mr. Hays to provide the following explanatory details with respect to any "yes" response: the diagnosis and treatment; the results; the dates and durations; and the names and addresses of all attending physicians and medical facilities. Having answered "yes" to question 3.a., Mr. Hays provided these details: Id. The only other information disclosed on Part Two relating to Mr. Hays' medical history is the name, address, and telephone number of his personal physician, Dr. Martin, along with a notation that Mr. Hays last consulted Dr. Martin for a broken right foot.
Two days after Mr. Hays and the agent completed Part Two, Jackson National sent a paramedic to Mr. Hays' home to complete Part Three--the "Medical Examination Report." On Part Three, in response to the same questions posed on Part Two, Mr. Hays again mentioned the 1967 ulcer operation, explaining that it was a gastric resection which had required ten to twelve days in the hospital. He also stated that he wore corrective lenses; that in 1990 he sprained his knee skiing; that he had recently broken his right foot; and, finally, that in 1989 he had had a complete physical by Dr. Martin with normal results. Mr. Hays signed both Part Two and Part Three.
Jackson National issued Mr. Hays a $500,000 life insurance policy on November 8, 1991. Approximately five months later, Mr. Hays was diagnosed with cancer of the esophagus. He died from that cause on August 31, 1992. 1
After plaintiffs made their claim on the policy, Jackson National discovered that Mr. Hays had not provided information on the application relating to the condition of his esophagus. Medical records show that between 1989 and 1991 Mr. Hays had his esophagus examined on at least four occasions by three different doctors. During these examinations, Mr. Hays underwent an esophagram, three EGDs, 2 and multiple biopsies of the esophagus. The examinations revealed an esophageal ulcer, and Mr. Hays was diagnosed with Barrett's Esophagus. 3 The biopsies proved negative for cancer, but at least two different doctors informed Mr. Hays that regular surveillance of his esophagus would be required. 4 Based on Mr. Hays' failure to disclose any of this information, Jackson National refused to pay benefits under the policy and returned all premiums to plaintiffs.
Plaintiffs filed suit, claiming breach of contract, bad faith, outrage, and reformation. Jackson National moved for summary judgment, arguing that Mr. Hays' failure to disclose the information relating to his esophagus entitled Jackson National to refuse payment under Okla. Stat. Ann. tit. 36, § 3609. 5 Jackson National argued that had it known Mr. Hays' true medical history, it would have denied coverage or issued a different policy, citing its underwriting manual which instructs that applicants with Barrett's Esophagus should have their applications rated, or denied, depending on the adequacy of medical follow-up.
In reply, plaintiffs argued there were several genuine issues of material fact precluding summary judgment. Plaintiffs asserted that Mr. Hays' response to question 3.a. (on Part Two) disclosed he had been treated within the last five years in relation to his 1967 ulcer operation. They claimed Mr. Hays' esophageal problems were directly related to that ulcer operation. Therefore, they reasoned, the response to 3.a. was not a misrepresentation, but was in fact sufficient to impose upon Jackson National an affirmative duty to conduct its own investigation before issuing a policy, a duty which estopped Jackson National from relying on inadequacies in the application.
In a connected argument, plaintiffs contended that the agent who filled out the application was a personal friend of Mr. Hays and knew more about Mr. Hays' health than disclosed on the application. They claimed the agent told Mr. Hays that his responses on the application were sufficient because Jackson National would contact Dr. Martin and conduct its own investigation. Finally, plaintiffs argued that in order for Jackson National to rely upon section 3609 as a defense, it had to prove that Mr. Hays made the misrepresentations or omissions with an intent to deceive. They claimed that a genuine issue of material fact existed with respect to Mr. Hays' intent in providing information on the application.
The district court held that Oklahoma law did not require Jackson National to prove an intent to deceive. Appellants' App. Vol. II at 558. The court noted that section 3609 refers to omissions that are fraudulent or material, not fraudulent and material. Therefore, the court held that Jackson National need only prove Mr. Hays "knew or should have known that he omitted facts from his application which were material to Defendant's acceptance of the risk." Id. at 558-59.
The district court did not explicitly address plaintiffs' arguments relating to the agent's assurances that Jackson National would conduct its own investigation, or to the additional knowledge the agent allegedly possessed regarding Mr. Hays' medical history. Instead, the court turned directly to the significance of the omitted information. The court stated:
Decedent omitted any mention of his diagnosis of Barrett's esophagus on the application. When asked to list physicians who had treated him within the past five years, he did not include two physicians who examined him for this condition within the past two years. Although he underwent at least two diagnostic tests for the condition and was advised that more would be required, he did not report this in the space on the form which specifically asked him to list diagnostic tests. The court therefore concludes that no reasonable jury could find that Decedent did not know or should not have known that this information was requested.
Id. at 559. The court further found there was no question the omissions were material since "Defendant's policy notes that Barrett's esophagus is a precancerous condition and Decedent did, in fact, die of cancer of the esophagus only months after obtaining the policy." Id.
Having found Jackson National was entitled to refuse payment, the court dismissed plaintiffs' bad faith and outrage claims. It also dismissed plaintiffs' claim for reformation, noting that "there is no controversy arising out of the language of the policy itself, and therefore reformation is not available." Id. at 561.
We find the dispositive issue with respect to plaintiffs' breach of contract claim is whether section 3609 requires Jackson National to prove that Mr. Hays provided his application answers with an intent to deceive. The district court held that it did not. In reviewing this issue, we must apply Oklahoma law, as announced by that state's highest court. Wood v. Eli Lilly & Co., 38 F.3d 510, 512 (10th Cir.1994). The district court's determination of state law is subject to de novo review. Id.
We begin with the language of the statute. As the district court noted, there is a disjunction between subparagraphs (A)(1) and (A)(2)--the statute refers to misrepresentations and omissions that are fraudulent or material. This might suggest that the insured's state of mind is irrelevant, so long as the misrepresented or omitted information is material to the insurer's decision. Subparagraphs (A)(1) and (A)(2), however, merely modify the terms in paragraph (A). Paragraph (A) refers to "[m]...
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