221 F.3d 1335 (6th Cir. 2000), 99-1442, Provident Life & Accident Ins. Co. v. Nassif

Docket Nº:99-1442.
Citation:221 F.3d 1335
Party Name:PROVIDENT LIFE & ACCIDENT INSURANCE COMPANY. P laintiff-Counter-defendant-Appellee, v. John M. NASSIF, M.D., Defendant-Counter-claimant-Appellant.
Case Date:June 26, 2000
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 1335

221 F.3d 1335 (6th Cir. 2000)

PROVIDENT LIFE & ACCIDENT INSURANCE COMPANY. P laintiff-Counter-defendant-Appellee,

v.

John M. NASSIF, M.D., Defendant-Counter-claimant-Appellant.

No. 99-1442.

United States Court of Appeals, Sixth Circuit

June 26, 2000

Editorial Note:

This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA6 Rule 28 and FI CTA6 IOP 206 regarding use of unpublished opinions)

On Appeal from the United States District Court for the Western District of Michigan.

Before NELSON, BOGGS, and NORRIS, Circuit Judges.

OPINION

NORRIS, Circuit Judge.

Defendant John M. Nassif, M.D. obtained a disability insurance policy from plaintiff Provident Life and Accident Insurance Company. In his application, Nassif agreed to reduce another insurance policy within 30 days of the issuance of the Provident policy, but he failed to do so. When Nassif filed a claim years later, Provident filed suit to obtain a declaration that it could rescind the policy. The district court granted summary judgment to Provident, holding that Nassif's failure to reduce the other insurance was a failure to comply with a condition precedent or to provide required consideration. Nassif now appeals. For the reasons described below, we will reverse the grant of summary judgment and remand for further proceedings.

I.

Provident's application for disability income insurance asked whether Nassif, an eye surgeon, had any other disability insurance. He indicated that he had a policy from the American Medical Association ("AMA") with benefits of $4,000 per month. He also filled out a form which supplemented the question about other coverage. That form included this pre-printed language: "If insurance is issued pursuant to this application I will, within 30 days of the issue date or effective date of the coverage, whichever is later, permanently cancel the coverage listed below." Underneath that statement. Nassif listed the AMA insurance and wrote "$2000 will reduce to this amount."

Provident provided testimony that, pursuant to its underwriting guidelines, it would not have issued Nassif's policy if it had known that he would not reduce his AMA insurance. The company also points to a "conditional receipt" that stated: "We accept this payment subject to the following CONDITIONS PRECEDENT: ... [Y]ou are insurable under our underwriting rules and practices for the policy and amount applied for, with no restrictions and with no change in coverage at our standard rate of premium."

Provident issued a policy with an effective date of January 1, 1991, and an issue date of January 14, 1991. The policy incorporated the application as part of the insurance contract. Nassif did not cancel or reduce his AMA insurance within 30 days. In 1996, Nassif applied for additional coverage from Provident. Although there was a question in the application about whether he had other disability insurance, Nassif did not mention his AMA insurance.

In 1997, Nassif was diagnosed with cataracts and irregular astigmatism, problems that interfered with his ability to perform some of the surgery that made up his practice. He submitted a disability claim to Provident. According to Nassif, he did not know that the AMA policy had not been reduced until he prepared to submit his Provident claim. On the advice of his Provident insurance agent, Daniel Yacker, Nassif canceled his AMA policy shortly before submitting his Provident claim. Provident denied Nassif's claim and filed suit seeking a declaration that it was entitled to rescind the insurance policy or deny benefits based on Nassif's failure to satisfy a condition precedent, his prior material breach of the insurance contract, and misstatements made in his application. Nassif filed a counterclaim seeking benefits.

The district court first determined that, because it was exercising diversity jurisdiction, choice of law rules of the forum state of Michigan applied. Under Michigan's rules, the court found that the contract was governed by California law. 1

The court determined that there were three basic questions underlying the parties' motions for summary judgment: (1) whether Provident could rescind its policy due to statements made by Nassif in his initial application and application for increased coverage in light of an incontestability provision; (2) whether the policy was void ab initio or whether performance could be avoided because of Nassif's failure to comply with material terms of the contract; and (3) whether Nassif qualified for benefits in light of his continuing ability to perform some opthalmic surgery and exams. The court addressed only the second question, finding it dispositive and stating:

There can be no factual dispute regarding the substance of Nassif's promise or its inclusion in the insurance contract. Nassif explicitly agreed to reduce the coverage provided under the AMA policy within 30 days of the effective date or the issue date of the insurance policy, whichever was later. Further, Nassif's application, including the supplemental answer requiring him to reduce his coverage under the AMA policy, was attached to and explicitly made part of his insurance policy. Therefore, the application is part of the insurance contract and may set forth conditions for issuance of the insurance or continuation of coverage.... The only remaining question is whether the provision created a condition precedent.

In this case, Nassif agreed to reduce the coverage under the AMA policy as a condition to or consideration for issuance of the policy. His failure to do so precludes coverage under the policy. To defeat this argument, Nassif relies on the incontestability provision, which states that Provident may rescind the policy for misstatements on an application without restriction during the first two years of the policy or for fraudulent misstatements at any time. This provision does not, however, bar rescission for other reasons, such as failure to fulfill a basic...

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