Stewart v. Mutual of Omaha Ins. Co.
| Decision Date | 22 August 1991 |
| Docket Number | CA-CV |
| Citation | 817 P.2d 44,169 Ariz. 99 |
| Parties | Wayne H. STEWART and Betty L. Stewart, husband and wife, Plaintiffs-Appellants, Cross-Appellees, v. MUTUAL OF OMAHA INSURANCE COMPANY, a Nebraska corporation, Defendant-Appellee, Cross-Appellant. 189-048. |
| Court | Arizona Court of Appeals |
Wayne H. and Betty L. Stewart appeal from summary judgment permitting Mutual of Omaha Insurance Company (Mutual) to rescind three insurance policies because of alleged misrepresentations in policy applications. The primary issues on appeal are whether the applications were fraudulent within the meaning of A.R.S. § 20-1109 and whether factual disputes concerning alleged misrepresentations by the Stewarts to Mutual's agents preclude summary judgment. Mutual argued that the Stewarts failed to disclose Wayne Stewart's "mental health history", contending that such failure to disclose constitutes a material misrepresentation entitling Mutual to rescind the policies pursuant to A.R.S. § 20-1109.
We find that there are disputed facts which are material to Mutual's statutory right to rescind. Therefore, we reverse the judgment and remand for further proceedings.
We state the facts in a light most favorable to appellant. Griffith v. Faltz, 162 Ariz. 599, 785 P.2d 119 (App.1990).
On May 21, 1985, Wayne Stewart saw a neurologist, Dr. David Suber. Stewart complained of stress, a shaking right hand when anxious, and general depression. He questioned whether his symptoms were associated with a 1967 water skiing accident which had resulted in a concussion with a prolonged period of coma. Dr. Suber's examination indicated generally normal physical and neurological results other than a mild right-side intention tremor and slow reading. To assure a more complete evaluation of Stewart's health, Dr. Suber ordered a battery of tests. The test results were normal. Dr. Suber prescribed Elavil for post-concussion symptoms and referred Stewart to Dr. Joseph Tursini, a clinical psychologist, for evaluation and counseling.
Stewart initially saw Dr. Tursini on June 17, 1985. He visited Dr. Tursini four more times over the next six weeks, but stopped going because he felt that he did not need professional help. Dr. Tursini diagnosed Stewart as having a cyclothymic disorder and mixed personality disorder but he did not notify Stewart of his diagnosis. Stewart was unaware of this diagnosis at the time of his statements to Mutual's agents.
During approximately the same time that Wayne Stewart was seeing Dr. Suber and Dr. Tursini, the Stewarts contacted an acquaintance, Peter Johnson (Johnson), for advice concerning a claim dispute that Mrs. Stewart was having with an insurance company. Johnson was a Mutual agent. On May 22, 1985, Wayne Stewart applied for life insurance through Johnson with United of Omaha, Mutual's life insurance affiliate. On June 20, 1985, he applied for income protection (disability) insurance from Mutual, also through Johnson.
Johnson filled out the application for disability insurance in Stewart's presence. The application contained the following questions:
Stewart answered each of these questions "no."
Next to question 14(3), "Had any physical examinations?", Stewart checked "Yes." In explanation of this response, information was written into the spaces provided that Stewart had consulted Dr. Suber. Under "date and reason for the last consultation", the reason given was "physical-work related."
Stewart had an opportunity to review the application and make any changes that he felt were appropriate at the time it was completed by Johnson.
An employee from Mutual's special services department later telephoned Stewart to verify independently that the application was complete and accurate. During that telephone conversation, the employee asked questions from a work sheet that were different from the application. She asked Wayne Stewart to identify (1) the last doctor he saw, (2) his regular physician and (3) whether he was on any medication. Stewart responded that he had no regular physician, was not on any medication and last saw a physician in March, 1980 for pain in his stomach.
Mutual sent Stewart a "reverification" letter on August 27, 1985, along with a copy of the application giving Stewart an opportunity to again review and correct any misinformation. The letter stated:
[We] ask that you carefully read your policy.
Your policy has been issued relying upon the information contained in your application. Your eligibility for benefits and the amount of benefits may well depend on it.
....
If it is incomplete or inaccurate in any respect, please provide us with full additional information in the space provided below....
Stewart signed and returned the letter under a form provision which states, "I received the application and find the answers to be correct and complete."
Stewart received the insurance policy with a copy of the application attached to the policy and incorporated as part of the insurance contract. The policy stated:
PLEASE READ
Please read the copy of your application. If anything in it is not correct or if any past medical history has been left out, you should tell us. Your policy was issued on the basis that all information in the application is correct and complete. If not, your policy may not be valid.
In September, 1985, Wayne and Betty Stewart applied for a major medical policy and hospitalization policy from Mutual. This time they met with a different agent, Robert Gordon (Gordon). The applications for the policies were identical to the application for the disability insurance policy and Stewart's answers were similar to his prior application.
Stewart received a written notice along with the applications which warned:
[B]e certain to truthfully and completely answer all questions on the application including your medical/health history. FAILURE TO INCLUDE ALL MATERIAL MEDICAL INFORMATION ON AN APPLICATION MAY PROVIDE A BASIS FOR THE COMPANY TO DENY CLAIMS AND TO REFUND YOUR PREMIUM AS THOUGH YOUR POLICY HAS NEVER BEEN IN FORCE. After the application has been completed and before you sign it, reread it carefully to be certain that all information has been properly recorded.
On September 25, 1985, a Mutual employee telephoned the Stewarts and spoke to Betty inquiring about Wayne Stewart's regular physician, last physician and any medication that he was taking. Mrs. Stewart responded that her husband had no regular physician, had a routine physical with David Suber with no findings, was not on any medication and had seen Dr. Terry Irons in March 1980 for kidney stones.
Mutual sent the Stewarts two "reverification" letters for the two new policies which were signed and returned. Finally, the Stewarts received both policies each containing the corresponding application that was incorporated as part of the policy. Each policy contained a warning that if the information was not correct and complete, the policy might not be valid.
On December 10, 1985, Wayne Stewart was severely injured in an automobile-pedestrian accident. He submitted medical bills under his hospitalization and major medical policies and a claim for disability income benefits under his disability policy. In the course of obtaining medical records for the injuries, Mutual learned of Stewart's "mental health history" with Dr. Suber and Dr. Tursini. Mutual's underwriters determined that had this information been known at the time the applications for insurance were received, the policies would not have been issued. 1
The Stewarts asked Mutual to reconsider its decision. Following further review, Mutual again determined that rescission was proper.
The Stewarts filed a complaint against Mutual for declaratory judgment and alleged breach of contract, bad faith, breach of fiduciary duty, fraud, consumer fraud, intentional infliction of emotional distress and violation of the insurance code. Mutual answered the complaint and counterclaimed for rescission and recovery of monies already paid out under the policies.
Mutual filed a motion for summary judgment on the contract counts and motions for partial summary judgment concerning the tort claims and punitive damages. The trial court granted the contract motion for summary judgment. The parties agreed that this was dispositive of the entire case because the remaining claims depended upon the existence of a valid contract.
The Stewarts filed a notice of appeal to this court. 2
We first review the distinction between legal and actual fraud.
A.R.S. § 20-1109 provides:
All statements and...
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