Adam v. Stonebridge Life Ins. Co., 09-3014.

• Decision Date: 15 July 2010
• Docket Number: No. 09-3014.,09-3014.
• Citation: 612 F.3d 967
• Parties: Michael ADAM, Administrator of the Estate of Richard J. Kessel, on behalf of Briale Kessel, Appellant,v.STONEBRIDGE LIFE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

612 F.3d 967

Michael ADAM, Administrator of the Estate of Richard J. Kessel, on behalf of Briale Kessel, Appellant,v.STONEBRIDGE LIFE INSURANCE COMPANY, Appellee.

No. 09-3014.

United States Court of Appeals Eighth Circuit.

Submitted: Jan. 12, 2010.

Filed: July 15, 2010.

Elizabeth Jenadija Craig, argued, Iowa City, IA, Martin A. Diaz, on the brief, Iowa City, IA, for appellant.

Tara Zager Hall, argued, Steven Lowell Nelson, on the brief, Des Moines, IA, for appellee.

Before SMITH, and COLLOTON, Circuit Judges, and KORNMANN,¹ District Judge.

SMITH, Circuit Judge.

Michael Adam, administrator of the deceased Richard Kessel's estate, brought suit against Stonebridge Life Insurance Company (“Stonebridge”) alleging breach of contract and bad faith after Stonebridge rescinded an insurance policy and denied Adam's claim for benefits. Stonebridge answered, asserting the affirmative defenses of equitable estoppel, lack of standing, waiver, and equitable rescission. The district court ² granted Stonebridge's motion for summary judgment. On appeal, Adam argues that the district court erred in dismissing his claims. We affirm.

I. Background

On November 17, 2003, Kessel applied for a $75,000 term life insurance policy issued by Stonebridge.³ Kessel designated his daughter, Briale Kessel, as the beneficiary. Kessel wrote “Laborer-Part time Social Security” in the section titled “Occupation” on the application. The application also contained a number of specific questions. Question A on the application asked:

To the best of your knowledge and belief have you:

A. Sought or received treatment or medical advice or been hospitalized for cancer, stroke, diabetes, blood pressure, or for any disease of the heart, blood, liver, kidneys, digestive or respiratory system, or for any nervous, mental, neuromuscular, or connective tissue disorder during the past five (5) years?

Kessel answered “no” in response to Question A. Kessel's answer was false. Kessel had, in fact, “[s]ought or received treatment or medical advice” for a mental disorder within five years of the date of his application. A June 28, 1999 order from the Iowa District Court for Keokuk County stated that Kessel was “seriously mentally impaired and in need of treatment, but can continue in outpatient treatment.” On August 16, 2001, Kessel reported to Carol Schmidt, a registered nurse with the Richland Family Clinic, that he had been diagnosed with bipolar disorder since 1982. Kessel told Schmidt that he had been receiving treatment from psychiatrist Dr. Teresa Rosales in Ottumwa, Iowa, for the past four or five years. Kessel's medical records indicate that he was treated at the psychiatry clinic of the University of Iowa Hospitals and Clinics between 2001 and 2003. Adam concedes that Kessel's answer of “no” to Question A was false.

If Kessel had accurately answered “yes” to this question, his application would have been denied. Stonebridge uses a simplified underwriting process to review applications for certificates of insurance. If the applicant answers “yes” to a health question such as Question A, the application is declined. If the applicant answers “no” to the health questions, the application is approved. If Stonebridge issues an applicant a policy and later learns from an applicant via a verification form that one of the questions should have been answered “yes,” then Stonebridge rescinds the policy and refunds any premiums paid to Stonebridge.

Kessel's application was not reviewed by a human underwriter, but rather keyed into a computer. Because he answered all health questions “no,” a Stonebridge clerk automatically issued a certificate of insurance. Stonebridge records show the company never inquired further into Kessel's health during his lifetime or inquired why Kessel, who was 45 years old at the time of the application, received Social Security benefits. Stonebridge issued Kessel a certificate of insurance, effective November 25, 2003. Kessel made three premium payments of $72.80, totaling $218.40. On March 6, 2004, Kessel was killed in an automobile collision, and his estate sought death benefits under the policy.

Regarding contestability of claims, the policy states:

The company cannot contest the Certificate after it has been in force during the Insured's lifetime for two years from the Insured's Certificate Effective Date or the effective date of the Reinstatement, except for Accidental Death Benefits, if any, fraud, or for not paying premiums.

On March 29, 2004, Stonebridge provided Mike Kennedy, attorney for the estate of Richard Kessel, with a Contestable Life Claim Form because Kessel died within two years of the effective date of the policy. During a contestable review, a claims examiner reviews documentation and determines whether Stonebridge would have issued a policy had Stonebridge received truthful information. After receiving permission to access Kessel's medical records, a Stonebridge claims examiner asked Kennedy whether Kessel received Social Security disability payments. Additionally, the claims examiner wanted to know the condition for which Kessel received Social Security benefits and the names and addresses of his treating physicians for that condition.

Kelly Foster, senior underwriter, reviewed medical records obtained during the review process and determined that Stonebridge would not have issued the certificate of insurance because Kessel had sought treatment and medical advice from Schmidt, who had made an assessment on August 16, 2001, that Kessel had “bipolar disorder” and that this constituted a “mental disorder,” which Kessel should have disclosed on his application. On June 29, 2005, Stonebridge sent a letter to Kennedy stating that Stonebridge was rescinding Kessel's insurance due to material omissions on his application regarding medical treatment. Stonebridge refunded the premiums Kessel paid for the policy.

Adam, the administrator for Kessel's estate, acknowledged the decision to rescind in a letter that Kennedy wrote to Charles Costa, Vice President of Claims at Stonebridge, on January 20, 2006, and requested a replacement premium refund check. On January 27, 2006, Stonebridge issued a second check in the amount of $218.40 as a refund of the premiums Kessel paid. The check was cashed. By January 25, 2008, Adam retained a new attorney who initiated the instant lawsuit against Stonebridge.

In relevant part, Adam's complaint alleged breach of contract and bad faith and sought punitive damages against Stonebridge. Stonebridge answered, asserting the affirmative defenses of equitable estoppel, lack of standing, waiver, and equitable rescission. The district court granted Stonebridge's motion for summary judgment on Adam's breach of contract claim. The court found that no genuine issues of material fact remained regarding any of the elements of equitable rescission. The court also found that Stonebridge lawfully rescinded the insurance contract based on the misrepresentation Kessel made on his application for life insurance. The district court also granted Stonebridge's motion for summary judgment on Adam's bad faith and punitive damages claims, finding that Stonebridge had an objectively reasonable basis for denying Adam's claim.

II. Discussion

Adam argues that the district court erred in granting Stonebridge's motion for summary judgment on his breach of contract claim. First, he argues that Kessel's misrepresentation was not material and Stonebridge's reliance on Kessel's misrepresentation was unreasonable. Second, Adam argues that his bad-faith claim had merit because Stonebridge's denial of his claim for payment on Kessel's life insurance certificate was unreasonable. Finally, Adam argues that Stonebridge's actions in denying coverage were willful and wanton and thus warrant punitive damages.

We “review de novo the district court's grant of summary judgment, viewing all facts and reasonable inferences in the light most favorable to [Adam as] the nonmoving party.” Merriam v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 572 F.3d 579, 583 (8th Cir.2009). “Summary judgment is proper when no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law.” HDC Med., Inc. v. Minntech Corp., 474 F.3d 543, 546 (8th Cir.2007) (internal quotations and citation omitted). “[S]ummary judgment is appropriate where the pleadings, discovery materials, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Kountze ex rel. Hitchcock Found. v. Gaines, 536 F.3d 813, 817 (8th Cir.2008) (internal quotations and citation omitted). “To survive summary judgment, a plaintiff must substantiate his allegations with enough probative evidence to support a finding in his favor.” Roeben v. BG Excelsior Ltd. P'ship, 545 F.3d 639, 642 (8th Cir.2008).

A. Breach of Contract

Adam first argues that Kessel's misrepresentation in Question A of the application was not material and Stonebridge's reliance upon the answer in Question A was unreasonable. Stonebridge responds that the undisputed facts demonstrate that Kessel made material misrepresentations and omissions on the application, Stonebridge justifiably relied on those misrepresentations and omissions, and Stonebridge would not have issued the certificate of insurance if Kessel had truthfully answered the question on the application. These facts, Stonebridge contends, established its affirmative defense of equitable rescission as a matter of law. Stonebridge also argues that we should affirm summary judgment because it established the elements of its waiver defense as a matter of law.

To establish a breach of contract claim in Iowa a plaintiff must prove

(1) the existence of a contract; (2) the terms and conditions of the contract; (3) that it has performed all the terms and conditions required under the contract; (4) the defendant's breach of the contract in some particular way;

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