Adzick v. Unum Life Ins. Co. of America, 02-3325.

• Decision Date: 16 December 2003
• Docket Number: No. 02-3325.,02-3325.
• Citation: 351 F.3d 883
• Parties: Shirley R. ADZICK, Appellee, v. UNUM LIFE INSURANCE COMPANY OF AMERICA, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 883

351 F.3d 883

Shirley R. ADZICK, Appellee, v. UNUM LIFE INSURANCE COMPANY OF AMERICA, Appellant.

No. 02-3325.

United States Court of Appeals, Eighth Circuit.

Submitted: May 16, 2003.

Filed: December 16, 2003.

Terrance J. Wagener, argued, Bloomington, MN (John Harper, III, on the brief), for appellant.

Thomas Bennet Wilson III, argued, Edina, MN (Gayle Gaumer, on the brief), for appellee.

Before SMITH and HANSEN, Circuit

Judges, and READE,¹ District Judge.

SMITH, Circuit Judge.

UNUM Life Insurance Company of America ("UNUM") appeals the district court's denial of its motions for new trial and expanded findings of fact in Shirley Adzick's action to recover long-term disability insurance benefits. The district court denied the motions after concluding that UNUM's policy contained ambiguous material terms and Adzick did not fraudulently report her income. We reverse.

II. Facts

Adzick purchased a long-term disability insurance policy from UNUM in February 1993 when she worked as a dentist for Pentagon Dental Group. UNUM's application process required Adzick to answer a series of eligibility questions on the application form. Adzick, the UNUM insurance agent, and Adzick's employer, Michael Perpich, D.D.S., completed the form together. Adzick reviewed the completed application for accuracy before she signed it.

UNUM issued the policy, effective February 28, 1993, to Adzick. The policy provided that "[e]xcept for fraudulent misstatements, we will not contest those statements made by you in the application for a coverage provided under this policy after that coverage has been in effect for two years during your lifetime."²

Over four years later on March 10, 1997, Adzick filed a claim for long-term disability benefits. Adzick claimed she became unable to work on January 23, 1997, because she "had no confidence in [her] ability to perform" the duties associated with her practice. Adzick's physician diagnosed Adzick primarily as having cocaine dependency. After submitting her application, Adzick admitted herself for treatment at a drug-treatment clinic.³

During its investigation of Adzick's claim, UNUM requested copies of Adzick's federal income tax returns. Adzick's returns indicated that she made $17,125 in 1991 and $17,600 in 1992, but that she claimed a loss in 1993. In addition, Adzick's 1992 divorce decree indicated that she earned $1,000 per month as an employee of Pentagon Dental Group.

On June 16, 1997, UNUM rescinded the policy and denied Adzick's claim for benefits. UNUM claimed that Adzick fraudulently misrepresented both her income and cocaine use in the application. Adzick appealed this decision pursuant to the plan's terms, but UNUM affirmed the denial. Adzick filed this lawsuit.

The district court ruled in Adzick's favor after a bench trial in January 2000. The district court found that the application term "regularly used"⁴ was ambiguous and construed it against UNUM. The court also concluded that UNUM failed to establish that Adzick "regularly used" cocaine during the five years preceding submission of the application. Furthermore, the district court found that UNUM failed to establish that Adzick fraudulently misrepresented her income. UNUM moved for amended findings or, in the alternative, for a new trial on these issues and on the issue that the application term "currently use" precluded coverage. The district court denied these motions, and UNUM appealed.

When considering whether to grant or deny a motion for new trial, a district court must consider whether the verdict is against the weight of the evidence and if allowing it to stand would result in a miscarriage of justice. In re Air Crash at Little Rock, Arkansas, on June 1, 1999, 291 F.3d 503, 509 (8th Cir.2002). A district court's denial of a motion for new trial is reviewed for abuse of discretion. Id. at 508-09 (citing Van Steenburgh v. Rival Co., 171 F.3d 1155, 1160 (8th Cir.1999)). "In reviewing the district court's decision, we give great deference to its judgment, because the district court has the benefit of hearing testimony and observing the demeanor of witnesses throughout the trial." Bonner v. ISP Techs., Inc., 259 F.3d 924, 932 (8th Cir.2001) (citing Sanford v. Crittenden Memorial Hospital, 141 F.3d 882, 884 (8th Cir.1998)).

III. Analysis⁵

Minnesota courts recognize that Minnesota Statutes § 62A governs disability insurance.⁶ See Kersten v. Minnesota Mut. Life Ins. Co., 608 N.W.2d 869, 873 (Minn.2000) (noting that Minnesota Statutes § 62A regulates "various health and disability policies"). Section 62A.06(3) provides:

The falsity of any statement in the application for any policy covered by sections 62A.01 to 62A.09 hereof [accident and health insurance], may not bar the right to recovery thereunder unless such false statement materially affected either the acceptance of the risk or the hazard assumed by the insurer.

Because Adzick's policy is more than two years old, UNUM must also prove fraud in addition to materiality. Minn.Stat. § 62A.04(2); Independent Sch. Dist. No. 197 v. Accident and Casualty Ins., 525 N.W.2d 600, 606 (Minn.Ct.App.1995); Useldinger v. Old Republic Life Ins. Co., 377 N.W.2d 32, 35 (Minn.Ct.App.1985). Where the insured had full knowledge of the concealed facts, an inference that the insured was willfully false or intentionally misleading arises as a matter of law. See Ellis v. Great-West Life Assurance Co., 43 F.3d 382, 387 (8th Cir.1994). "A willfully false and intentionally misleading answer is one which is consciously made with a premeditated design so as to falsify facts so as to lead the insurer to act when he otherwise would not" and "[w]illfully false denotes knowingly concealed." Siemers v. United Benefit Life Ins. Co., 246 Minn. 459, 75 N.W.2d 605, 608 (1956).

As noted, the application contained the following question:

Other than already mentioned in this Application, have you in the past five years:

* * * * * *

(c) regularly used, or do you currently use, cocaine....

Adzick answered "no" to this inquiry. The application did not define the terms "regularly" or "currently." Adzick indicated at trial that she defined the word "regularly" to mean "every day."

Second, UNUM sought income information as reported on Adzick's federal income tax returns. Adzick's written answer indicated that she earned $30,000 each year in 1991 and 1992 after she began working at Pentagon Dental in 1990, and that she anticipated earning $35,000 in 1993. At trial, Adzick testified that she did not know how much income she had earned at the time she provided the answers, but that Perpich volunteered the information concerning her current and projected income.

1. Contract Ambiguity

UNUM first argues that the terms "regularly used" and "currently use" are not ambiguous. UNUM asserts that the evidence supports a finding that Adzick regularly used cocaine within the five years prior to submitting the application and currently used cocaine at the time she submitted the application. The district court determined that both phrases were ambiguous and read them against the drafter, UNUM. We disagree.

We review a district court's interpretation of the contractual provisions of an insurance policy de novo as a question of law. See Noran Neurological Clinic, P.A. v. The Travelers Indem. Co., 229 F.3d 707, 709 (8th Cir.2000) (applying Minnesota law); Koch Eng'g Co. v. Gibralter Cas. Co., 78 F.3d 1291, 1294 (8th Cir.1996). "In interpreting insurance contracts, we must ascertain and give effect to the intentions of the parties as reflected in the terms of the insuring contract." Jenoff, Inc. v. New Hampshire Ins. Co., 558 N.W.2d 260, 262 (Minn.1997); Minnesota Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175, 179 (Minn.1990) (citing Dairyland Ins. Co. v. Implement Dealers Ins. Co., 294 Minn. 236, 199 N.W.2d 806, 811 (1972)).

If an ambiguity in the language of an insurance contract exists, then the court is obliged to construe the ambiguity against the insurer, and in favor of the insured. Noran Neurological Clinic, 229 F.3d at 708; American Commerce Ins. Brokers, Inc. v. Minnesota Mut. Fire and Cas. Co., 551 N.W.2d 224, 227 (Minn.1996). The language of an insurance policy, however, is ambiguous only if it can reasonably be given more than one meaning. American Commerce Ins. Brokers, Inc., 551 N.W.2d at 227; General Mills, Inc. v. Gold Medal Ins. Co., 622 N.W.2d 147, 153 (Minn.App.2001); Lhotka v. Illinois Farmers Ins. Co., 572 N.W.2d 772, 773 (Minn. App.1998). "However, a court has no right to read an ambiguity into the plain language of a policy in order to provide coverage." Farkas v. Hartford Accident & Indem. Co., 285 Minn. 324, 173 N.W.2d 21, 24 (1969) (citations omitted). In undertaking such an assessment, the court must fastidiously guard against any invitation to "create ambiguities" where there are none. Noran Neurological Clinic, 229 F.3d at 708. "Minnesota courts have been quite clear that the initial existence of a contractual ambiguity does not `ineluctably lead to the conclusion that the drafter is to lose.'" Piper Jaffray Cos. v. National Union Fire Ins. Co., 967 F.Supp. 1148, 1154 (D.Minn. 1997) (quoting Davis by Davis v. Outboard Marine Corp., 415 N.W.2d 719, 724 (Minn. App.1987)); see also, Sphere Drake Insurance PLC v. Trisko, 24 F.Supp.2d 985, 991 (D.Minn.1998).

Because UNUM's insurance contract and application do not define "regularly used" or "currently use," we must give these terms their plain, ordinary, or popular meaning. Smith, 353 N.W.2d at 132. "Regular use," particularly in relation to drug use, is defined as "a habitual or common practice." BLACK'S LAW DICTIONARY 1541 (7th ed.1999). Webster's Dictionary defines "regular" as "orderly" and "methodical," and defines "regularly" as "in a regular manner," "on a regular basis," or "at regular intervals." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 1913 (3d ed.1993). In addition, "current" is defined as "presently...