Bageanis v. Am. Bankers Life Assur. Co. of Fla., 91 C 1261.

Decision Date13 January 1992
Docket NumberNo. 91 C 1261.,91 C 1261.
Citation783 F. Supp. 1141
PartiesMarie BAGEANIS, Plaintiff, v. AMERICAN BANKERS LIFE ASSURANCE COMPANY OF FLORIDA, Defendant.
CourtU.S. District Court — Northern District of Illinois

COPYRIGHT MATERIAL OMITTED

Gregory Adam Adamski, Karen Conti, Adamski & Conti, Chicago, Ill., for plaintiff.

Joseph J. Hasman, Ernest W. Irons, David Faulkner Schmidt, Peterson & Ross, Chicago, Ill., for defendant.

MEMORANDUM OPINION

KOCORAS, District Judge:

This matter comes before the Court on defendant's motion for summary judgment. Jurisdiction is based on diversity. For the following reasons, the motion is denied in part and granted in part.

BACKGROUND

Plaintiff, Marie Bageanis, filed a five count complaint against defendant, American Bankers Life Assurance Company ("American Bankers"). The basis for her action is that American Bankers has wrongly denied her coverage under a mortgage life insurance policy.

Marie Bageanis and her now deceased husband, Gus Bageanis, applied for a Monthly Renewable Decreasing Term Life insurance policy on July 6, 1988. In this application, the Bageanis' listed themselves as co-insureds and co-beneficiaries.

Prior to applying for insurance, Gus Bageanis had been hospitalized a number of times. On November 3, 1987, Mr. Bageanis was admitted to MacNeal Memorial Hospital. At MacNeal, Mr. Bageanis was diagnosed as suffering from: perforated sigmoid; peritonitis; bilateral aspiration pneumonitis; hypertension; metabolic acidosis secondary to sepsis; sinus tachycardia secondary to sepsis; hypokalemia and persistent leukocytosis postop secondary to possible intra-abdominal abscess. At this time, Mr. Bageanis received treatment in the form of an exploratory laparotomy; sigmoid resection, colostomy and peritoneal lavage; and drainage of abdominal abscess.

After being released, Mr. Bageanis was readmitted to MacNeal Hospital on March 3, 1988 for a colostomy revision with appendectomy. He was discharged on March 10, 1988. Mr. Bageanis, however, was once again readmitted on March 11, 1988. During this stay, he received, among other tests, an abnormal liver function test, the results of which were normal.

After receiving this extensive medical treatment, the Bageanis' decided to apply for life insurance. According to Plaintiff's affidavit, an agent of Homestead Savings told her that she and her husband were eligible for life insurance through the bank notwithstanding Mr. Bageanis' prior health problems. This agent then sent Plaintiff an American Bankers' insurance policy application.

American Bankers' application asked three questions, only two of which are relevant here. The first question asked whether: "During the past 3 years have you had any medical 1) advice, or 2) treatment?" With respect to Mr. Bageanis, the applicants circled number two. The second question asked: "Have you ever had or been treated for 1) alcohol or drug abuse, 2) high blood pressure, 3) cancer, 4) diabetes, or 5) any disorder or disease of the heart, liver, brain, lungs or kidneys?" Again with respect to Mr. Bageanis, the applicants circled number two for high blood pressure.

Below these questions American Bankers provided a small box, approximately one-third of an inch in height and approximately four inches in length, that requested further information. This portion of the application stated:

If you answered `yes' to question 1, 2, or 3, circle the condition and give complete details below including physician(s) name and address. If you had or have high blood pressure give the: 1) date and reading of your last blood pressure check; and 2) type of medication.

In Mr. Bageanis' box, beneath these instructions, the applicant wrote "136/80 Dr. A. March, Stanly sic Av., Berwyn, IL 60402 (TENEX)." Nowhere on the application or otherwise did the applicants reveal Mr. Bageanis' recent and extensive prior medical treatment and hospitalizations. As a final matter, both Gus and Marie Bageanis authorized American Bankers to examine their past medical records and history.

Some months later, on September 1, 1988, American Bankers issued Gus and Marie Bageanis the requested insurance policy. Mr. Bageanis subsequently died on August 28, 1990 due to inoperable brain cancer. Plaintiff then sought to have American Bankers pay her mortgage as provided in the policy. After American Bankers refused, she filed suit.

Plaintiff's complaint consists of five counts. Count I seeks a declaratory judgment that the policy is valid and enforceable and that American Bankers is liable to Plaintiff for the policy proceeds. Count II asserts a breach of contract claim. Count III contends that American Bankers breached its implied duty of good faith and fair dealing. Count IV claims that American Bankers violated sections 154.6 and 155 of Illinois' Insurance Code. Finally, Count V alleges that American Bankers violated Illinois' Consumer Fraud and Deceptive Business Practices Act, chapter 121½, section 261.

In response to Plaintiff's complaint, American Bankers filed a counterclaim for rescission and two affirmative defenses. American Bankers' basis for rescission is that the applicants' omissions regarding Mr. Bageanis' prior health and medical history constituted material misrepresentations that affected the risk assumed by American Bankers and that American Bankers would not have issued the insurance policy had it known the true facts.

American Bankers' affirmative defenses relate to Count III and IV of the complaint. American Bankers contends that it is entitled to summary judgment as to Count III because Section 155 of Illinois' Insurance Code preempts any allegation that American Bankers breached its duty of good faith and fair dealing by denying coverage. Additionally, American Bankers seeks summary judgment with respect to Count IV because section 154.6 of Illinois' Insurance Code allegedly fails to provide litigants with a private cause of action. We will discuss each of American Bankers' arguments in turn. Before doing so, however, we must address the appropriate standard by which to judge them.

DISCUSSION
A. Summary Judgment Standard

Summary judgment is appropriate if the pleadings, answers to interrogatories, admissions, affidavits and other materials show "that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A genuine issue exists if "there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). A "material fact" exists only if there is a factual dispute that is outcome determinative under governing law. Id. at 248, 106 S.Ct. at 2510; Howland v. Kilquist, 833 F.2d 639, 642 (7th Cir.1987). The party seeking summary judgment has the initial burden of showing that no such issue of material fact exists.

When a properly supported motion for summary judgment has been made, the opposing party must then "set forth specific facts showing that there is a genuine issue for trial." Id. Like the movant, the nonmovant may not rest upon mere allegations in the pleadings or upon conclusory statements in affidavits; rather he must support his contentions with proper documentary evidence. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Howland, 833 F.2d at 642. Moreover, the opposing party is entitled to the benefit of all favorable inferences that can reasonably be drawn from the underlying facts but not every conceivable inference. De Valk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir.1987). It is light of this standard that we examine the parties' arguments.

B. Rescission

American Bankers' primary argument for summary judgment is that it is entitled to rescind the insurance contract. Specifically, American Bankers contends that the applicants materially misrepresented Mr. Bageanis' prior medical history and health by omitting certain facts from his application for insurance and that American Bankers would not have issued the insurance had it known the truth. Therefore, American Bankers seeks rescission. Because we conclude that there is a genuine issue of material fact regarding rescission, we deny the motion at this time.

Rescinding an insurance contract is a complete defense to an action on the policy. Rescission is appropriate if "a representation in an insurance application, which is believed and relied on by the company, is false and material either to the acceptance of the risk or to the hazard assumed by the insurance company." Massachusetts Mutual Life Insur. Co. v. Reichenthal, 138 F.Supp. 440, 445 (S.D.Ill. 1956). Incomplete answers or a failure to disclose material information in response to a question in an application may constitute a material misrepresentation. Garde v. Country Life Insur. Co., 147 Ill.App.3d 1023, 101 Ill.Dec. 120, 126, 498 N.E.2d 302, 308 (4th Dist.1986).

"Materiality" is determined by asking whether reasonably careful and intelligent persons would have regarded the omitted facts as substantially increasing the chances of the events insured against so as to cause a rejection of the application or different conditions, such as higher premiums. Id. The materiality of a misrepresentation may be established by the underwriter's testimony or testimony of the insurer's employees. Id. A good faith mistake does not excuse a material misrepresentation. Id.; see also Ratcliffe v. International Surplus Lines Insur., 194 Ill. App.3d 18, 141 Ill.Dec. 6, 11, 550 N.E.2d 1052, 1057 (1st Dist.1990) (holding that "it is unnecessary for the insurer to prove that a misrepresentation was made with the intent to deceive if it was material to the risk assumed"). Furthermore, the fact that a potential insured does not die from the withheld ailment does not affect the materiality of the misrepresentation. Hatch v. Woodmen Accident...

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