Brandt v. Time Ins. Co.
| Decision Date | 10 December 1998 |
| Docket Number | 1-98-0143,Nos. 1-97-2913,s. 1-97-2913 |
| Citation | 704 N.E.2d 843,302 Ill.App.3d 159,235 Ill.Dec. 270 |
| Parties | , 235 Ill.Dec. 270 Jacqueline BRANDT, Plaintiff-Appellant, v. TIME INSURANCE COMPANY, Defendant-Appellee (Douglas Ruth, Lenox Financial Services, Inc., and Insurance Consulting Group, Inc., Defendants). Time Life Insurance Co., Third-Party Plaintiff, v. Douglas Ruth and Insurance Consulting Group, Inc., Third-Party Defendants. |
| Court | United States Appellate Court of Illinois |
Edelman & Combs, Chicago (Daniel A. Edelman, Cathleen M. Combs, James O. Latturner and Ignacio D. Maramba, of counsel), for Plaintiff-Appellant.
Peterson & Ross, Chicago (William A. Chittenden, III and Laura A. Smith, of counsel), for Defendant-Appellee.
The plaintiff, Jacqueline Brandt, filed the instant action against the defendant, Time Insurance Company (Time), and others to recover damages she allegedly sustained as a consequence of Time's refusal to pay her claims under a health insurance policy. Brandt's complaint as amended set forth, inter alia, claims against Time for breach of contract (count I), a violation of section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 1996)) (count II), fraud (count IX), and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 1996)) (count X). On July 17, 1997, the circuit court dismissed counts IX and X of Brandt's complaint for failure to state causes of action, including within its order the requisite finding of appealability under Supreme Court Rule 304(a) (134 Ill.2d R. 304(a)). Brandt filed a timely notice of appeal from that order which was docketed in this court as appeal No. 1-97-2913. Thereafter, on January 8, 1998, the circuit court granted summary judgment in favor of Time on counts I and II of Brandt's complaint, again including within its order the requisite finding of appealability under Supreme Court Rule 304(a). Brandt filed a timely notice of appeal from the January 8 order which was docketed in this court as appeal No. 1-98-0143.
Brandt died after the filing of her appeals and Howard E. Tuma, Special Administrator of Brandt's Estate, was substituted as the appellant. In the interest of clarity, however, we shall continue to refer to Brandt as the plaintiff. We consolidated Brandt's appeals and, for the reasons which follow, we now (1) affirm the July 17, 1997, order of the circuit court dismissing counts IX and X, (2) reverse the summary judgment entered on January 8, 1998, in favor of Time on counts I and II, and (3) remand this cause to the circuit court for further proceedings consistent with this opinion.
Brandt was diagnosed as a Type II diabetic in 1988. Beginning in 1990, Douglas Ruth, an insurance broker, assisted Brandt in obtaining health insurance policies. In 1994, Brandt was issued two Short Term Medical (STM) insurance policies which provided coverage for a maximum of six months and were intended to provide interim coverage while she sought a comprehensive medical insurance policy. Brandt's STM policies excluded her diabetes from coverage as a pre-existing condition.
In March 1995, Ruth informed Brandt that her current STM policy was about to expire and recommended that she apply for an STM policy offered by Time. Ruth completed the Time application for Brandt and answered the questions contained therein, including the following:
"4. Within the last five (5) years, have you, your spouse, or any dependent to be covered, ever received any medical or surgical diagnosis or treatment including medication for: heart or circulatory system disorder including heart attack or chest pain; stroke; diabetes; cancer; * * *.
* * *
Note: The policy * * * cannot be issued if YES is answered on any questions, 2-4."
Ruth answered "No" to question 4, although he knew of Brandt's diabetic condition. Ruth sent Brandt's application with her premium check to Insurance Consulting Group (ICG), a company which processes insurance applications for policies issued by Time. Time issued the policy to Brandt, effective April 4, 1995.
On or around August 1, 1995, while her Time STM policy was in effect, Brandt was diagnosed with terminal stomach cancer. Brandt incurred medical bills for treatment of the cancer which she submitted to Time for payment. Before paying out on Brandt's claims, Time discovered that Brandt had suffered from diabetes since 1988 and had been treated for her condition within the five year period prior to her application for its STM policy. Time denied Brandt's claim for benefits and notified her on October 30, 1995, that it was rescinding the STM policy.
Brandt filed the instant action against Time, Ruth, and Ruth's company, Lenox Financial Services, Inc., on April 4, 1996. Brandt's complaint alleged, inter alia, that Ruth obtained her signature on a blank application for Time's STM policy, represented to her that he would fill it out accurately, and then recklessly filled out the application without indicating that Brandt suffered from diabetes. According to her complaint, Brandt had never seen the completed application until Time refused to honor the policy. Brandt alleged that Time was precluded from relying on Brandt's diabetes as a basis for denying coverage since it failed to attach the application to the policy (see 215 ILCS 5/154 (West 1994)). Brandt claimed that, by refusing to honor the policy, Time breached its contract of insurance (count I) and violated section 155 of the Insurance Code (215 ILCS 5/155 (West 1996)).
Time filed its answer along with affirmative defenses alleging that the STM policy was void ab initio since the misrepresentations in Brandt's application were material to Time's decision to accept the risk, were material to the hazard assumed by Time, and were made with the intent to deceive.
On December 2, 1996, Brandt amended her complaint, adding two new counts alleging that Time's practice of "post-claim underwriting" constituted common law fraud (count IX) and an unfair and deceptive trade practice under the Consumer Fraud Act (815 ILCS 505/1 et seq. (West 1996)) (count X). Time moved to dismiss counts IX and X for failure to state causes of action. The trial court granted the motion and Brandt was given leave to replead within 28 days. No amended complaint was filed and counts IX and X were dismissed with prejudice.
On appeal from a motion to dismiss under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1996)), this court must determine whether the complaint alleges facts which, if proved, would entitle the plaintiff to relief. Charles v. Seigfried, 165 Ill.2d 482, 485-86, 209 Ill.Dec. 226, 651 N.E.2d 154 (1995). Our review is de novo. Kaden v. Pucinski, 287 Ill.App.3d 546, 548, 222 Ill.Dec. 920, 678 N.E.2d 792 (1997).
In order to plead an action for fraud, the plaintiff must allege: that the defendant made a false statement of material fact, knowing or believing that the statement was false, with the intention of inducing the plaintiff to act; that the plaintiff reasonably relied on the truth of the statement and acted thereon; and that the plaintiff suffered damages which were proximately caused by her action in reliance upon the statement. Siegel v. Levy Organization Development Co., 153 Ill.2d 534, 542-43, 180 Ill.Dec. 300, 607 N.E.2d 194 (1992). The basic elements of a deception claim under section 2 of the Consumer Fraud Act (815 ILCS 505/2 (West 1996)) are: (1) a deceptive act or practice; (2) the defendant's intent that the plaintiff rely on the deception; and (3) that the deception occurred in the course of conduct involving trade or commerce. Connick v. Suzuki Motor Co., 174 Ill.2d 482, 501, 221 Ill.Dec. 389, 675 N.E.2d 584 (1996).
Counts IX and X of Brandt's complaint allege that Time improperly practiced "post-claim underwriting." Brandt claims that an insurer must investigate the information on an application before, or within a reasonable time after, issuing a policy. According to Brandt, issuing a policy and then waiting until a claim is made before investigating the insurability of the applicant perpetrates a fraud upon the applicant and the public. Brandt also claims that this constitutes an unfair and deceptive business practice. Brandt cites to a number of extrajurisdictional cases in support of her argument that the practice of "post-claim underwriting" (see e.g. White v. Continental General Insurance Co., 831 F.Supp. 1545 (D.Wyo.1993)), or "retroactive underwriting" (see e.g. Meyer v. Blue Cross and Blue Shield, 500 N.W.2d 150 (Minn.App.1993)), should preclude an insurer from rescinding its policy or disclaiming liability after a claim has been made.
Although our research has not disclosed any Illinois cases specifically addressing this issue, it has long been the law in Illinois that an insurer has no general duty to investigate the truthfulness of answers given to questions asked on an application for insurance. See Bageanis v. American Bankers Life Assurance Co., 783 F.Supp. 1141, 1146 (N.D.Ill.1992); see also Apolskis v. Concord Life Insurance Co., 445 F.2d 31, 36 (7th Cir.1971); Metropolitan Life Insurance Co. v. Moravec, 214 Ill. 186, 188, 73 N.E. 415 (1905); National Blvd. Bank v. Georgetown Life Insurance Co., 129 Ill.App.3d 73, 84 Ill.Dec. 330, 472 N.E.2d 80 (1984). Our courts have recognized that "[a]n insurance company has the right to rely on the truthfulness of the answers given by an insurance applicant, and the insured has the corresponding duty to supply complete and accurate information to the insurer." Commercial Life Insurance v. Lone Star Life Insurance, 727 F.Supp. 467, 471 (N.D.Ill.1989). Since Illinois law imposes no duty on an insurer to conduct an independent investigation of insurability before issuing an insurance policy and Time made no representation as to...
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