Breault v. Berkshire Life Ins. Co., Civ. No. 92-1512-A.

• Decision Date: 30 April 1993
• Docket Number: Civ. No. 92-1512-A.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Jerome N. BREAULT, Plaintiff, v. BERKSHIRE LIFE INSURANCE COMPANY, et al., Defendants.

821 F. Supp. 410

Jerome N. BREAULT, Plaintiff, v. BERKSHIRE LIFE INSURANCE COMPANY, et al., Defendants.

Civ. No. 92-1512-A.

United States District Court, E.D. Virginia, Alexandria Division.

April 30, 1993.

Michael W. Robinson, Venable, Baetjer and Howard, David Tillman Stitt, Venable, Baejter and Howard, McLean, VA, for plaintiff.

James John Briody, Sutherland, Asbill & Brennan, Washington, DC, for Berkshire Life Insurance Company, defendant.

Janet Kay Whitaker, Cunningham & Associates, Alexandria, VA, for Victor Simon, defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

I.

This diversity case, governed by Virginia law, grows out of an insurer's cancellation of a disability benefits policy on the ground that the policy application contained false statements. Presented for decision is the question whether an insurer may cancel or rescind a policy where the insured, who provided accurate information to the insured's agent in the course of the policy application process, knew nonetheless that the application, as finally signed and submitted, contained false statements.

Plaintiff, Jerome N. Breault, brought this action following defendant Berkshire Life Insurance Company's ("Berkshire") rescission of his disability insurance policy and its refusal to pay benefits under the policy. Breault seeks to compel Berkshire to pay these disability benefits or, in the alternative, to recover from Berkshire and defendant Victor Simon, Berkshire's insurance agent, all damages arising from Berkshire's refusal to make such payments. Specifically, Breault's five count complaint alleges: (i) that Berkshire's rescission of Breault's insurance policy is invalid and ineffective; (ii) that Berkshire breached a valid contract with Breault in refusing to pay disability benefits; (iii) that Berkshire and Simon defrauded Breault; (iv) that, if Berkshire validly rescinded the policy, Simon breached his contract to procure insurance for Breault; and (v) that, given a valid rescission, Simon was also negligent in his efforts to procure insurance for Breault. For its part, Berkshire has filed a counterclaim for rescission.

This matter is now before the Court on defendants' motions for summary judgment. Summary judgment is appropriate where there is no genuine issue as to any material fact, and it is therefore apparent that the moving party is entitled to judgment as a matter of law. Rule 56(c), Fed.R.Civ.P.; Walls v. Petersburg, 895 F.2d 188, 190 (4th Cir.1990). Indeed, summary judgment "is properly regarded not as a disfavored procedural short-cut, but rather as an integral part of the Federal Rules as a whole, which are designed to secure speedy and inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986). In this regard, courts have an affirmative obligation "to prevent `factually unsupported claims and defenses' from proceeding to trial." Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987) (quoting Celotex, 477 U.S. at 323-24, 106 S.Ct. at 2552-53). Given this, and for the reasons stated below, the Court grants summary judgment in favor of the defendants.

II.

Plaintiff, Jerome N. Breault, is a Virginia resident who, in late 1989, sought to obtain an individual, long-term disability insurance policy. Although Breault already had disability coverage through a group insurance policy provided by his employer, he doubted the reliability and adequacy of this coverage. As a result, Breault contacted a friend who was an officer of Berkshire, a Massachusetts corporation that issues long-term disability insurance policies. Breault expressed his uneasiness with his current coverage and, as a result, his friend advised him that a Berkshire agent would contact him. Shortly thereafter, on January 8, 1990, Simon telephoned Breault to discuss the various disability coverage options available through Berkshire. Simon, a Maryland resident, was, at all times relevant to this action, a Berkshire insurance agent authorized to sell insurance in Virginia. In the course of their initial telephone conversation, Breault informed Simon that he had obtained a short-term disability policy from Mutual of Omaha, and that he also had disability coverage through his employer's group insurance plan.¹ Simon advised Breault that group disability policies usually provided inferior coverage, and that Breault should not rely on the group policy. Breault further contends that Simon never advised him, in this or subsequent conversations, that Breault's other disability coverage would affect the issuance or terms of a Berkshire policy. Following this initial conversation, Simon sent Breault materials and price quotes relating to disability insurance coverage available through Berkshire. Breault received these materials and, after reviewing them and discussing various options with Simon, decided to apply for a Berkshire disability insurance policy.²

On January 30, 1990, Simon called Breault to complete the insurance application. In this telephone conversation, Simon went through the application questions with Breault one by one, and Breault provided him with the answers. In addition to background questions concerning Breault's age, social security number, address, occupation, and income, the application also requested information concerning other insurance coverage. Specifically, question 12 of the application, relating to "Disability Income Insurance," asked for a description of "all coverage in force including individual, franchise, association, group or government plans." While it is unclear from the record whether Breault told Simon on this occasion that he had other disability coverage, it is undisputed that Simon wrote down "none" as the answer to this response.³

Simon subsequently mailed the application to Breault, who reviewed the application, signed it, and returned it to Simon for transmittal to Berkshire. At the time Breault returned the application to Simon, he knew the information relating to his existing disability coverage was false. Following his completion of a medical examination, Berkshire approved Breault's application for disability insurance and issued him a policy. Breault submitted a check for the first premium and continued to remit premiums to Berkshire until his policy was rescinded.

Breault underwent surgery in January 1991, which left him totally disabled and unable to work. Consequently, Breault submitted claims for, and received benefits under, his short-term Mutual of Omaha policy and his employer's group insurance policy. In addition, Breault filed a claim for benefits under his Berkshire policy, on which he noted the existence of the Mutual of Omaha policy, but not the group insurance disability coverage. In the course of investigating this claim, Berkshire discovered that Breault's original application had not listed any additional policies. Given this, Berkshire determined that Breault's failure to disclose material facts on the application voided the policy. Berkshire's chief underwriter determined that had Berkshire known of these policies, it would not have issued long-term disability insurance to Breault in the first place because the amount of combined coverage requested by Breault exceeded Berkshire's issue limitations guidelines. Thus, Berkshire notified Breault that it was rescinding the policy because of material misrepresentations in the original application and refunded his premium checks. This action followed.

III.

The central dispute in this case is whether Berkshire validly rescinded Breault's disability policy. Virginia law permits an insurer to rescind an insurance policy and refuse benefits to an insured if the insurer clearly proves that an answer or statement in the insured's application for insurance was (i) untrue; and (ii) material to the risk when assumed. Va.Code § 38.2-309 (Michie 1990);⁴Mutual of Omaha Ins. Co. v. Dingus, 219 Va. 706, 250 S.E.2d 352, 355 (1979); Utica Mutual Ins. Co. v. National Indemnity Co., 210 Va. 769, 173 S.E.2d 855, 858 (1970). In this case, it is undisputed that Breault's insurance application contained an untrue statement. Neither party disputes that Breault's application falsely represented that Breault had no other disability coverage. Both parties, however, vigorously dispute the materiality of this false statement. Whether Berkshire can satisfy the settled test for rescission depends on whether it can clearly prove that Breault's misrepresentation was material to the risk it assumed in issuing the policy.⁵ This determination, often a mixed question of law and fact, is one for the court, not the jury. U.S. Fidelity & Guaranty Co. v. Haywood, 211 Va. 394, 177 S.E.2d 530 (1970); Chitwood v. Prudential Ins. Co., 206 Va. 314, 143 S.E.2d 915 (1965).

The definition of what statements are material to an insurer's risk is well-settled. A factual representation is material to the risk to be assumed by an insurance company if it would reasonably influence the company's decision whether or not to issue a policy. Time Ins. Co. v. Bishop, 245 Va. 48, 425 S.E.2d 489, 491 (1993); Dingus, supra, 250 S.E.2d at 355.⁶ The question presented here is whether Berkshire has clearly proven that the false information concerning Breault's other disability policies reasonably influenced Berkshire's decision to issue him a disability policy.

Information concerning an applicant's existing disability coverage is clearly material to an insurer's decision to issue a disability policy because it bears on the possibility that the applicant, if overinsured, might feign a disabling illness or seek to avoid returning to work after a legitimate injury. Such misconduct by the insured is an additional risk an insurer is free to decline where, as here, an applicant's potential combined monthly disability benefits would exceed his regular monthly income if he is provided additional disability coverage. In this case,...