Derbidge v. Mutual Protective Ins. Co.

• Decision Date: 30 July 1998
• Docket Number: No. 971338-CA,971338-CA
• Citation: 963 P.2d 788
• Parties: 348 Utah Adv. Rep. 39 C. Stan DERBIDGE, personal representative of the Estate of Esma S. Seymour, Plaintiff and Appellant, v. MUTUAL PROTECTIVE INSURANCE COMPANY, Defendant and Appellee.
• Court: Utah Court of Appeals

Page 788

963 P.2d 788

348 Utah Adv. Rep. 39

C. Stan DERBIDGE, personal representative of the Estate of Esma S. Seymour, Plaintiff and Appellant, v. MUTUAL PROTECTIVE INSURANCE COMPANY, Defendant and Appellee.

No. 971338-CA.

Court of Appeals of Utah.

July 30, 1998.

Christian S. Fonnesbeck and Thomas R. King, Salt Lake City, for Appellant.

David B. Watkiss, Carolyn Cox, and Brett J. Delporto, Salt Lake City, for Appellee.

Before BENCH, GREENWOOD and ORME, JJ.

OPINION

ORME, Judge:

Plaintiff C. Stan Derbidge appeals the trial court's dismissal, on summary judgment, of his complaint for breach of contract filed against Mutual Protective Insurance Company (MPIC). We reverse and remand, concluding MPIC has not shown that, as a matter of law, the insured's misstatement qualified as a "misrepresentation" under Utah Code Ann. § 31A-21-105(2) (1994).

FACTS

In June 1989, Esma S. Seymour met with an MPIC representative to apply for long-term care insurance. In its application form, MPIC inquired about Ms. Seymour's medical history. Specifically, MPIC asked whether Ms. Seymour had received "medical advice or treatment, taken any medications, been confined to any hospital and/or nursing facility or consulted with a physician" for several specified conditions during the prior five years. These conditions included "high blood pressure" and "[o]rganic mental disease or disorder (such as Alzheimer's disease)." Ms. Seymour answered "yes" to the high blood pressure question and "no" to the organic-mental-disease-or-disorder question. MPIC also asked whether Ms. Seymour had been "confined to any hospital" within the prior five years for any condition not specifically mentioned in the application. To this question, Ms. Seymour answered "no." MPIC then inquired more specifically regarding any conditions about which Ms. Seymour had answered affirmatively. In response, Ms. Seymour disclosed that her high blood pressure was being treated through controlled medication, that her condition was under control and being treated "quarterly," and that her doctor was Warren Hughes. Ms. Seymour and the MPIC representative then signed the application and Ms. Seymour paid a first premium of $910.80.

MPIC issued a long-term care policy to Ms. Seymour, effective July 16, 1989. Approximately six months later, Ms. Seymour submitted a proof of loss, claiming that, due to Alzheimer's disease, she required semi-skilled care in a nursing facility. In investigating Ms. Seymour's claim, MPIC obtained her medical records, which revealed that, beginning in November of 1985, Dr. Hughes had diagnosed Ms. Seymour as suffering from memory impairment. Ms. Seymour was hospitalized in late November 1985 for memory problems associated with taking high blood pressure medication, and Dr. Hughes had written that Ms. Seymour "exhibit[ed] considerable obtundation of memory." Ms. Seymour's medical records further revealed that in 1985, and also in 1986, Dr. Hughes again noted Ms. Seymour's memory impairment. Finally, her records revealed that in January 1988 she was hospitalized for chest pain. Upon Ms. Seymour's discharge from the hospital, Dr. Hughes concluded, according to her records, that "[o]rganic brain syndrome [was] probable."

Based upon these discoveries, MPIC rescinded the long-term care policy issued to Ms. Seymour. In a letter dated February 28, 1990, MPIC informed Ms. Seymour that it issued the insurance policy in reliance on her representations in the application, that the medical history relating to her memory problems was material, that MPIC would not have issued the policy had it known of this medical history, and that MPIC was therefore voiding the long-term care policy and refunding the $910.80 premium previously paid.

In early 1993, Ms. Seymour commenced this suit for breach of contract. She alleged that she had no knowledge of Dr. Hughes's diagnosis of or any treatment for an organic brain condition. Consequently, Ms. Seymour contended, any misstatements in the application regarding her mental condition were innocent and unknowing and therefore not grounds for rescission of the policy. In support of this position, plaintiff submitted the affidavit of Dr. Hughes, who stated that until Ms. Seymour's December 1989 hospitalization, which was after she applied to MPIC, he did not treat her for chronic brain syndrome or Alzheimer's disease, and that he did not discuss Alzheimer's disease with her. Dr. Hughes further stated that to his knowledge, in June 1989, which was the month Ms. Seymour applied to MPIC for insurance, she was not aware of the possibility that she might have such a condition. MPIC responded that, under Utah Code Ann. § 31A-21-105 (1995), any misstatement in an application for insurance--even an innocent one--constitutes "misrepresentation" and therefore justifies rescission of an insurance policy if the misstatement is material and relied upon by the insurer.

MPIC moved for summary judgment, and the trial court granted it, holding that

Esma Seymour's answers in her application for the long-term care insurance policy indicating that she had not received medical advice or consulted with a physician for "Organic mental disease or disorder (Alzheimer's disease)" and that she had not been hospitalized during the last five years were shown by her medical records to be untrue and were misrepresentations even though Mrs. Seymour may not have then known them to be false.

Thus, the trial court concluded that MPIC was justified in rescinding the contract under section 31A-21-105 because Ms. Seymour's "misrepresentations about her medical history of mental and memory problems and Alzheimer's disease were relied upon by the defendant MPIC and were material to the risk being insured by its long-term care policy"; MPIC would have "rejected her application for insurance" had it known the true facts; and "Mrs. Seymour's undisclosed Alzheimer's disease contributed to her loss and in fact caused her insurance claim."

Ms. Seymour died after filing this action against MPIC. Her son, C. Stan Derbidge, the personal representative of her estate, was substituted as plaintiff and now stands as appellant.

ISSUES AND STANDARD OF REVIEW

On appeal, Derbidge raises two issues: first, whether the trial court erred in concluding that an applicant's innocent misstatement in an insurance application is a "misrepresentation" under Utah Code Ann. § 31A-21-105(2) (1995), and second, whether MPIC in any event contractually agreed to hold Ms. Seymour's representations in the application to a subjective knowledge-based standard, thereby precluding rescission of the policy for innocent misstatements.

Summary judgment is appropriate only when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Utah R. Civ. P. 56(c). "Because summary judgment presents only questions of law, we review the trial court's decision under a standard of correctness, according no deference to the trial court's legal conclusions." Mills v. Brody, 929 P.2d 360, 362 (Utah Ct.App.1996). Moreover, while questions of statutory interpretation and the interpretation of unambiguous contractual provisions present questions of law, "in reviewing the trial court's decision, we view the facts in the light most favorable to the losing party." Id.

"MISREPRESENTATION" UNDER SECTION 31A-21-105(2)

The statute at issue provides that

no misrepresentation or breach of an affirmative warranty affects the insurer's obligations under the policy unless:

(a) the insurer relies on it and it is either material or is made with intent to deceive; or

(b) the fact misrepresented or falsely warranted contributes to the loss.

Utah Code Ann. § 31A-21-105(2) (1994). The three "statutory alternatives [in section 31A-21-105(2) ] are stated in the disjunctive, not the conjunctive. In order to invalidate a policy because of a misrepresentation by the insured, an insurer need prove applicable only one of the above provisions." Berger v. Minnesota Mut. Life Ins. Co., 723 P.2d 388, 390 (Utah 1986) (per curiam). In other words, an insurer may rescind a policy if any one of these three provisions is met: (1) the insurer relies on a material misrepresentation made by the applicant; (2) the insurer relies on a misrepresentation that was made by the applicant with the intent to deceive; or (3) the applicant's misrepresentation contributes to the loss. However, while the insurer must show only one of these three provisions has been met, under each alternative a threshold requirement is that the applicant have made a "misrepresentation." Cf. Gatlin v. World Serv. Life Ins. Co., 616 S.W.2d 606, 608 (Tenn.1981) (stating that threshold inquiry under insurance misrepresentation statute is whether applicant has in fact made a misrepresentation). Section 31A-21-105 does not define "misrepresentation." Neither does the extensive definition section of the Utah Insurance Code. See Utah Code Ann. § 31A-1-301 (Supp.1997).

A. Ambiguity

Whether an innocent misstatement is a "misrepresentation" under section 31A-21-105(2) is apparently an issue of first impression. Derbidge contends that a misstatement becomes a misrepresentation only when the applicant has some level of awareness of the statement's falsity. He argues that while there is no clear authority under the present version of the statute, Utah courts have long required that an applicant have some knowledge of a misstatement before an insurer can claim a misrepresentation and rescind a policy.

In response, MPIC argues that it can rescind the policy if it has satisfied any one of the statute's three prongs and that only the intent-to-deceive prong requires the applicant to have knowledge of the misstatement, which word it takes to be fully synonymous with "misrepresentation." Stated differently, MPIC contends that even an innocent misstatement in an application permits an insurer to rescind a policy if the...