Freeman v. Allstate Life Insurance Co.
| Citation | 253 F.3d 533 |
| Decision Date | 19 June 2001 |
| Docket Number | PLAINTIFF-APPELLANT,DEFENDANT-APPELLEE,No. 99-16501,99-16501 |
| Parties | (9th Cir. 2001) CURTIS FREEMAN,, v. ALLSTATE LIFE INSURANCE COMPANY, |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Jerrold B. Braunstein, Dennis, Schottky & Braunstein, Sacramento, California, for the appellant.
David A. Riegels, Riegels Campos & Kenyon Llp, Sacramento, California, for the appellee.
Appeal from the United States District Court for the Eastern District of California Garland E. Burrell, District Judge, Presiding. D.C. No. CV-97-01579-GEB(PAN)
Before: Alfred T. Goodwin, Procter Hug, Jr., and William A. Fletcher, Circuit Judges.
Appellant Curtis Freeman ("Freeman") appeals the district court's judgment, following a bench trial, allowing Allstate Life Insurance Company ("Allstate") to rescind a life insurance policy issued to Freeman's deceased wife, Shelley. The district court found that Mrs. Freeman had made a material misstatement while applying for the policy. Freeman argues that his wife's innocent misstatement does not give Allstate the right to rescind the policy. Freeman also contends that the district judge erred in allowing Allstate to testify about its underwriting criteria. Finally, Freeman argues that Allstate's conduct constituted bad faith. We affirm. Because a material, albeit innocent, misstatement is grounds for recission, Allstate was entitled to rescind the policy and did not act in bad faith by doing so. And because Allstate's underwriting criteria were relevant to the issue whether the misstatement was material, testimony on that topic was properly allowed.
On February 12, 1996, Shelley Freeman accepted a telephone solicitation made on behalf of Allstate for the purchase of a $75,000.00 life insurance policy. She was contacted because she had a Sears credit card account. During the telephonic application interview, which was recorded and later transcribed, Mrs. Freeman was asked the following questions and gave the following answers:
Mrs. Freeman also responded in the negative to the only other questions asked of her, concerning whether she smoked, had been arrested or treated for drug or alcohol abuse, or had AIDS. The solicitor informed Mrs. Freeman that she qualified for the policy, and Allstate mailed to Mrs. Freeman a written copy of the policy, which included a Term Life Enrollment Form Confirmation setting forth the questions and answers from the telephone solicitation and application.
In fact, Mrs. Freeman did suffer from a condition of the nervous system, epilepsy, for which she took medication every other day. Four months after purchasing the policy, on June 19, 1996, Mrs. Freeman died at her home. On November 20, 1996, Appellant Curtis Freeman submitted a proof of claim to Allstate. Allstate acknowledged the claim but informed him that because the death occurred within the two-year contestable period, it would seek information regarding Mrs. Freeman's health history prior to her application. On January 29, 1997, Allstate sent Freeman a letter and a premium refund, explaining that the policy was void because medical records indicated that Mrs. Freeman failed to disclose to Allstate during the application that she was being treated for respiratory problems. On February 19, 1997, Allstate sent a second letter explaining that in the first letter,"insurance coverage was rescinded inadvertently [sic] only for the respiratory condition which was of no concern, but the important concern was epilepsy seizure disorder." Allstate based its conclusion on medical records indicating that on January 19, 1996 (four weeks before the telephone solicitation), Mrs. Freeman had seen a neurologist, who continued her medication for treating her seizure disorder.
Freeman filed suit against Allstate in California Superior Court asserting claims for breach of contract, fraud, and insurance bad faith. Allstate removed the case to the United States District Court for the Eastern District of California, invoking diversity jurisdiction by virtue of Freeman's California citizenship and Allstate's Illinois citizenship.
Prior to trial, Freeman filed a motion in limine seeking to preclude Allstate from offering evidence of its underwriting criteria. The basis of the motion was Allstate's alleged failure to produce documents relating to its underwriting criteria pursuant to a discovery request. The district court rejected the motion because Freeman had failed to prosecute the issue before the magistrate judge as required by local rule and the court's final pretrial order.
The case was tried to the bench on June 8, 1999. Freeman conceded in his trial brief that Mrs. Freeman answered the solicitor's questions incorrectly, and Allstate did not contend that she had any intent to deceive. The district judge believed the testimony of Allstate's operations manager, Jennifer Fredericksen, that Allstate would not have issued the policy had it known about Mrs. Freeman's epilepsy. Accordingly, he found the misstatement material. The district judge then considered "whether Mrs. Freeman, as an ordinary layman, failed to understand that her epilepsy had any relation to a nervous system disease." Because Mrs. Freeman had been coping with epilepsy for several years, was taking medication every other day, had suffered three seizures during her two-year marriage, and had seen neurologists, the district judge found that she could not have failed to understand the connection between her epilepsy and a disease of the nervous system and, therefore, had misstated her medical condition. He allowed Allstate to rescind the policy because of the material misstatement.
The district court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo. Diamond v. City of Taft, 215 F.3d 1052, 1055 (9th Cir. 2000) (citations omitted). Evidentiary rulings are reviewed for an abuse of discretion and should not be reversed absent some prejudice. Defenders of Wildlife v. Bernal, 204 F.3d 920, 927-28 (9th Cir. 2000). Because Mrs. Freeman resided in California and the insurance contract was made in California, California substantive law governs this diversity action. Taylor v. Sentry Life Ins. Co., 729 F.2d 652, 654 (9th Cir. 1984) (per curiam).
Freeman contends that an innocent...
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