Hammond v. Pacific Mut. Life Ins. Co., Civ.A. 01-386-A.

• Decision Date: 23 August 2001
• Docket Number: No. Civ.A. 01-386-A.,Civ.A. 01-386-A.
• Citation: 159 F.Supp.2d 249
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Janet and Daphne HAMMOND, as Personal Representatives of the Estate of Marjorie Hammond; M.H.H. Irrevocable Trust; Janet Hammond; and Daphne Hammond, Plaintiffs, v. PACIFIC MUTUAL LIFE INSURANCE COMPANY, Defendant.

159 F.Supp.2d 249

Janet and Daphne HAMMOND, as Personal Representatives of the Estate of Marjorie Hammond; M.H.H. Irrevocable Trust; Janet Hammond; and Daphne Hammond, Plaintiffs, v. PACIFIC MUTUAL LIFE INSURANCE COMPANY, Defendant.

No. Civ.A. 01-386-A.

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

August 23, 2001.

COPYRIGHT MATERIAL OMITTED

Meredith Nicole Long, The Falk Law Firm, Washington, D.C., for plaintiffs.

Jeff Wayne Rosen, Pender & Coward, Virginia Beach, VA, for defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

In this diversity action to recover on a life insurance policy, two questions are presented by the parties' cross-motions for summary judgment: (i) whether the policy in issue included a condition precedent to its effectiveness that was applicable in the circumstances at bar; and (ii) whether, in the circumstances at bar, Virginia Code § 38.2-3304(B)(2) allows the insurer to deny plaintiffs' claim by using the insured's answers on a health questionnaire submitted in connection with the application for the policy.

I.

On January 14, 1997, the late Marjorie Hammond ("Hammond") signed a document entitled "APPLICATION FOR LIFE INSURANCE, PART I" ("Part I") that was presented to her by Agent Michael Mullen, with whom Hammond had been consulting with respect to planning her estate. Hammond was seeking to apply as the proposed insured for life insurance coverage with a trust as the beneficiary and plaintiffs Janet and Daphne Hammond ("plaintiffs") as the trustees. The life insurance policy was to be issued by defendant Pacific Mutual Life Insurance Co. ("Pacific Life"), a California corporation that provides, inter alia, life and health insurance products. At the time Hammond signed Part I, it was not possible to complete the application form because the beneficiary trust had not yet been formed. Thus, the application did not include the required trust information and the trustees' signatures. In addition, Hammond did not date her signature on Part I, presumably because the trustees' signatures and trust information had yet to be provided. Accordingly, the application, although signed by Hammond on January 14, was incomplete at that time.

The life insurance application Hammond signed was for a policy that provided a death benefit of $750,000.00, with an annual premium of nearly $30,000. Part I of the application included a declarations section that contained the following provision:

I represent that the foregoing answers and statements contained in Parts I and II are correctly recorded, complete, and true to the best of my knowledge and belief. I understand that:

1. Except as otherwise provided in any Temporary Insurance Agreement, no insurance will take effect before the policy for such insurance is delivered and the first premium paid during the lifetime(s) and before any change in the health of the Proposed Insured(s). Upon such delivery and payment, insurance will take effect if the answers and statements in this application are then true.

Shortly after Hammond signed Part I in January 1997, Agent Mullen sent a copy of the signed, undated, Part I application to Pacific Life's Home Office in California ("Home Office"), but retained the original application. The Home Office received Part I and a medical release form on January 22, 1997.

As part of the application process, Hammond was required to have a physical examination and to complete a medical questionnaire. In this regard, Pacific Life sent a medical professional to Hammond's home on January 22, 1997 to perform blood and urine tests and an EKG. Furthermore, Hammond received assistance in completing a document entitled "APPLICATION, PART 2 TO PACIFIC MUTUAL LIFE INSURANCE COMPANY MEDICAL" ("Part 2").¹ As part of her responses to the questions in the Part 2 form, Hammond informed Pacific Life that she was a 5'2" tall, 92-pound, 73-year-old, ½ pack-per-day smoker; that she had last seen Dr. Maureen O'Regan, a gynecologist, approximately two to three months earlier regarding estrogen replacement; and that she had been treated by Dr. Leo Van Herpe for osteoporosis and hip fractures. And, in response to Question 4, which asked whether, during the past ten years, Hammond (i) had, (ii) had been told she had, or (iii) had been treated for "[h]oarseness or cough, blood spitting, asthma, pneumonia, emphysema, tuberculosis, or other respiratory system disorder" or "[c]ancer, cyst, tumor or disorder of skin, blood or lymph glands," Hammond answered "no." Furthermore, in response to Question 7, which asked whether, in the past five years, Hammond (i) "[h]ad a checkup, consultation, illness, injury or operation," (ii) "[h]ad an electrocardiogram, blood test, or other test or x-ray," or (iii) had "[b]een advised to have any diagnostic test, hospitalization or surgery which was not completed," she listed a May 1996 visit to the Mayo Clinic with normal results for an EKG, labs, a CXR, and a mammogram. In addition to providing these answers, when Hammond signed the Part 2 form, she acknowledged that her "statements and answers [to this form] shall be a part of the application" for life insurance. After completing the examination and obtaining the test results, the medical professional mailed the medical documents and the Part 2 form to Pacific Life, which received the documents at the Home Office on January 27, 1997.

On May 30, 1997, Agent Mullen returned to Hammond's home to have the life insurance application completed. By this time, the beneficiary trust had been formed, naming plaintiffs as trustees. Acting in their trustee capacities, plaintiffs, as applicants and owners of the policy, signed the original Part I form that Hammond signed as the proposed insured in January 1997. Although present, Hammond did not execute, initial, or otherwise make a mark on any document on May 30, 1997. And, at no time during the May 30 meeting did Mullen either have or provide Hammond or plaintiffs with a copy of the Part 2 medical forms dated January 22, 1997, nor did he affirmatively represent to Hammond or plaintiffs that Pacific Life would be relying on answers Hammond provided on the Part 2 form she completed on January 22. Mullen accepted the now fully signed Part I application, as well as a premium check for $29,930, both of which were promptly sent to Pacific Life's Home Office. The completed application was dated May 30, 1997. Thereafter, on June 3, 1997, Pacific Life issued a policy that Mullen hand-delivered to Hammond and plaintiffs on June 11, 1997. The parties dispute whether the completed Part 2 form was attached to the policy at the time of delivery.

On November 15, 1997, Hammond died. After receiving plaintiffs' claim for benefits, Pacific Life reviewed Hammond's medical records and learned that, between the January 22, 1997 medical consultation and May 30, 1997, Hammond had consulted with several physicians who, inter alia, (i) noted "emphysematous changes" in Hammond's health, (ii) diagnosed Hammond as having chronic obstructive pulmonary disease and anemia, and (iii) suspected that she had myelodysplasia, a disease of the bone marrow, and thus scheduled her for a bone marrow biopsy.² Because Pacific Life believed that Hammond had a duty to disclose any significant changes in her health and to amend her responses to the questions in the Part 2 form, the company denied coverage by letter dated May 8, 1998.

On March 9, 2001, plaintiffs filed a six-count complaint stating claims against Pacific Life for: (i) breach of contract (Count I), (ii) promissory estoppel (Count II), (iii) equitable estoppel (Count III), (iv) common-law fraud (Count IV); (v) negligence/gross negligence (Count V); and (vi) bad faith (Count VI). Defendant thereafter moved for summary judgment on all six counts of the complaint, and plaintiffs, in turn, moved for partial summary judgment on their breach of contract claim (Count I), and also moved to strike defendant's affirmative defense of material misrepresentation. By Order dated July 9, 2001, summary judgment was granted in favor of defendant as to Counts II-VI, and plaintiffs' motion to strike defendant's affirmative defense of material misrepresentation was denied. Hammond v. Pacific Mut. Life Ins. Co., Civil Action No. 01-386-A (E.D.Va. July 9, 2001) (Order). Thus, only the parties' cross-motions for summary judgment as to Count I remain for disposition. See id.

II.

Pacific Life moves for summary judgment on the grounds that (i) a condition precedent to the insurance contract taking effect was not met, and (ii) plaintiffs breached their duty of fair dealing by failing to disclose the changes in Hammond's health. Plaintiffs, in turn, move for summary judgment on Count I on the grounds that (i) the condition precedent was inapplicable to the Hammond policy, (ii) Pacific Life waived the condition precedent, and (iii) Pacific Life is precluded by Virginia Code § 38.2-3304(B)(2) from denying coverage on the basis of any statements in Hammond's medical questionnaire because the Part 2 form was not attached to the policy when it was issued by the insurer or when it was delivered to the plaintiffs.

A.

Central to the resolution of both summary judgment motions is whether a condition precedent to the effectiveness of the policy existed and was met. In Virginia,³ it is established that "[a] condition precedent calls for the performance of some act, or the happening of some event after the terms of the contract have been agreed upon, before the contract shall take effect." Smith v. McGregor, 237 Va. 66, 376 S.E.2d 60, 65 (1989). In other words, a condition precedent exists where "the contract is made in form, but does not become operative as a contract until some future specified act is performed, or some subsequent event occurs." Morotock Ins. Co. v. Fostoria Novelty Co., 94 Va. 361, 26 S.E. 850, 852 (1897). In this regard, it is well-settled that "good health" provisions in insurance contracts⁴...