Horowitz v. Federal Kemper Life Assur. Co.

Decision Date07 June 1995
Docket NumberNos. 94-1900,No. 94-1900,No. 94-1901,94-1901,94-1900,s. 94-1900
Citation57 F.3d 300
PartiesDona W. HOROWITZ, individually and as co-executrix of the estate of Leonard N. Horowitz, deceased; Alfred Camner, co-executor of the estate of Leonard N. Horowitz, deceased, v. FEDERAL KEMPER LIFE ASSURANCE COMPANY, Appellant inDona W. HOROWITZ, individually and as co-executrix of the estate of Leonard N. Horowitz, deceased; Alfred Camner, co-executor of the estate of Leonard N. Horowitz, deceased, Appellants in, v. FEDERAL KEMPER LIFE ASSURANCE COMPANY.
CourtU.S. Court of Appeals — Third Circuit

Dean F. Murtagh (Argued), John P. Shusted, German, Gallagher & Murtagh, Philadelphia, PA, for appellant in No. 94-1900, appellee in No. 94-1901.

James E. Beasley, Barbara R. Axelrod (Argued), Beasley, Casey, Colleran, Erbstein, Thistle & Kline, Philadelphia, PA, for cross-appellants in No. 94-1901, appellees in No. 94-1900.

Rita M. Theisen, LeBoeuf, Lamb, Grene & MacRae, Washington, DC (Phillip E. Stano, Richard E. Barnsback, American Council of Life Ins., of counsel), for amicus-appellant in No. 94-1900, amicus-appellee in No. 94-1901.

Before: SLOVITER, Chief Judge, MANSMANN and ALITO, Circuit Judges.


MANSMANN, Circuit Judge.

In this diversity case, the plaintiffs asserted that Federal Kemper Life Assurance Company's refusal to pay the proceeds of a life insurance policy to plaintiff Dona W. Horowitz was a breach of contract and violated Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 P.S. Sec. 201-1 et seq., and Pennsylvania's bad faith statute, 42 Pa.C.S.A. Sec. 8371.

We are called upon to determine whether Federal Kemper "attached" an application amendment to the policy within the meaning of section 441 of Pennsylvania's Insurance Company Law of 1921, 40 P.S. Sec. 441, and may, therefore, proceed with a fraud defense against the plaintiffs' breach of contract claim and a counterclaim for rescission based on alleged material misrepresentations and omissions in the policy application and the amendment. We must also determine whether Federal Kemper's conduct was in contravention of Pennsylvania's unfair trade practices and bad faith statutes.

We find that Federal Kemper's use of a binder with pockets or sleeves to contain the policy, application and amendment satisfied the attachment requirement of section 441, and that Federal Kemper reasonably refused payment. We will therefore vacate the district court's grant of summary judgment to the plaintiffs on their breach of contract claim and remand for further proceedings on this issue. In addition, we will affirm the district court's grant of summary judgment in Federal Kemper's favor on the plaintiffs' unfair trade practices and bad faith claims.


We begin our analysis by reviewing the evidence presented in this case. With one critical exception, the following material facts surrounding Federal Kemper's refusal to pay Dona Horowitz's claim are not in dispute. 1

On September 26, 1991, Mrs. Horowitz and her husband, Dr. Leonard N. Horowitz, met with Frederick Raffetto, an independent insurance agent, and completed an application for a $1 million Federal Kemper life insurance policy, naming Dr. Horowitz the proposed insured and Mrs. Horowitz, the applicant, owner and primary beneficiary. Both Dr. and Mrs. Horowitz signed Part B of the application, promising to inform Federal Kemper of "any change in the health or habits of the Proposed Insured that occurr[ed] after completing [the] application but before the Policy [was] delivered ... and the first premium [was] paid."

On October 3, 1991, at Federal Kemper's request, Dr. Horowitz was examined by Carol Coady, a registered nurse. After taking urine and blood samples and checking Dr. Horowitz's vital signs, nurse Coady asked Dr. Horowitz a series of questions regarding his health and medical history and recorded the answers he gave on Part F of the policy application. When asked whether he had ever received treatment for "[an] [u]lcer, colitis, hepatitis, pancreatitis or other disorder of the esophagus, stomach, intestines, liver or pancreas", Dr. Horowitz reported that he had been treated for lactose intolerance and a spastic colon in 1985 and as a result, avoided the ingestion of milk products and took "Metamucil" every so often. In response to inquiries regarding consultations with physicians or other medical practitioners and the performance of electrocardiograms, blood studies or other medical tests within the last five years, Dr. Horowitz stated that he consulted with his family doctor on a yearly basis for a routine checkup, electrocardiogram and blood analysis, and identified Dr. Bradley Fenton as his personal physician, whom he had last visited in August, 1991. Dr. Horowitz did not disclose, however, that he had seen Dr. Anthony J. DiMarino, Jr., a gastroenterologist, on several occasions beginning in 1986 and had been examined by Dr. DiMarino most recently in August, 1991, or that he had undergone a series of small bowel studies, blood tests for anemia, and tests for vertigo within the last five years, and two colonoscopies, one in 1987 and another on August 8, 1991.

Approximately one month later, in November of 1991, Dr. Horowitz complained to Dr. DiMarino of pain when swallowing. On December 4, 1991, Dr. Horowitz underwent a CT scan and an endoscopy with biopsy, and on December 5, 1991, was diagnosed as having terminal adenocarcinoma of the stomach. On December 6, 1991, Dr. and Mrs. Horowitz consulted a specialist and were told that Dr. Horowitz had approximately six months to live. During the following week, Dr. Horowitz obtained three additional medical opinions, all confirming the original diagnosis of terminal adenocarcinoma. On December 16, 1991, Dr. Horowitz had a catheter surgically inserted for the administration of chemotherapy, and on the morning of December 20, 1991, chemotherapy treatment was begun.

After learning of his condition and prognosis, Dr. Horowitz informed his personal attorney that he had previously applied to Federal Kemper for a life insurance policy and of the change in his health. The attorney advised Dr. Horowitz to take whatever steps were necessary to secure delivery of the policy and reassured him that any disputes that might arise with Federal Kemper would be resolved in court.

On December 20, 1991, in the afternoon, Mr. Raffetto met with Dr. and Mrs. Horowitz and delivered the Federal Kemper life insurance policy which had been issued on December 3, 1991. Dr. Horowitz, in turn, paid the first premium. During Mr. Raffetto's visit, Dr. and Mrs. Horowitz read and executed an amendment of application which provided in pertinent part:

The above noted application of Federal Kemper Life Assurance Company dated September 26, 1991 is amended as follows:


It is agreed that this amendment is part of the application and of the policy issued, and it will be binding on any person who will have any interest under the policy. This amendment, and the policy, will not take effect until signed as required below. It is agreed that no coverage is in effect if any changes are made to the above statements on this form.

Neither Dr. Horowitz nor his wife, however, informed Mr. Raffetto of Dr. Horowitz's terminal illness, the treatment he was undergoing or of the several medical opinions he had obtained since September 26, 1991 regarding his condition.

Although the parties agree that Mr. Raffetto unstapled one original amendment from the policy and presented it to Dr. and Mrs. Horowitz to read and sign, they dispute whether Mr. Raffetto actually delivered it. Mrs. Horowitz contends that she never took possession of the signed amendment, and one of Dr. Horowitz's attorneys executed an affidavit stating that the Federal Kemper policy he examined following Dr. Horowitz's death did not include the amendment. Mr. Raffetto, on the other hand, maintains that on December 20, 1991, he unstapled two original amendments from the policy, saw to it that Dr. and Mrs. Horowitz read and signed both originals, retained one original for Federal Kemper's files, placed the second original inside a sleeve in the pocket binder 2 which contained the policy and application, and gave the binder to Dr. Horowitz.

Dr. Horowitz spoke again to his attorney after taking delivery of the Federal Kemper policy and voiced concern over signing the amendment in light of his illness. Counsel directed Dr. Horowitz to send him the policy and reiterated that litigation would resolve future disputes.

Dr. Horowitz died on May 21, 1992. Shortly after Dr. Horowitz's death, Mrs. Horowitz submitted a claim to Federal Kemper for the proceeds of the policy. By a letter dated September 25, 1992, Federal Kemper refused Mrs. Horowitz's claim, declaring the policy null and void due to Dr. and Mrs. Horowitz's failure to disclose the adenocarcinoma as, according to the insurer, Part B of the application and the application amendment required. Federal Kemper also enclosed all premiums that had been paid on the policy and reserved its right to raise other defenses to Mrs. Horowitz's claim.

On December 16, 1992, Mrs. Horowitz, individually and as co-executrix of Dr. Horowitz's estate, and Alfred Camner, the estate's co-executor, filed a three count complaint in the Court of Common Pleas, Montgomery County, Pennsylvania, alleging that Federal Kemper violated Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 P.S. Sec. 201-1 et seq. (Count I), acted in bad faith in violation of 42 Pa.C.S.A. Sec. 8371 (Count II), and breached the parties' insurance...

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