Justofin v. Metropolitan Life Ins. Co.

• Decision Date: 25 June 2004
• Docket Number: No. 02-4264.,02-4264.
• Citation: 372 F.3d 517
• Parties: Jeffrey JUSTOFIN, Christopher Justofin; Damian Justofin; Robert Justofin; Ivan Justofin, (Beneficiaries of Loretta K. Justofin, Deceased), Appellants v. METROPOLITAN LIFE INSURANCE CO.
• Court: U.S. Court of Appeals — Third Circuit

372 F.3d 517

Jeffrey JUSTOFIN, Christopher Justofin; Damian Justofin; Robert Justofin; Ivan Justofin, (Beneficiaries of Loretta K. Justofin, Deceased), Appellants v. METROPOLITAN LIFE INSURANCE CO.

No. 02-4264.

United States Court of Appeals, Third Circuit.

Argued October 27, 2003.

June 25, 2004.

As Amended August 12, 2004.

COPYRIGHT MATERIAL OMITTED

Timothy M. Kolman, Wayne A. Ely, (Argued), Timothy M. Kolman & Associates, Langhorne, for Appellants.

Alvin Pasternak, Anthony J. Tomari, Metropolitan Life Insurance Company Law Department, New York, Veronica W. Saltz, (Argued), Saltz Polisher, Wayne, for Appellee.

Before SCIRICA, Chief Judge, NYGAARD and AMBRO, Circuit Judges.

OPINION OF THE COURT

AMBRO, Circuit Judge.

The Justofins, beneficiaries under the life insurance policy of their mother Loretta K. Justofin ("Loretta"), sued Metropolitan Life Insurance Company ("MetLife") for denying a portion of death benefit proceeds. The District Court granted summary judgment in favor of MetLife by finding the amendment to the life insurance policy increasing the benefit void because of Loretta's failure to disclose fully her medical history. The issues before us are: (1) whether MetLife established that the amended policy was void as a matter of law because of Loretta's false representations, thus warranting summary judgment against the Justofins on their breach of contract claim; (2) whether MetLife waived its right to contest the validity of the amended policy because it failed to investigate Loretta's representation before issuing the policy; (3) whether the District Court properly disposed of the Justofins' bad faith claim against MetLife by finding the amended policy void; (4) whether the District Court erroneously granted MetLife's motion to amend its pleading; and (5) whether the District Court erred in not addressing the Justofins' motions for discovery and sanctions.

We vacate the District Court's summary judgment in favor of MetLife and remand this case for further proceedings. Specifically, we conclude that the amended life insurance policy issued by MetLife was not void as a matter of law; that MetLife did not waive its challenge to the validity of the amended policy; that whether MetLife acted in bad faith should be dealt with separately from the contract claim; and that the District Court properly exercised its discretion in allowing MetLife to amend its pleading. As for the Justofins' motions for discovery and sanctions, we leave them to the District Court's discretion on remand.

I. Background

In April 1994 Loretta initially applied for a life insurance policy from MetLife. In the application, she listed her son, Dr. Christopher Justofin,¹ as her personal physician, mentioning that Dr. Justofin treated her for occasional arthritis of her hands and feet. MetLife issued the life insurance policy to Loretta in the amount of $100,000.

Five years later, at the age of sixty-four, Loretta applied to increase the policy amount, from $100,000 to $300,000, by completing an "Application for Change of Placed Personal Life Insurance" form. It contained the following pertinent questions and answers.

11. Has any person EVER received treatment, attention, or advice from any physician, practitioner or health facility for, or been told by any physician, practitioner or health facility that such person had:

(j) Arthritis, paralysis, or disease or deformity of the bones, muscles or joints? Yes

. . . .

15. In [the] past 5 years, has any physician, practitioner or health facility examined, advised or treated any person? Yes The application instructed Loretta to provide the details about her "yes" answers in questions 11 and 15, including the name of each physician, nature and severity of condition, frequency of attacks, specific diagnosis, and treatment. She provided names of several doctors and the details of surgeries and treatment, including her foot surgery for arthritis. Although Loretta listed several doctors who treated her, including Dr. Eugene Jacobs (her then personal physician), she did not mention Dr. Justofin in this 1999 change application. In Part B of the application, Loretta again noted that she had arthritis and that she self-medicated Prednisone in 1969 for her arthritis when she owned a pharmacy. Part C, the "Paramedical Evaluation," shows that Loretta disclosed that she had an "unknown type" of arthritis that caused noticeable hand swelling. Effective May 1999, MetLife issued the increase in death benefit coverage.

Loretta died on December 7, 1999. MetLife paid the Justofins $100,000 based on the original 1994 policy but informed them that it was voiding the amended policy's $200,000 increase. Initially, MetLife's stated reason for voiding the increase was that Loretta failed to disclose that she had Lupus.² The Justofins brought suit against MetLife in the Eastern District of Pennsylvania,³ claiming breach of contract, bad faith, and negligence. MetLife counterclaimed, seeking a declaration that the policy increase was void ab initio, and moved for summary judgment. The District Court granted MetLife's summary judgment motion on the negligence issue but denied it as to the other issues.

MetLife then filed a motion for reconsideration based on the evidence that Loretta used Prednisone, a drug used to treat Lupus. MetLife deposed Dr. Justofin regarding this matter. He testified that he was a personal physician of his mother from 1994 until sometime in 1998. During this period, Dr. Justofin visited Loretta weekly at her home to examine her and also to pick up his mail.⁴ Dr. Justofin asserted that, although he treated his mother for arthritis, she never had Lupus. Although Dr. Justofin was not sure what kind of arthritis Loretta had, he speculated that she had rheumatoid arthritis, osteoarthritis, or both.⁵ Dr. Justofin also mentioned that he used to write a six-month supply of Prednisone for Loretta's arthritis and she would adjust the dose depending on her condition.⁶ Dr. Justofin also opined that Prednisone is a medication routinely prescribed for rheumatoid arthritis, rather than osteoarthritis.

MetLife thereupon motioned for leave to file a supplemental counterclaim, seeking a declaration that the policy increase was void based on Loretta's failure to disclose that her son had treated her and prescribed Prednisone for her.⁷ The District Court granted the motion. MetLife then sought summary judgment on its new counterclaim and on the Justofins' breach of contract and bad faith claims. The District Court entered summary judgment in favor of MetLife on all claims. The Justofins appealed. We have appellate jurisdiction under 28 U.S.C. § 1291.

II. Standard of Review

"We review the District Court's grant of summary judgment de novo." Fakete v. Aetna, Inc., 308 F.3d 335, 337 (3d Cir.2002) (citing Fogleman v. Mercy Hosp., Inc., 283 F.3d 561, 566 n. 3 (3d Cir.2002)). We therefore apply the same standard the District Court employed under Federal Rule of Civil Procedure 56(c). We should affirm the District Court's summary judgment if "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A fact is material when its resolution "might affect the outcome of the suit under the governing law," and a dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In reviewing the record, we draw all justifiable inferences in favor of the nonmoving party. Id. at 255, 106 S.Ct. 2505.

III. Discussion

A. Breach of Contract Claim

1. Is the 1999 Policy Amendment void as a matter of law because of allegedly false material misrepresentations?

We first determine whether the policy amount increase was void as a matter of law. If so, we shall affirm the District Court's summary judgment in favor of MetLife on the Justofins' breach of contract claim.

To void an insurance policy under the law of Pennsylvania,⁸ the insurer has the burden to prove that: (1) the insured made a false representation; (2) the insured knew the representation was false when it was made or the insured made the representation in bad faith; and (3) the representation was material to the risk being insured. Coolspring Stone Supply, Inc. v. Am. States Life Ins. Co., 10 F.3d 144, 148 (3d Cir.1993) (citing Shafer v. John Hancock Mut. Life Ins. Co., 410 Pa. 394, 189 A.2d 234, 236 (1963)). The insurer has the burden to prove all three elements by clear and convincing evidence. Batka v. Liberty Mut. Fire Ins. Co., 704 F.2d 684, 687 (3d Cir.1983) ("Pennsylvania requires that an insurer establish the defense of fraud in the application by `clear, precise and indubitable' evidence ... [and] that the factfinder be satisfied of the elements of the defense by clear and convincing evidence.") (citations omitted).

This heightened burden of proof should be taken into account in ruling on summary judgment. Anderson, 477 U.S. at 255, 106 S.Ct. 2505 ("[T]he determination of whether a given factual dispute requires submission to a jury must be guided by the substantive evidentiary standards that apply to the case."). Consequently, where the clear and convincing evidence standard applies, the trial judge must inquire whether the evidence presented is such that a jury applying that evidentiary standard could find only for one side. In this case, if the evidence in the record reasonably supports the inescapable conclusion that MetLife has shown all three elements to void the policy by clear and convincing evidence, we shall affirm the summary judgment. But if the evidence is such that a reasonable jury could find that MetLife has not shown all the elements by clear and convincing evidence, we shall reverse.

(a) Did Loretta make false representations?

In this context, we first decide whether a rational...