Lewis v. Paul Revere Life Ins. Co., 98-C-792.

• Citation: 80 F.Supp.2d 978
• Decision Date: 18 January 2000
• Docket Number: No. 98-C-792.,98-C-792.
• Parties: Scott M. LEWIS, Plaintiff, v. The PAUL REVERE LIFE INSURANCE CO., Defendant and Third-Party Plaintiff v. Donald S. Abrams and Utica Mutual Insurance Company, Third-party Defendants.
• Court: United States District Courts. 7th Circuit. United States District Court of Eastern District of Wisconsin

80 F.Supp.2d 978

Scott M. LEWIS, Plaintiff, v. The PAUL REVERE LIFE INSURANCE CO., Defendant and Third-Party Plaintiff v. Donald S. Abrams and Utica Mutual Insurance Company, Third-party Defendants.

No. 98-C-792.

United States District Court, E.D. Wisconsin.

January 18, 2000.

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Alan Levy, Milwaukee, WI, for Plaintiff.

Paul Benson, Milwaukee, WI, for Defendant.

Burton Strnad, Milwaukee, WI, for Third Party Defendant.

ORDER

ADELMAN, District Judge.

In this bad faith insurance case, the insured is suing the insurer, which in turn is suing the broker who filled out the application. In 1990 the insured, Scott M Lewis (formerly Scott M. Abrams), applied for and was issued a Paul Revere disability insurance policy. His application appears to have omitted or misrepresented several items, principally a history of counseling for emotional problems. Nonetheless, the policy had an incontestability provision, prohibiting Paul Revere from denying coverage for a claim more than two years into the policy on the ground that the application was completed with false answers.

In 1995, more than five years into the policy (and a month after getting married), Lewis fell backwards down a flight of stairs when a handrail broke, and submitted a disability claim. He suffered back and other physical problems from the fall, but over time the largest impediments to his returning to work proved to be depression and anxiety, combined with somatoform disorders which apparently cause him to feel greater pain and restriction of movement than his physical injuries warrant. Paul Revere paid benefits for more than two and a half years, but cut off payments in 1998 on the ground that Lewis was no longer disabled. Lewis then sued Paul Revere for breach of contract, bad faith, and intentional infliction of emotional distress.

The broker who filled out Lewis's application, based on information that Lewis provided, was Lewis's father, Donald S. Abrams. Abrams was an independent insurance agent who sold policies for several insurance companies; he had a broker agreement with Paul Revere. After Lewis filed suit against Paul Revere, Paul Revere filed a third-party claim against Abrams (as well as his errors and omissions insurer, Utica Mutual Insurance Company), asserting that if Abrams had correctly reported Lewis's history of emotional and mental disorders to Paul Revere when Lewis applied for disability insurance, it would not have issued the policy on the terms that it did. Paul Revere seeks to recover from Abrams the entire amount of disability payments it paid to Lewis from 1995 to 1998, any future payments it is ordered to pay, and — on counts of breach of fiduciary duty, intentional misrepresentation, and strict responsibility misrepresentation — punitive damages.

Before me are Paul Revere's and Abrams's motions for summary judgment.¹ This court has diversity jurisdiction; Lewis is a Wisconsin resident, and Paul Revere is incorporated in and has its principal place of business in Massachusetts. The law I apply is Wisconsin law as the law of the state in which this court sits. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Although Wisconsin law is clear on almost all claims before me, in one area it is necessary for me to predict how the Wisconsin Supreme Court would apply state law in this case. See Kaplan v. Pavalon & Gifford, 12 F.3d 87, 89 (7th Cir.1993).

I. SUMMARY JUDGMENT STANDARD

Summary judgment is required "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c). The mere existence of a factual dispute does not defeat a summary judgment motion; "the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). For a dispute to be genuine, the evidence must be such that a "reasonable jury could return a verdict for the nonmoving party." Id. For the fact to be material, it must relate to a disputed matter that "might affect the outcome of the suit." Id.

Although summary judgment is a useful tool for isolating and terminating factually unsupported claims, see Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct 2548, 91 L.Ed.2d 265 (1986), courts should act with caution in granting summary judgment, see Anderson, 477 U.S. at 255, 106 S.Ct. 2505. When the evidence presented shows a dispute over facts that might affect the outcome of the suit under governing law, summary judgment must be denied. See id. at 248, 106 S.Ct. 2505.

The moving party has the initial burden of demonstrating that he is entitled to judgment as a matter of law. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548. Once this burden is met, the nonmoving party must "go beyond the pleadings" and designate specific facts to support each element of the cause of action, showing a genuine issue for trial. See Id. at 322-23, 106 S.Ct. 2548. Neither party may rest on mere allegations or denials in the pleadings, see Anderson, 477 U.S. at 248, 106 S.Ct. 2505, or upon conclusory statements in affidavits, see Palucki v. Sears, Roebuck & Co., 879 F.2d 1568, 1572 (7th Cir.1989). Both parties must produce documentary evidence to support their contentions. See Whetstine v. Gates Rubber Co., 895 F.2d 388, 392 (7th Cir.1990).

In evaluating a motion for summary judgment, the court must draw all inferences in a light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). However, it is "not required to draw every conceivable inference from the record — only those inferences that are reasonable." Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991).

II. PAUL REVERE'S SUMMARY JUDGMENT MOTION

A. Breach of Contract

Lewis contends that Paul Revere has breached its disability insurance contract, because he is (or at least as of the date of the complaint, was) totally disabled within the policy's definition, and could not return to his former work in insurance sales, where he had earned as much as $75,000 to $100,000 per year. The psychological problems from which Lewis currently suffers, and on which he rests the weight of his contention that he cannot return to work, are principally depression, anxiety, and somatoform disorder.²

Lewis's disability policy excludes coverage for disabilities which first manifested themselves before coverage began in 1990. It is undisputed that Lewis had fourteen sessions with a psychiatrist in 1983 following an arrest and allegations that he participated in a car break-in and theft of a car stereo at age 19 (although the parties strongly disagree about whether these sessions constituted treatment for a mental disorder), and that he was in counseling with a psychiatrist again in 1986, 1989, 1990, and 1991; and again from 1992 through 1994. For reasons that do not appear on the briefs before me, Paul Revere did not rely upon the "first manifestation" clause in terminating Lewis's benefits.

Nonetheless, Paul Revere's reasoning bears certain similarities to a first manifestation argument, because it looks to Lewis's psychological problems before his fall in 1995. Specifically, Paul Revere argues that Lewis was not disabled under his policy when it terminated his benefits: he had recovered from whatever back and other physical problems he suffered in the fall, and because he had suffered similar psychological problems before the fall and could work then, he could return to work now.³ As we will see, the reports on which Paul Revere relied before terminating Lewis's benefits simply compared lists of pre- and post-fall psychological problems from which Lewis suffered. Although the similarity of those lists might have been enough to deny coverage under a first manifestation clause — an option which Paul Revere did not pursue — Paul Revere did not analyze how severe Lewis's conditions were when it terminated his benefits. This question is at the heart of whether Lewis was disabled under the policy. The contract provides:

"Total Disability" means that because of Injury or Sickness:

a. You are unable to perform the important duties of Your Occupation; and

b. You are not engaged in any other gainful occupation; and

c. You are under the regular and personal care of a Physician.

(R. 57 Ex. J at Ex. B ¶ 1.9.)

Paul Revere obtained two independent medical examinations of Lewis, and had an in-house medical examiner review the resulting reports.⁴ The first expert to examine Lewis, Dr. Layde, reported that in terms of functioning, Lewis "is a very unhappy man ... His anxiety and depression seem to be moderately severe and occur daily." (R. 57 Ex. J at Ex. M at 6.) Dr. Layde provided a Global Assessment of Functioning of 50. (See id. at 1) This assessment indicates either serious symptoms or "any serious impairment in social, occupational, or school functioning (e.g., no friends, unable to keep a job)." American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders 32 (4th ed.1994) [hereinafter DSM-IV] (emphasis omitted). Dr. Layde explicitly found that Lewis had not returned to his pre-fall level of functioning, writing that "I believe that optimal treatment could result in a return of Mr. [Lewis] to pre-disability level of functioning." (R. 57 at Ex. J at Ex. M at 7.) Despite finding such serious impediments to functioning, Dr. Layde ascribed Lewis's not working to "choice, career dissatisfaction, entitlement, and especially adoption of the sick role." (Id.) Dr. Layde found that because Lewis had suffered from similar psychological problems before his fall and could work then, he could still work. Dr....