Listak v. Centennial Life Ins. Co.

• Decision Date: 27 August 1997
• Docket Number: C/A No. 2:96-2260-18.
• Citation: 977 F.Supp. 739
• Parties: Mitsue LISTAK, Personal Representative of the Estate of Charles A. Listak, Plaintiff, v. The CENTENNIAL LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of South Carolina

977 F.Supp. 739

Mitsue LISTAK, Personal Representative of the Estate of Charles A. Listak, Plaintiff, v. The CENTENNIAL LIFE INSURANCE COMPANY, Defendant.

C/A No. 2:96-2260-18.

United States District Court, D. South Carolina, Charleston Division.

August 27, 1997.

Michael Moore, Summerville, SC, for Plaintiff.

William M. Grant, Jr., Judith A. Leatherwood, James A. Patrick, III, Greenville, SC, for Defendant.

ORDER

NORTON, District Judge.

This action is before the court on Defendant's Motion for Summary Judgment and to Strike. For the reasons set forth below, the court grants Defendant's motion.

I. PROCEDURAL HISTORY

Plaintiff filed this complaint in the Court of Common Pleas on July 10, 1996, for the following causes of action: (1) breach of contract; (2) bad faith insurance practice; (3) breach of contract accompanied by a fraudulent act; and (4) negligent misrepresentation. On July 29, 1996, Defendant removed the action to this court. In its answer filed August 2, 1996, Defendant brought a counterclaim seeking a declaratory judgment that "it has no contractual relationship with the Plaintiff[.] However, should the finder of fact determine that there exists a dispute of fact as to that issue, then Defendant alleges and would show that the Plaintiff's deceased was guilty of fraud and made material misrepresentations as to his medical history and condition which would be sufficient to void any contract which may have existed between the parties." (Answer, ¶ 56 at 11).

II. BACKGROUND

Plaintiff's Decedent Charles A. Listak ("Listak") retired from his employment with Bosch Automotive Company in 1993. He then sold insurance for Metropolitan Life Insurance Company from 1993 to 1994, for Jefferson Pilot Life Insurance Company from 1994 to 1995, and for Pioneer Life Insurance Company in 1995.

In March of 1995, Listak began training to sell products for the Centennial Life Insurance Company ("Centennial"). Centennial offers certain products which are marketed through Pinnacle Benefits Group ("Pinnacle"). Listak entered into a Pinnacle Material and Processing Agreement, a Pinnacle Sales Representative's Contract, and a Centennial License Agreement. During Listak's training, he was required to review documents including the Producer's Guide, which informed agents that all applicants would have a Medical Information Bureau ("MIB")¹ report generated, and that all applicants must be reviewed and approved by Centennial. (Ex. E,² at 2). The document states that agents should stress to applicants the importance of making correct applications, and includes the following legend:

SUBMISSION OF AN APPLICATION AND INITIAL PREMIUM DOES NOT GUARANTEE ACCEPTANCE. A LETTER CONFIRMING CENTENNIAL'S APPROVAL WILL BE FORWARDED TO THE GENERAL AGENT AS COVERAGE IS APPROVED. A GROUP SHOULD NOT DROP THEIR PRESENT COVERAGE UNTIL THE CONFIRMING LETTER IS RECEIVED.

(Ex. E).

On March 10, 1995, Listak applied for and was issued a one-month major medical policy from Central States of Omaha ("CSO"), one of the companies for which Listak was authorized to sell insurance. Listak subsequently applied for and was issued another one-month policy, from April 10 through May 10.

On April 8, 1995, Listak completed an application for a Centennial MedProtect One policy. Listak was an authorized agent for Centennial at the time of his application. Listak completed the application in his own hand, and signed as both applicant and agent. In doing so, Listak answered a number of health history questions. Listak then signed two statements, in his capacities as applicant and agent. The Applicant's statement read as follows:

I declare that I have completely read the application and answered all questions. I agree that statements in this application are true to the best of my knowledge and belief, and they shall form a part of any certificate of insurance which is issued. The insurance requested in the Application will not be effective until approved by the company. Any misstatements or omission of information made on this application form may be the basis for later rescission of my Insurance coverage. Rescission voids my coverage. No payments will be made for any claims submitted, whether or not the treatment was related to the condition for which information was omitted or misstated....

(Ex. II).

Listak then forwarded the application to Michael O. Benke ("Benke"), who had personally trained Listak to be an agent for Centennial. Benke filled in some missing information, but did not meet with Listak concerning the policy, did not help Listak fill out the application, and did not act as an agent for that particular application. Benke testified that his sole involvement with Listak's application, other than filling in two missing telephone numbers and a zip code, was to forward the application to Pinnacle. (Ex. C). Listak also submitted payment to Centennial for the first three months of coverage.

Plaintiff alleges that Benke promised Listak that his insurance policy would be active in approximately one month's time from the April 8, 1995 date on which Listak applied for coverage, and that otherwise, Listak would be notified before that time in writing of the Defendant's denial of the application. Plaintiff asserts that Listak did not misrepresent or give any false statements concerning his medical condition when he applied for insurance coverage.

On April 11, 1995, the Centennial Underwriting Department sent Listak a form letter, along with a photocopy of his application, requesting that Listak review the application and correct any erroneous information. On April 20, 1995, a Centennial employee interviewed Listak via telephone, and completed a worksheet based on Listak's answers. Listak denied any adverse medical history.

Teresa Elliott, an underwriter in Centennial's headquarters, performed the underwriting process on Listak's application. When Elliott received the file, it contained Listak's application and a set of MIB codes pertaining to Listak. Listak's MIB reports indicated that he had been diagnosed with Chronic Obstructive Pulmonary Disease ("COPD") within the prior six to ten years, that he had been diagnosed with a heart murmur, and that he had had an abnormal pulmonary function test. (Ex. V, at 18-21). All three of these indications are considered material to the underwriting risk. (Ex. V, at 18-21). Because MIB rules preclude an insurer from making underwriting decisions based on MIB reports, Centennial was required to obtain Listak's actual medical records and test results to assess the underwriting risk and make a coverage decision.

On April 27, 1995, Elliott requested medical records from ASB Meditest (ASB), who had given Listak a physical in 1994. Centennial wrote to Listak on April 28, 1995, informing him that "[a]s a routine part of the underwriting of the application you completed on April 8, 1995, we have written for medical records directly to ASB Meditest (for Charles)." (Ex. X).

In her deposition, Brianna Berthelson of Centennial's underwriting department testified that, while there is no record of any subsequent requests to ASB, she "would have followed up in two weeks with another copy and a phone call to the doctor's office asking them, you know, the reason why we have not received them as of yet." (Ex. Y, at 17). Berthelson testified that she did not believe that ASB responded to her follow-up letter. In fact, ASB did not respond to Centennial's request until approximately June 29, 1995. (Ex. Y, at 16-18; Ex. Z).

On June 26, 1995, Listak entered the Trident Regional Health System facility at Trident Hospital with chest pains. Listak was suffering from congestive heart failure secondary to cancer of the lining of the heart, which had metastasized from his lungs. Plaintiff asserts that upon being admitted to Trident Hospital, Listak and his daughter were informed for the first time that Centennial denied having a policy in effect for Listak. Plaintiff alleges that "[o]nly after learning that the Decedent had a potentially serious medical condition did the Defendant seek additional medical records on the Decedent for the purpose of refusing coverage to him." (Compl., ¶ 19, at 5).

Centennial asserts that the information finally received from ASB on June 29, 1995, failed to explain the MIB codes. Centennial then sought details of the codes directly from MIB, who refuses to explain its codes until an insurer has attempted its own investigation. (Ex. V, at 35-36). Centennial received the code details on July 6, 1995, which indicated that the underwriter should obtain Dr. Baggett's records. (Ex. V, p. 36; Ex. AA). Centennial requested Dr. Baggett's records on July 7, 1995. (Ex. BB). Centennial's underwriting department notified Listak on July 10, 1995, that, "[a]s a routine part of the underwriting of the application you completed on April 8, 1995, we have written for medical records directly to Dr. D. Baggett." (Ex. CC).

Dr. Baggett's records showed that Listak had been diagnosed with COPD in 1986. Centennial asserts that based on these records, the underwriting department declined to underwrite Listak's application without proof of good health. In her affidavit, Elliott states that the pulmonary function test ("PFT") administered on Listak on November 29, 1994, shows an FEV-1 of 2.21 liters and 2.16 liters on successive tests, while the normal FEV-1 for a male of Listak's height and age is 4.1 liters of air expelled in one second. (Aff. of Elliott, ¶¶ 11-13, Ex. EE). Elliott further states that the test showed an FVC for Listak as 3.99 liters and 4.17 liters on successive tests, with the normal indicated FVC for a male of his height and age of 5.0 liters. (Aff. of Elliott, ¶ 14, Ex. EE). Elliott states that according to Centennial's underwriting guidelines, attached to Exhibit EE, the FEV-1 reading falls within the severe category, and the FVC reading falls within the mild category. (Aff. of Elliott, ¶ 18, Ex. EE)....