Lunardi v. Great-West Life Assurance Co.

• Decision Date: 10 August 1995
• Docket Number: No. H012493,GREAT-WEST,H012493
• Citation: 44 Cal.Rptr.2d 56,37 Cal.App.4th 807
• Court: California Court of Appeals Court of Appeals
• Parties: , 95 Cal. Daily Op. Serv. 6371, 95 Daily Journal D.A.R. 10,828 Paul Vincent LUNARDI, et al., Plaintiffs and Appellants, v.LIFE ASSURANCE COMPANY, Defendant and Respondent.

Page 56

44 Cal.Rptr.2d 56

37 Cal.App.4th 807, 95 Cal. Daily Op. Serv. 6371,

95 Daily Journal D.A.R. 10,828

Paul Vincent LUNARDI, et al., Plaintiffs and Appellants, v. GREAT-WEST LIFE ASSURANCE COMPANY, Defendant and Respondent.

No. H012493.

Court of Appeal, Sixth District, California.

Aug. 10, 1995.

Robb & Ross and Alan J. Titus, Mill Valley, for appellants.

Howard, Rice, Nemerovski, Canady, Robertson, Falk & Rabkin and Donald F. Miles, San Francisco, for respondent.

ELIA, Associate Justice.

Paul Vincent Lunardi and Denise Lunardi, executrix of the estate of Ralph Lunardi, brought this action for breach of contract and negligence after respondent Great-West Life Assurance Company ("Great-West") rescinded the insurance policy it had issued on Ralph's life. The trial court ruled that Great-West validly rescinded the policy because Ralph and Paul had concealed and misrepresented Ralph's medical condition during the application period. Accordingly, the court denied plaintiffs' motion for summary adjudication of their breach of contract claim and granted summary judgment to Great-West.

On appeal, plaintiffs maintain that Great-West was not entitled to summary judgment because (1) the "good health" provision on which it relied was unenforceable, (2) Great-West cannot establish misrepresentation or concealment, and (3) Great-West failed to negate their claim that Ralph would have been insurable but for the negligence of Great-West and its agents. We will affirm.

Background

In May of 1989, Ralph and Paul Lunardi, ages 30 and 28 respectively, were employees and part-owners of the family business, Lunardi's Supermarkets. In June or July of that year, Ralph and Paul met with Craig Lodato, an agent with Dempsey Insurance Service, regarding the possibility of purchasing $3,000,000 policies on each other's lives. Lodato asked questions of each brother orally, writing down the answers on an application form. He then asked them to sign blank application forms, indicating that he would transfer their answers to the signed documents later.

The application form contained the following language, placed directly above the signature portion: "THE FOLLOWING STATEMENT MUST BE READ AND SIGNED FOR ALL APPLICATIONS. [p] All statements and answers to questions made in this application and any supplement to it are true and complete to the best of my knowledge and belief. They are a consideration for and a basis of any contract of insurance issued on this application. No information or answer to any question will be deemed communicated to or be binding on the Company unless set out in this application. No agent is authorized to change or waive the terms of this application or of any contract of insurance issued. Except as stated in the Temporary Life Insurance Agreement and/or in the Conditional Disability Income Insurance Agreement, no insurance under this application shall take effect unless a policy has been delivered while there has been no material change, to the best of my knowledge, in the answers and statements continued in this application and in any supplement to it." (Emphasis added.)

Paul could not recall whether Lodato explained the significance of this paragraph to him and Ralph. He assumed that the application would be used to begin finding an insurer for the Lunardis.

As part of the application process, Ralph and Paul each submitted to a physical examination by Dr. Virginia Julian, an independent contractor retained by MediTest. On August 9, 1989, Dr. Julian examined Ralph and obtained his medical history, recording his answers on a form F286, which he signed. She then drew blood from Ralph into a "red top" tube, to be subjected to serum testing. Unlike other insurers, Great-West did not request a complete blood count ("CBC") from its applicants; hence, Dr. Julian did not collect blood into a "purple top" tube. ¹ Dr. Julian's examination showed Ralph to be "completely normal," an "excellent risk" for insurance.

On August 30, 1989, Ralph saw Dr. David Sugarman with complaints of lethargy, headache, neck soreness, weakness, and bruising. On August 31, Dr. Sugarman made a diagnosis of acute myelogenous leukemia. Both Ralph and Paul learned of the diagnosis that day. On September 1, Dr. Sugarman sent Ralph to Stanford University Hospital for treatment. He remained there until October 11, 1989.

On September 1, 1989, the day Ralph entered the hospital, Paul sent a letter by FAX to Alan Titus, the Lunardis' attorney, indicating that Lodato needed certain information to complete the insurance application process. Paul added, "We would really like to accelerate the process of obtaining this insurance, so if you do not have hard numbers for him, please extrapolate the best you can."

On September 5, Paul informed Titus of Ralph's condition and asked whether he had a duty to disclose it to the prospective insurer. Titus told Paul that he did not know whether Paul was obligated to volunteer this information, but he must tell the truth if asked. Paul decided not to disclose it unless asked, and he requested that Titus not tell anyone about it. Paul also told family members and supermarket employees not to volunteer any information about Ralph's condition.

On September 25, 1989, Paul met with Lodato and Bruce McGuirk, a Great-West representative, to learn about the different insurance options available. Walter Lim, a supermarket employee, was also present. Ralph was in the hospital. No one asked about Ralph's absence, and neither Paul nor Walter Lim mentioned the diagnosis.

A second meeting for the same purpose took place on October 5, 1989. This time Titus attended. Prior to the meeting Paul asked Titus how he should answer if McGuirk or Lodato "were to bring up Ralph." Titus again told Paul to answer truthfully. No one mentioned Ralph's condition at the meeting. At the conclusion of the presentation on the various insurance options, Titus recommended a universal life policy for each brother.

The processing of the Lunardis' application required their medical records, which Great-West requested from their family physician, Dr. Hartwig Sonnenberg, on October 5, 1989. Dr. Sonnenberg sent the records he had the next day. The parties disputed whether those records included a report by Dr. Sugarman of his examination and diagnosis of Ralph; plaintiffs insisted it had been sent, whereas Great-West maintained that it did not receive the report. ²

On November 17, 1989, Paul received the policies from Lodato along with copies of the original applications and two new forms. Because the physical examinations had taken place more than 60 days earlier, Great-West required an update of each applicant's medical status. The first form, the F286 California was a medical history questionnaire similar to one used by Dr. Julian during her examination of Ralph; ³ it asked, for example, whether the applicant had any "disorder of the blood," whether he was currently "under observation or taking treatment," and whether he had had any illness or hospitalization in the past five years. The second form, the F59, was provided to "amend the application and to ... require statements that the insured is still in the same state of health he was [in] when the application was originally taken." Both forms were attached to each policy when the policies were delivered.

The F59 amendment contained the following language: "I/We declare that since completion of the medical evidence form dated 13 NOVEMBER 1989 [p] (1) The Insured has not been examined or treated by a physician or health practitioner, except as required by the [sic ] Great-West Life. [p] (2) The Insured has had no illness, disease, injury or operation...." Great-West conceded that it had used the wrong date in this declaration on Ralph's form; instead of asking for information about changes of health since November 13, it should have referred back to the medical examination date of August 9, 1989. Paul, however, did not notice the different date on Ralph's form when he gave it to Ralph to sign.

The F59 also provided the following terms conditioning the effectiveness of the policy on the applicant's responses to the form: "I/We agree that these statements are a condition of the delivery of the policy applied for and become part of the contract. The policy shall not take effect unless these statements are true." This statement immediately preceded the signature line. Below the signature line was the following provision: "NOTICE TO THE INSURED, APPLICANT AND AGENT: [p] THIS POLICY MUST NOT BE DELIVERED EITHER DIRECTLY OR BY MAIL NOR CAN THE APPLICANT GAIN POSSESSION OF IT UNTIL THIS FORM IS COMPLETED AND WITNESSED. THE FORM SHOULD THEN BE RETURNED TO THE BRANCH OFFICE. [p] THE POLICY HAS BEEN ISSUED ASSUMING THIS FORM CORRECTLY REPRESENTS THE FACTS. IF THE APPLICANT OR INSURED HAS INDICATED ANY EXCEPTIONS TO STATEMENTS (1) OR (2), IT SHOULD BE CORRECTED AND RETURNED WITH THE POLICY TO THE BRANCH OFFICE. THE POLICY SHOULD NOT BE DELIVERED."

Enclosed with these documents was a cover letter from Lodato instructing Paul to read and send back the signed documents along with checks for the premiums for each brother. Lodato advised Paul that they would be covered as soon as Lodato received the checks. Paul sent the checks with the signed forms on November 20, 1989, and Lodato received them the next day.

Ralph died of leukemia on February 2, 1991. Paul submitted a claim for the proceeds on March 2, 1991. After a routine investigation, Great-West denied the claim, citing Ralph's misrepresentations about his health during the application process. ⁴ Great-West informed Paul that it was rescinding the policy and tendered a refund of all premiums paid.

On February 24, 1992, plaintiffs filed a four-count complaint against Great-West, Bruce McGuirk, Lodato, and Dempsey Insurance Service. ⁵ Plaintiffs alleged that Ralph had "fully and accurately" disclosed the state of his health both at the...