Massachusetts Mut. Life Ins. Co. v. Thompson

• Court: West Virginia Supreme Court
• Writing for the Court: WORKMAN; MILLER, Retired J., and FOX
• Citation: Massachusetts Mut. Life Ins. Co. v. Thompson, 460 S.E.2d 719, 194 W.Va. 473 (W. Va. 1995)
• Decision Date: 13 July 1995
• Docket Number: No. 22519,22519
• Parties: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, A Foreign Corporation, Plaintiff, v. Sherry Lee THOMPSON, Defendant.

Page 719

460 S.E.2d 719

194 W.Va. 473

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, A Foreign Corporation, Plaintiff, v. Sherry Lee THOMPSON, Defendant.

No. 22519.

Supreme Court of Appeals of West Virginia.

Submitted May 3, 1995.

Decided July 13, 1995.

[194 W.Va. 474] Syllabus by the Court

1. "W.Va.Code, 33-6-7 (1957), is designed to alleviate the harshness of the common law and is to be liberally construed in favor of the insured." Syl. Pt. 2, Powell v. Time Ins. Co., 181 W.Va. 289, 382 S.E.2d 342 (1989).

2. "In order to be fraudulent under W.Va.Code, 33-6-7(a) (1957), misrepresentations, omissions, concealments of facts, and incorrect statements on an application for insurance by an insured must be knowingly made with an intent to deceive the insurer and relate to material facts affecting the policy." Syl. Pt. 4, Powell v. Time Ins. Co., 181 W.Va. 289, 382 S.E.2d 342 (1989).

3. "Under W.Va.Code, 33-6-7(b) and (c) (1957), in order for a misrepresentation in an insurance application to be material, it must relate to either the acceptance of the risk insured or to the hazard assumed by the insurer. Materiality is determined by whether the insurer in good faith would either not have issued the policy, or would not have issued a policy in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or otherwise." Syl. Pt. 5, Powell v. Time Ins. Co., 181 W.Va. 289, 382 S.E.2d 342 (1989).

4. "W.Va.Code, 33-6-7 (1957), adopts the test of whether a reasonably prudent insurer would consider a misrepresentation material to the contract." Syl. Pt. 6, Powell v. Time Ins. Co., 181 W.Va. 289, 382 S.E.2d 342 (1989).

5. "Where an insurer seeks to avoid a policy based on a material misrepresentation, this assertion is in the nature of an affirmative defense which the insurer must prove by a preponderance of the evidence." Syl. Pt. 7, Powell v. Time Ins. Co., 181 W.Va. 289, 382 S.E.2d 342 (1989).

6. Under a disability insurance policy, neither West Virginia Code § 33-6-7(b) nor (c) (1992) requires that an insurer prove the subjective element that an insured specifically intended to place misrepresentations, omissions, concealments of fact, or incorrect statements on an application in order for the insurer to avoid the policy.

7. Generally, in order to affirmatively defend a claim under a disability insurance policy an insurer need not prove a causal connection between the facts misrepresented, omitted, concealed, or incorrect on an insurance application and the disability sustained. The insurer, however, must show that the misrepresentation, omission, concealment of fact, or incorrect statement substantially affected or impaired its ability to make a reasonable decision to assume the risk of coverage. Further, an insured may defeat this defense by setting forth evidence that the misrepresentation, omission, concealment of fact, or incorrect statement related to a minor ailment suffered by the insured which was so unrelated and disconnected from the disabling condition suffered by the insured that it could not have possibly been material with respect to the issuance of the policy.

Herbert G. Underwood, Cynthia R. Cokeley, Steptoe & Johnson, Charleston, for plaintiff.

Gregory E. Elliott, Charleston, for defendant.

WORKMAN, Justice:

This case is before the Court upon the following certified questions posed by the September 14, 1994, order of the United States District Court for the Southern District of West Virginia:

(a) Under a disability insurance policy, does West Virginia Code § 33-6-7(b) or (c), either one, require that an insurer prove the subjective element that an insured specifically intended to place misrepresentations, omissions, concealments of fact, or incorrect statements on an application in order for the insurer to avoid the policy?

(b) Under a disability insurance policy, does West Virginia Code § 33-6-7(b) or (c), either one, require that the misrepresentation, omission, concealment of fact, or incorrect statement be materially related to the ultimate disability for which the insured is claiming coverage in order for the insurer to avoid the policy or does the misrepresentation, omission, concealment of fact or incorrect statement need only materially related to the insurer's decision of whether to issue the policy?

I.

On March 4, 1992, Sherry Thompson completed and signed a Massachusetts Mutual Life Insurance Company (hereinafter "Mass Mutual") application for both disability insurance and business overhead expense insurance. The disability insurance policy was to provide for monthly benefits of up to $880 per month for a period of sixty months and a contingent monthly income rider which was attached to said policy that was to provide for monthly benefits of $950 per month for the same length of time. The business overhead expense policy was to provide for monthly benefits of up to $1000 per month for a period of twenty-four months.

The application for these insurance policies required Ms. Thompson to provide information concerning her medical history including whether she had "ever been advised of, treated for, or had any known indication of: ... Nervous Disorder ... Mental Disorder" to which Ms. Thompson responded by checking the box indicating "None of These[.]" The application further required Ms. Thompson to respond to the following question: "Other than previously stated in this application, within the last five years have you:

a. Had any mental or physical disorder?

b. Had a consultation, surgery, or injury requiring treatment by a physician, hospital or other medical facility?

....

e. Been, or are you currently, under treatment or taking any medication?"

Again, Ms. Thompson responded to each of these questions in the negative.

On March 15, 1992, approximately eleven days after completing her original application, Ms. Thompson signed a "CONDITIONAL RECEIPT" ¹ which contained the following language:

BEFORE ANY INSURANCE BECOMES EFFECTIVE, ALL OF THE FOLLOWING CONDITIONS MUST BE MET:

....

4. On the date of this receipt, all answers and statements in any part of the application having an earlier date are complete and true as though given on the date of this receipt.

If any of these conditions is not met, the insurance shall not become effective. Then, this receipt will terminate and our only liability will be to return the payment made.

Thus, Ms. Thompson's signature on this form indicates that the information she had provided to Mass Mutual in her application for the two different insurance policies was complete and true. Mass Mutual agreed to provide the requested insurance coverage.

On or about October 22, 1992, Ms. Thompson submitted to Mass Mutual a claim for disability income insurance benefits under Policy No. 9-460-349 and business overhead expense benefits under Policy No. 6-460-352 because she suffered from carpal tunnel syndrome in her hands. Both parties recognize that this condition is wholly unrelated to the information Ms. Thompson provided Mass Mutual concerning previous treatment which the insurer now claims was inaccurate. Further, there is currently no alleged omission or misrepresentation at issue as to whether Ms. Thompson ever received treatment or had been advised of carpal tunnel syndrome prior to completing her application with Mass Mutual. ²

Following Ms. Thompson's claim for disability benefits, Mass Mutual learned that representations in Ms. Thompson's application were not totally correct. Specifically, Ms. Thompson had met with a psychologist, Ann Pauley, Ph.D., on March 11, 1992, to seek Dr. Pauley's counselling services for relationship difficulties. Additionally, Ms. Thompson had seen a psychiatrist, Edmund Settle, Jr., M.D., on April 26, 1989, and May 10, 1989. Dr. Settle treated Ms. Thompson for bipolar disorder and had prescribed medication for her. Thus, Ms. Thompson's representations could be characterized as not completely accurate.

In an affidavit dated August 4, 1993, Ms. Thompson stated that she did not believe that she had ever been treated for or suffered from a mental or nervous disorder. Further, she indicated that she did not believe that she had had a consultation or injury requiring treatment by a physician. She stated that in her application, she had innocently omitted the fact that she had previously seen Dr. Settle for premenstrual syndrome, because she had broken up with her boyfriend, and the fact that he had prescribed medication. ³ Finally, Ms. Thompson indicated that "when signing the conditional receipt on March 15, 1992, it did not dawn on me that I had sought counseling on March 11, 1992, because I was upset after breaking up with my boyfriend."

Mass Mutual instituted action ⁴ in federal district court for recision of the insurance contracts and/or declaratory judgment, contending that it would not have issued the insurance policies to Ms. Thompson had it known all the facts concerning Ms. Thompson's medical history. Moreover, Mass Mutual alleges that the policies are void under West Virginia Code § 33-6-7 (1992) because of material misrepresentations made by Ms. Thompson in both her application for insurance and the conditional receipt. Accordingly, Mass Mutual argues that Ms. Thompson is not entitled to recover any benefits for her carpal tunnel syndrome claim.

FIRST CERTIFIED QUESTION

The first certified question concerns whether an insurer has to prove the insured specifically intended to make misrepresentations ^{5 55} in filling out an application for disability insurance in order for the insurer to void the policy. The Plaintiff, Mass Mutual, argues that this Court's decision in Powell v. Time Insurance Co., 181 W.Va. 289, 382 S.E.2d 342 (1989), makes it clear that if the insurer proceeds under West Virginia Code § 33-6-7(a), then the insured's intent to...