Methodist Medical Center of Illinois v. American Medical Sec. Inc., 93-3631

• Decision Date: 14 October 1994
• Docket Number: No. 93-3631,93-3631
• Citation: 38 F.3d 316
• Parties: METHODIST MEDICAL CENTER OF ILLINOIS, Plaintiff-Appellant, v. AMERICAN MEDICAL SECURITY INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 316

38 F.3d 316

METHODIST MEDICAL CENTER OF ILLINOIS, Plaintiff-Appellant, v. AMERICAN MEDICAL SECURITY INCORPORATED, Defendant-Appellee.

No. 93-3631.

United States Court of Appeals, Seventh Circuit.

Argued June 1, 1994.

Decided Oct. 14, 1994.

L. Lee Smith, Asst. U.S. Atty., Barbara K. Parker, Thomas A. McConnaughay, Westervelt, Johnson, Nicoll & Keller, Peoria, IL, for plaintiff-appellant.

Joshua G. Vincent, Christine L. Olson (argued), D. Kendall Griffith, Hinshaw & Culbertson, Chicago, IL, Douglas A. Marshall, D. Kevin Sommer, Hinshaw & Culbertson, Peoria, IL, for defendant-appellee.

Before BAUER, COFFEY and RIPPLE, Circuit Judges.

COFFEY, Circuit Judge.

Lois McBride, a 60 year old woman suffering from heart disease, assigned her group health insurance benefits to plaintiff-appellant Methodist Medical Center of Illinois ("Methodist"), upon her admission to the hospital as a patient. Lois McBride died in the hospital a few weeks later. Methodist subsequently sued Mrs. McBride's insurer, defendant-appellee American Medical Security, Inc. ("AMS"), seeking reimbursement for Mrs. McBride's medical bills. The United States District Court for the Central District of Illinois granted summary judgment in favor of the insurer, AMS. We affirm.

I. BACKGROUND

In November 1987, Lois McBride was hospitalized in Santa Cruz, California for gallbladder surgery. During this hospital stay, Dr. Singh, a cardiologist, diagnosed her as having silent myocardial ischemia, ¹ recurrent supraventricular tachycardia, ² and hypertension. ³ Dr. Singh prescribed the drug Verapamil for Mrs. McBride's irregular heartbeat and high blood pressure, which she continued to take for one year.

In August 1989, Jeffries & Sons Trucking of Cambridge, Illinois hired Lois McBride and her husband Larry McBride as truck drivers. Jeffries & Sons Trucking offered the McBrides group health insurance coverage provided by United Wisconsin Life Insurance Co. and administered by AMS. Larry McBride applied for health insurance for himself and for Lois as his spouse. The application forms requested the applicants to disclose certain types of prior or existing medical conditions to the best of their knowledge. The McBrides each prepared and submitted individual application forms required for their group health insurance coverage. Each form contained the following questions:

"3. Have you or any dependent ever had any indication, diagnosis, consultation treatment or taken medication for: (circle appropriate condition and explain)

a. heart, cancer, diabetes, kidney, stroke or cardiovascular disorder or incurred medical expenses in excess of $2500 during the previous 12 months? ...

4. Within the past 5 years, have you or any dependent ever had any indication, diagnosis, consultation, treatment or taken any medication or received counseling for: (circle appropriate condition and explain)

a. stomach, gall bladder, intestinal or colon disorder? ...

d. high blood pressure, arteries or blood vessels?"

On Lois McBride's form, the word "gallbladder" in question 3 was circled. The word "gallbladder" and the date "Nov. 17, 1987" were handwritten in the space provided for further explanations, along with the name of a surgeon in Santa Cruz, California. ⁴ Her form failed to disclose any diagnosis, treatment received, or medication taken for any heart condition or high blood pressure. Larry McBride's health insurance application form contained no disclosures concerning his wife's health. Both Lois and Larry McBride signed Larry McBride's application, which stated:

"I declare that all the statements contained in this Evidence of Insurability Form are, to the best of my knowledge, true and correct and that no material information has been withheld or omitted concerning the past or present state of health of myself or my named dependents. I understand that the above answers shall be the basis for the Insurer to issue a certificate of insurance."

AMS accepted the McBrides for group health insurance coverage.

On November 16, 1990, Lois McBride suffered from severe chest pains and sought medical assistance at a Stockton, California hospital. Dr. Karabala, a cardiologist at the Stockton hospital, interviewed and examined Mrs. McBride, reviewed her medical history with her, and made notes on her medical history chart. Mrs. McBride related to Dr. Karabala that she had been diagnosed as having silent myocardial ischemia, supraventricular tachycardia, and hypertension. ⁵ She received treatment at the Stockton hospital until November 30, 1990, when she was discharged in stable condition.

Some two weeks later, in mid-December 1990, Lois McBride was admitted to Methodist as a patient. Upon her admission to Methodist, Lois McBride assigned all of her health insurance proceeds to Methodist. Mrs. McBride's condition deteriorated; and she expired on December 31, 1990. Lois McBride's medical bills from Methodist totalled $59,992.98.

AMS promptly paid Mrs. McBride's medical bills from the Stockton hospital. AMS, after receiving a copy of Lois McBride's death certificate--which listed as the cause of death ischemia cardiomyopathy and coronary artery disease of several years' duration--decided to obtain and review her medical records. Lois McBride's medical records from her 1987 hospitalization for gallbladder surgery related that she was suffering from silent myocardial ischemia, recurrent supraventricular tachycardia, and hypertension. Her medical records from her 1990 hospitalization for severe chest pain revealed that she was aware of her heart condition because she described it to the treating cardiologist (Dr. Karabala).

Following its investigation, AMS concluded that the McBrides had failed to disclose Lois McBride's heart condition on their application, and that this omission was material to AMS's acceptance of the McBrides for group health insurance coverage. AMS advised Larry McBride that it was rescinding all health insurance coverage for his wife. Thereafter, AMS notified Methodist of its rescission of coverage for Lois McBride.

On April 30, 1992, Methodist instituted this action against AMS, seeking reimbursement for medical bills incurred by Lois McBride. AMS filed a motion for summary judgment, arguing that it was entitled to rescind Mrs. McBride's policy because the application contained material misrepresentations. The district court granted AMS's motion for summary judgment, holding that a material misrepresentation existed which voided coverage under section 5/154 of the Illinois Insurance Code. ⁶

II. DISCUSSION

Methodist urges reversal on two grounds: first, Methodist argues that the district court erroneously found that the McBrides made misrepresentations on their application for group health insurance coverage despite the existence of disputed facts as to whether the misrepresentations were made knowingly; and second, Methodist argues that the evidence presented raises a genuine issue of material fact as to whether any misrepresentation made by the McBrides materially affected AMS's acceptance of the risk.

We review a grant of summary judgment de novo and "utilize the same standard of decision making as that employed by the district court." Youker v. Schoenenberger, 22 F.3d 163, 165 (7th Cir.1994) (quoting McMillian v. Svetanoff, 878 F.2d 186, 188 (7th Cir.1989)). ⁷ Summary judgment is proper only when "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 a judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining whether summary judgment is appropriate, we must view the evidence in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A genuine issue of material fact exists when the evidence presented is such that a reasonable jury could find for the non-moving party. Id. at 250-51, 106 S.Ct. at 2511.

A. Misrepresentation

Under Illinois law, ⁸ a misrepresentation in an application for insurance is not by itself grounds for denial of coverage. Rivera v. Benefit Trust Life Ins. Co., 921 F.2d 692, 695 (7th Cir.1991); Roberts v. National Liberty Group of Companies, 159 Ill.App.3d 706, 111 Ill.Dec. 403, 405, 512 N.E.2d 792, 794 (1987). However, an insurance company may deny coverage because of a misrepresentation in an application if the misrepresentation "shall have been made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company." 215 ILCS 5/154. Before a court may determine if a misrepresentation was made with actual intent to deceive or was material, the court must find that a misrepresentation was made. See Rivera, 921 F.2d at 695 ("we need not reach the issue of materiality unless we are willing to reverse the district court finding that there was no initial misrepresentation").

A misrepresentation in an application for insurance is "a statement of something as a fact which is untrue and affects the risk undertaken by the insurer." Ratcliffe v. International Surplus Lines Ins. Co., 194 Ill.App.3d 18, 141 Ill.Dec. 6, 11, 550 N.E.2d 1052, 1057 (1990); Northern Life Ins Co. v. Ippolito Real Estate Partnership, 234 Ill.App.3d 792, 176 Ill.Dec. 75, 81, 601 N.E.2d 773, 779 (1992). Incomplete answers or a failure to disclose material information on an application for insurance may constitute a misrepresentation when the omission prevents the insurer from adequately assessing the risk involved. Garde v. Country Life Ins. Co., 147 Ill.App.3d 1023, 101 Ill.Dec. 120, 126, 498 N.E.2d 302, 308 (1986).

Without question, the McBrides's application form for group health insurance coverage contained a number of misrepresentations. Question 3 of the application form inquired about any prior diagnosis, consultation, treatment, or...