Mitchell v. Modern Woodmen American
| Decision Date | 10 December 2014 |
| Docket Number | Case No. 2:10-cv-00965-JEO |
| Parties | DERRICK MITCHELL, as the Personal Representative of the Estate of Tom James Mitchell, et al., Plaintiffs, v. MODERN WOODMEN OF AMERICA, Defendant. |
| Court | U.S. District Court — Northern District of Alabama |
This case involves two insurance certificates issued by Modern Woodmen of America on the life of Stephanie Mitchell in 2008, the first providing $1 million in life insurance coverage and $350,000 in accidental death coverage, and the second providing an additional $1 million in life insurance coverage. In March 2009, less than a year after Modern Woodmen issued the certificates, Stephanie Mitchell died from gunshot wounds to the head. Her death was ruled a homicide.
Tom Mitchell, Stephanie's husband, was the principal beneficiary of both insurance certificates. In May 2009, he submitted a claim to Modern Woodmen for benefits under both certificates. Because Stephanie's death occurred within two years of the issuance of the certificates, Modern Woodmen conducted a claim review. After nearly a year passed with no payment of the claim, Tom Mitchell and Brittany Allred, the contingent beneficiary of both certificates, filed this action against Modern Woodmen for breach of the insurance certificatesand for bad-faith refusal to pay the claim for benefits.1 (Docs. 1, 4).2 Modern Woodmen answered the complaint and asserted a counterclaim seeking a declaratory judgment as to whether benefits are payable under either certificate and, if so, to whom the benefits are owed. (Docs. 12, 29).
In February 2012, after nearly two years of litigation, Modern Woodmen formally denied Tom Mitchell's claim for benefits based on Stephanie Mitchell's alleged failure to give "accurate and complete" answers to the questions on her insurance applications. Fifteen months later, Modern Woodmen issued a second denial citing additional alleged "material misrepresentations" by Stephanie Mitchell.
This action is now before the court on three motions: (1) Plaintiffs' motion for summary judgment in their favor on their claims against Modern Woodmen for breach of the insurance certificates (doc. 83); (2) Modern Woodmen's motion for summary judgment in its favor on all of the claims in Plaintiffs' complaint and on its counterclaim for a declaratory judgment as to whether benefits are payable under the insurance certificates (doc. 86); and (3) Plaintiffs' motion to strike the Declaration of Judy McCoy, which Modern Woodmen submitted in support of its motion for summary judgment. (Doc. 104). For the reasons set forth below, the court concludes that Plaintiffs' motion for summary judgment is due to be denied and that Modern Woodmen's motion for summary judgment is due to be denied in part and granted in part. Because the courtis able to rule on the motions for summary judgment without considering the Declaration of Judy McCoy, Plaintiffs' motion to strike the declaration will be denied as moot.
Tom Mitchell owned and operated two businesses. He sold cars under the name "Mitchell Motors" and boats under the name "Mitchell Marine." (Doc. 86 at ¶ 11). Neither business was incorporated. (Doc. 86 at ¶ 15).
Tom Mitchell considered Stephanie Mitchell to be his partner in the two businesses. (Doc. 86 at ¶ 12). Stephanie kept the books for both businesses and handled the paperwork, including tax papers and bills of sale. (Id.) She also assisted in sales. (Id.)
Because Mitchell Motors and Mitchell Marine were not incorporated, their income and expenses were reflected on Schedule C (Profit or Loss from Business) of Tom Mitchell's federal tax returns. (Doc. 86 at ¶ 15). His 2007 Schedule C reflects an income of $4,521 for the year. (Id.) It further reflects an ending inventory for the year of $2,500. (Doc. 86 at ¶¶ 14 -15).
Tom Mitchell filed monthly sales tax returns throughout 2008. The returns for June through November reflect sales of zero dollars. (Doc. 86 at ¶ 48). The November return notes that Mitchell Marine closed on November 30, 2008. (Id.)
Schedule C of Tom Mitchell's 2008 federal tax return shows a beginning inventory of $16,500 and an ending inventory of zero dollars. (Doc. 86 at ¶ 50). The return also reflects thatthe cost of goods sold during the year was $16,500, such that there was no gross profit and no income. (Id.) Plaintiffs admit that Tom Mitchell's sales tax returns reported this information, but they note that Tom Mitchell operated on a cash system and contend that the tax returns are not dispositive of his inventory's value or his sales. (Doc. 95 at ¶ 50).
On February 21, 2008, Tom Mitchell applied for $1 million in life insurance from Modern Woodmen. (Doc. 86 at ¶ 21). In connection with his application he submitted a financial form in which he represented that he had salary or wages of $280,000 in 2007 and salary or wages of $40,000 to $50,000 year to date. (Doc. 87-39 at 8) He further represented that he had net business or professional income of $60,000 to $70,000 in 2007 and that his net worth was $3,150,000. (Id.).
On March 26, 2008, Stephanie Mitchell met with Laura Williams, a Modern Woodmen agent, and applied for $1 million in life insurance coverage and $350,000 in accidental death coverage. (Doc. 87-39 at 26-32). At that time she already had $510,000 in life insurance coverage and $500,000 in accidental death coverage with American General Life & Accident Insurance Company. (Doc. 86 at ¶¶ 3-8, 24; Doc. 101-28). She also had a pending application with American General for an additional $200,000 in life insurance coverage. (Doc. 86 at ¶ 24).
Under the financial underwriting guidelines utilized by Modern Woodmen, the maximum amount of life insurance an applicant is generally eligible for depends on his or her age and earned income. (Doc. 88-2 at ES0677).4 Based on her age, Stephanie would have qualified for atotal line of life insurance equal to her annual earned income multiplied by a factor of 25. (Id.; Doc. 87-53 at 6). Modern Woodmen also allows a non-working spouse to receive an amount of life insurance coverage equal to the coverage in force on the working spouse. (Doc. 101-1 at ESRS 000007).5 The written guideline provides that the maximum amount of coverage that can be issued to the non-working spouse is $500,000 to $1 million (id.); Leslie Brown, the Modern Woodmen underwriter who underwrote Stephanie Mitchell's application, testified that Modern Woodmen does not apply that limitation. (Doc. 97-11 at 21). Finally, it is Modern Woodmen's policy that the total amount of accidental death coverage on an insured's life with all insurers may not exceed $350,000. (Doc. 88-2 at ES0679).
In response to the questions on the Modern Woodmen insurance application concerning "non-medical" information, Stephanie Mitchell stated that she was employed by Mitchell Marine, that her occupation was secretary/housewife, that she kept the books for her husband's businesses, and that she had a "shared income" with her husband. (Doc. 87-39 at 29). The amount of the shared income was not reflected on the application. (Id.) Stephanie further stated that she had a total of $200,000 in life insurance in force with other companies and no accidental death insurance. (Id.) She stated that she did not have an application for life insurance pending with another company and was not planning on purchasing life insurance with another company. (Id.)
The Modern Woodmen application contained a provision (the "Authorization") pursuant to which Stephanie Mitchell authorized third-parties to give and disclose to Modern Woodmen information relating to her "age, occupation, physical condition, prescription authorization,health history, ... character, general reputation, personal characteristics, motor vehicle report, hobbies and mode of living." (Doc. 87-39 at 32). As part of the Authorization, Stephanie acknowledged her understanding that "the information obtained by use of this Authorization will be used by Modern Woodmen ... to determine eligibility for insurance coverage or for benefits." (Id.) In a separate section of the application, Stephanie also acknowledged her understanding that "I might be personally interviewed if an Investigative Consumer Report is prepared in connection with this application." (Id. at 31)
When she signed her completed application, Stephanie Mitchell confirmed that she had reviewed her answers before signing it. (Id. at 32). She also agreed that, to the best of her knowledge and belief, the statements and answers in the application were "true, complete, and correctly recorded." (Id. at 31). She acknowledged that the statements and answers in the application would be the basis for any insurance issued on the application. (Id.)
Laura Williams completed an Agent's Report as part of the application process. (See Doc. 87-39 at 36). In her report, Williams noted: (Id.)
On April 9, 2008, Reliable Reporting Services conducted a telephone interview of Stephanie Mitchell in connection with her pending insurance application with Modern Woodmen. (See Doc. 87-49 at 5-7). As reported by Reliable Reporting, Stephanie said that she was a co-owner of Mitchell Marine and Mitchell Motors and that she performed managerial duties for the companies and worked over 40 hours per week. (Doc. 87-49 at 5). Reliable Reporting listed her salary as $70,000+ and her husband's income as $80,000+. (Id. at 7).According to Reliable Reporting, Stephanie said she had a "small" insurance policy that she was keeping but did not recall the amount of the policy or the name of the insurance company. (Id.)
On April 22, 2008, Modern Woodmen issued Certificate No. 8227615 (t...
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