Northern Life Ins. Co. v. Ippolito Real Estate Partnership

• Decision Date: 14 January 1992
• Docket Number: No. 1-90-3316,1-90-3316
• Citation: 176 Ill.Dec. 75,234 Ill.App.3d 792,601 N.E.2d 773
• Parties: , 176 Ill.Dec. 75 NORTHERN LIFE INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. IPPOLITO REAL ESTATE PARTNERSHIP, Ippolito Beauty Academy, Inc., and International Beauty Systems, Inc., Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 773

601 N.E.2d 773

234 Ill.App.3d 792, 176 Ill.Dec. 75

NORTHERN LIFE INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. IPPOLITO REAL ESTATE PARTNERSHIP, Ippolito Beauty Academy Inc., and International Beauty Systems, Inc. Defendants-Appellants.

No. 1-90-3316.

Appellate Court of Illinois First District, Second Division.

Jan. 14, 1992.

Peterson & Ross, Chicago (J. Robert Geiman, David J. Novotny and Donald A. Murday, of counsel), for plaintiff-appellee.

Donald L. Johnson and Steven R. Hansen, Chicago, George T. Drost, Arlington Heights, for defendants-appellants.

Justice DiVITO delivered the opinion of the court:

Plaintiff Northern Life Insurance Company (Northern Life) brought suit to rescind six life insurance policies issued to John Ippolito on the ground that he had materially misrepresented the condition of his health when applying for the insurance. Defendants Ippolito Real Estate Partnership, Ippolito Beauty Academy, Inc., and International Beauty Systems, Inc., beneficiaries of the six policies, counterclaimed, seeking the proceeds of the policies. The circuit court granted Northern Life's motion for summary judgment as to the sixth policy, but denied summary judgment as to the first five policies. Defendants appeal the court's order entering summary judgment, made final and appealable pursuant to Supreme Court Rule 304(a) (134 Ill.2d R. 304(a)), raising in issue whether the circuit court erred in granting summary judgment on the sixth insurance policy in Northern Life's favor.

Sometime in 1982, both John Ippolito and his brother Rosario obtained life insurance policies from Northern Life. Should one of the Ippolito brothers die, it was planned that the proceeds from the policies were to be used to fund certain stock repurchase agreements they had instituted for each of the businesses they owned. Thus, the businesses owned by the brothers were named beneficiaries of the life insurance policies.

By the end of 1984, due to the growth of their companies, the Ippolitos' stock repurchase agreements were inadequately funded. Consequently, on January 17, 1985, John Ippolito completed five new applications for life insurance and submitted them to Northern Life for approval. In each of these applications, as in the previous insurance policies, Ippolito disclosed that he suffered from hemophilia. In addition, the applications requested that Ippolito provide information on his medical history and medical condition, including whether he had had a weight change in the past year; he responded in the negative.

On April 26, 1985, while the five policies were being considered for approval, but before they were delivered, Ippolito was seen as an outpatient at Michael Reese Hospital by his physician, Margaret Telfer, M.D., a hematologist. During her examination of Ippolito, Dr. Telfer noted that he had experienced a weight loss of approximately twenty pounds ¹, although he had not attempted to lose weight. At the time of his examination, Ippolito was experiencing a recurring sinus infection; according to Dr. Telfer, Ippolito was concerned about his recurrent infections, but was not concerned about the weight loss. In her report of the examination, Dr. Telfer noted her worry about the possible onset of AIDS or pre-AIDS; however, she said nothing to Ippolito of her worry nor did he give any indication to her that he was aware of this possibility.

On May 9, 1985, Ippolito was presented with the five policies and, as a condition of coverage, executed an "Amendment to Application" for each of the policies, verifying that all the information on the policies was correct and that he had continued in good health.

On June 25, 1985, Ippolito met with his insurance agent to complete an application for an additional insurance policy (sixth application). The sixth application contained the same questions as the previous five, including the question concerning weight loss. Ippolito responded to those question in essentially the same manner as he had done on the first five; he disclosed his hemophilia condition and further disclosed all his treatments and physicians in the previous five years. He did not, however, disclose his weight loss. ²

On July 27, 1985, Ippolito was hospitalized at Michael Reese Hospital and treated by Dr. Telfer. At the time of his admittance, Ippolito was experiencing a dry cough and intermittent fevers. While at the hospital, Ippolito was diagnosed as suffering from pneumocystic carinii pneumonia, an opportunistic infection associated with AIDS. Dr. Telfer advised Ippolito of this infection and of the apparent onset of AIDS; she told him that he would not die from the infection, but that there was no cure for AIDS and "he would eventually die" from it.

After Ippolito was discharged from the hospital on August 10, 1985, he was treated again by Dr. Telfer as an outpatient on August 23, 1985; at that time, Dr. Telfer discussed the AIDS diagnosis again with him. Dr. Telfer also examined Ippolito on an outpatient basis on September 6 and September 27, 1985.

On October 1, 1985, Ippolito's agent presented him with the sixth policy and its accompanying "Amendment to Application." Ippolito signed the amendment, as he had done with the previous five policies; specifically, he verified that "the information stated in the application as amended by this form is true and correct in all material respects as of the date of this form," and that he had "continued in good health" and had "not suffered any * * * sickness or consulted or been attended by a physician."

On February 8, 1987, Ippolito died as a result of pneumonia and renal failure, both related to his AIDS condition. Because of its routine procedure to investigate claims presented within the first two policy years (the first five policies had effective dates of May 2, 1985, the sixth policy had an effective date of July 15, 1985), Northern Life conducted an investigation into the claims made by defendants.

As a result of that investigation, Northern Life filed a complaint for declaratory judgment on July 4, 1987, seeking rescission of all six policies. In its complaint, Northern Life alleged that Ippolito made certain misrepresentations in the applications for insurance and in the amendments to the applications that deemed the six policies void. Northern Life further averred that Ippolito breached his fiduciary duty to inform Northern Life as to the changed condition of his health during the pendency of the applications.

Following discovery, Northern Life moved for summary judgment on all six policies. As to the first five policies, Northern Life contended that Ippolito breached his fiduciary duty in not disclosing the change in his health condition (i.e. his weight loss and sinus infection). Northern Life further contended that Ippolito made material misrepresentations on the amendments to the applications. As to the sixth policy, Northern Life argued that Ippolito made material misrepresentations on his application when he failed to disclose his weight loss and further, he made material misrepresentations on his amendment to the application when he failed to disclose his AIDS diagnosis.

On August 6, 1990, after hearing arguments, the circuit court held that genuine issues of fact existed which precluded summary judgment as to the first five policies. The court, however, granted summary judgment on the sixth policy, holding that Ippolito had an intent to deceive Northern Life regarding the condition of his health, and that the sixth application and amendment contained misrepresentations material to Northern Life's risk.

Thereafter, defendants moved to have the court's order deemed final and appealable pursuant to Rule 304(a). Northern Life moved the court to reconsider its order and enter summary judgment on the first five policies. Defendants also asked the court to reconsider its order granting summary judgment on the sixth policy. The court denied both motions to reconsider and made its August 6, 1990, order final and appealable.

In this appeal from the court's grant of summary judgment on the sixth policy, defendants offer several reasons in support of their contention that the circuit court erred. Not only do defendants maintain that issues of fact preclude an award of summary judgment, they also argue that the court's award of summary judgment was premised upon a faulty finding that the amendment was part of the application for insurance.

A.

Defendants initially argue that the circuit court erred in granting summary judgment based upon its finding that the "Amendment to Application" was part of the application for insurance. Specifically, defendants maintain that the amendment was not part of the negotiations phase of the insurance contract and thus, material representations thereon cannot be used to defeat coverage.

For support, defendants rely upon section 154 of the Illinois Insurance Code, which provides,

"No misrepresentation or false warranty made by the insured or in his behalf in the negotiation for a policy of insurance, or breach of a condition of such policy shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty, or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor, of which a copy is attached to or endorsed on the policy, and made a part thereof. No such misrepresentation or false warranty shall defeat or avoid the policy unless it 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." (Ill.Rev.Stat.1989, ch. 73, par. 766.)

Defendants argue that the October 1, 1985, "Amendment to Application" was not part of the negotiations for the policy because "negotiations are already concluded and the amendment simply records the parties' expressed intentions regarding the coverage that was...