Oade v. JACKSON NAT. LIFE INS. CO.

Decision Date30 July 2001
Docket NumberDocket No. 114786, Calendar No. 8.
Citation465 Mich. 244,632 N.W.2d 126
PartiesJeffrey Lee OADE and Thomas E. Walsh, Personal Representative of the Estate of Sheilah Chouinard, Plaintiffs-Appellees, v. JACKSON NATIONAL LIFE INSURANCE COMPANY OF MICHIGAN, Defendant-Appellant.
CourtMichigan Supreme Court

Fraser, Trebilcock, Davis & Foster, P.C., (by C. Mark Hoover, Marcy R. Matson, and Graham K. Crabtree), Lansing, for the plaintiffs-appellees.

Butzel Long, (by Phillip C. Korovesis and David H. Oermann), Detroit, for defendant-appellant.

Mika, Meyers, Beckett & Jones, P.L.C., (by Michael A. Zagaroli) Grand Rapids, and Victoria E. Fimea, Senior Counsel, Litigation, Washington, D.C., for amicus curiae American Council of Life Insurers and Life Insurance Association of Michigan.

Opinion

YOUNG, J.

I. INTRODUCTION

In this life insurance dispute, plaintiffs, Jeffrey Lee Oade and Sheilah Chouinard, seek to recover benefits from a Jackson National Life insurance policy issued and delivered to Gary Oade. Plaintiffs, the son and friend of Mr. Oade, respectively, are the named beneficiaries of the insurance policy. Defendant claims that the policy never became effective because Mr. Oade failed, as required by the terms of the insurance application, to provide updated information about his health and medical treatment between the date he signed the application and the day the policy was issued. We granted leave to address the applicability of the statutory requirement under M.C.L. § 500.2218(1), that a misrepresentation in an application of insurance be material in order to make the insurance policy avoidable.

Because Mr. Oade had an explicit, contractual continuing duty to ensure that the answers in his insurance application remained true until the effective date of the policy, we hold that Mr. Oade's failure to supplement his medical history rendered his original answers false, making them "misrepresentations" within the meaning of M.C.L. § 500.2218(2). However, contrary to the Court of Appeals decision, we conclude that these misrepresentations were material, and that defendant was therefore entitled to avoid the contract. Accordingly, we reverse the Court of Appeals decision and reinstate summary disposition in favor of defendant.

II. FACTUAL AND PROCEDURAL BACKGROUND

On November 29, 1993, Mr. Oade, a fifty-three year-old store owner, contacted his insurance agent and completed a Jackson National Life Insurance Company of Michigan application for a "preferred" $100,000 life insurance policy.1 In order to evaluate the insurance risks posed by an applicant and consistent with standard underwriting procedures, the Jackson National application required answers to certain questions about an applicant's health status. That application further required that the applicant inform defendant in writing if the applicant's health or any of the answers or statements contained in the application changed between the time the original answers were given and the date the policy was issued and delivered.2

The application contained the following questions relevant to the resolution of this case:

2. Have you ever been treated for, or ever had any indication of:

* * *

d. Chest pain, discomfort or tightness; palpitations, high blood pressure, rheumatic fever, heart murmur, heart attack or blood vessels?
3. Have you, in the past five years:
a. Consulted or been treated by a physician or other medical practitioner?
b. Been a patient in a hospital, clinic, or medical facility?

In answering the application questions, Mr. Oade denied, in response to question 2(d), that he had been treated for chest pain, discomfort or tightness, palpitations, rheumatic fever, heart murmur, heart attack or other disorder of the heart or blood vessels. However, he disclosed that he had been treated for high blood pressure. In response to question 3(a) and (b), he denied that he had been hospitalized but disclosed that he had been treated by a physician or other medical practitioner during the preceding five years. Defendant did not contest the accuracy of the initial answers Mr. Oade made in response to the application.

On December 25, 1993, between the submission of Mr. Oade's application and defendant's approval and delivery of the policy, Mr. Oade went to a hospital emergency room, complaining of chest pains. He was admitted to the hospital and stayed overnight while tests were performed. As noted, the application for insurance required Mr. Oade to provide updated health information. In particular, Mr. Oade's initial answers that he had not been a patient in a hospital in the preceding five years, and had never been treated for chest pains thus became inaccurate information concerning his health status. Despite the requirement to provide updated health information, it is undisputed that Mr. Oade did not inform defendant of his December hospitalization for chest pains.

On January 4, 1994, after evaluating Mr. Oade's application, defendant approved him for a "standard" policy rather than the "preferred" policy he had originally sought. Oade paid the additional premium on January 6, and the policy was delivered that day.

Mr. Oade died suddenly from a heart attack on September 1, 1994. Plaintiffs submitted a claim to defendant for payment of the death benefits provided in the life insurance policy. Defendant investigated, discovered the undisclosed hospitalization, and denied the claim on the ground that, although required to do so under the terms of the insurance application, Mr. Oade failed to report his change in medical history. Defendant declared that, because Mr. Oade had violated conditions precedent to create insurance coverage, the policy never became effective.

Following defendant's refusal to pay under the policy, plaintiffs brought this action in the circuit court where both parties filed cross-motions for summary disposition. The circuit court granted summary disposition in favor of defendant, holding that Mr. Oade's failure to communicate in writing the "material changes" to his answers in the application prevented the policy from taking effect.

The plaintiffs appealed, and the Court of Appeals reversed in an unpublished per curiam decision.3 The Court of Appeals recognized that parties may mutually agree that certain conditions be met before an insurance contract will become effective. However, the Court reasoned that such contract terms must not conflict with applicable statutes. The Court held that the case was governed by M.C.L. § 500.2218(1). It rejected defendant's argument that the insurer was not claiming misrepresentation permitting rescission of an existing policy, but that the policy never became effective in the first instance.

In applying the statute, the Court of Appeals attempted to determine whether the undisclosed health information was material within the meaning of M.C.L. § 500.2218(1). In so doing, the Court relied on Zulcosky v. Farm Bureau Life Ins. Co. of Michigan, 206 Mich.App. 95, 520 N.W.2d 366 (1994), for the proposition that a misrepresentation is not material if the insurer would have issued "a" policy, albeit a different one issued at a higher rate.

Applying these principles to the facts of the case, the Court of Appeals concluded that, because plaintiffs had presented the deposition and affidavit of one of defendant's underwriters indicating that there was a possibility that Mr. Oade would have been offered a policy at a higher rate, plaintiffs had established a genuine issue of fact concerning the materiality of Mr. Oade's failure to disclose.

This Court granted defendant's application for leave to appeal.4

III. STANDARD OF REVIEW

Issues of statutory interpretation are questions of law and are therefore reviewed de novo. Cardinal Mooney High School v. Michigan High School Athletic Ass'n, 437 Mich. 75, 80, 467 N.W.2d 21 (1991).

A motion for summary disposition under MCR 2.116(C)(10), which tests the factual support of a claim, is subject to de novo review. Smith v. Globe Life Ins. Co., 460 Mich. 446, 454, 597 N.W.2d 28 (1999).

IV. ANALYSIS

The Court of Appeals relied on the materiality requirement found in M.C.L.§ 500.2218(1):

No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless the misrepresentation was material. No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make the contract.

Although we agree with the Court of Appeals that M.C.L. § 500.2218 applies to the facts of the instant case, we disagree with its conclusion that Mr. Oade's misrepresentations were not material.

A. APPLICABILITY OF M.C.L. § 500.2218

The touchstone of the statute's applicability is a "misrepresentation." MCL 500.2218(2) defines a "misrepresentation" as a "false representation." A "representation," in turn, is statutorily defined as a "statement as to past or present fact, made to the insurer by or by the authority of the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof." MCL 500.2218(2).

When he submitted his insurance application, Mr. Oade indicated on the application that he had not been a patient in a hospital in the preceding five years and that he had never been treated for chest pains. However, between the submission of Mr. Oade's application and defendant's approval and delivery of the policy at issue, Mr. Oade was hospitalized for chest pains. It is undisputed that Mr. Oade did not inform defendant of this event.

The question, then, is whether Mr. Oade engaged in a misrepresentation for purposes of M.C.L. § 500.2218(2). We conclude that he did. Under the express language of the insurance application, Mr. Oade had a continuing duty to ensure that the answers in his insurance application remained true as of the date he received the...

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