Oglesby v. Penn Mut. Life Ins. Co., Civ. A. No. 93-224 MMS.

• Decision Date: 16 February 1995
• Docket Number: Civ. A. No. 93-224 MMS.
• Citation: 877 F. Supp. 872
• Parties: John T. OGLESBY, II, M.D., Plaintiff, v. The PENN MUTUAL LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Delaware

877 F. Supp. 872

John T. OGLESBY, II, M.D., Plaintiff, v. The PENN MUTUAL LIFE INSURANCE COMPANY, Defendant.

Civ. A. No. 93-224 MMS.

United States District Court, D. Delaware.

December 23, 1994.

Opinion Denying Reargument February 16, 1995.

COPYRIGHT MATERIAL OMITTED

Anne C. Naczi, Tybout, Redfearn & Pell, Wilmington, DE, for plaintiff.

William W. Erhart, Erhart & Laffey, Wilmington, DE (Douglas F. Johnson, Earp, Cohn, Leone & Pendery, Westmont, NJ, of counsel), for defendant.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

INTRODUCTION

Plaintiff John T. Oglesby, II filed suit against defendant The Penn Mutual Life Insurance Company ("Penn Mutual") in Delaware state court. Oglesby alleged breach of contract for failure to pay benefits under a disability insurance policy and breach of the duty of good faith and fair dealing. Specifically, he averred that from August 1990 to the present, he has been totally disabled within the meaning of the policy, and that Penn Mutual wrongfully denied him benefits thereunder. Oglesby is a citizen of Delaware.

Pursuant to 28 U.S.C. § 1441, defendant, a Pennsylvania corporation, removed plaintiffs lawsuit to federal court, invoking federal diversity jurisdiction under 28 U.S.C. § 1332. Penn Mutual also filed counterclaims seeking declaratory relief, alleging it is not obligated on the policy and seeking to void or rescind certain components of the policy.

Before the Court is defendant Penn Mutual's motion for full or partial summary judgment, based on four different grounds. Penn Mutual contends it is entitled to full summary judgment because: (1) Oglesby is not totally disabled from his regular occupation within the meaning of the policy; and (2) Oglesby failed to timely comply with the notice and proof of loss provisions required by both the policy and 18 Del.C. § 3311. In the alternative, Penn Mutual seeks partial summary judgment, arguing that, even if Oglesby is disabled under the policy, (3) he is not entitled to the benefit increases from the 1989-1992 policy amendment riders because the riders are subject to rescission under equitable fraud principles, and (4) he is barred from collecting increased benefits from the 1991-1992 policy amendment riders because he was already disabled when the riders became effective.

The Court heard oral argument in this matter on October 19, 1994. Upon consideration of the parties' arguments, both written and oral, for the reasons that follow, the Court will deny full summary judgment and grant Penn Mutual's motion for partial summary judgment as to the rescission of the 1989-1992 benefit riders. Under these dispositions, defendant's fourth ground for summary judgment is rendered moot.

FACTUAL BACKGROUND

Plaintiff Oglesby, a physician, applied to Penn Mutual for disability insurance in November 1986 through his longtime friend and Penn Mutual insurance agent, William Lee. Docket Item ("D.I.") 61 at 57-58. At the time, Oglesby was 47 years old. D.I. 61 at 52. Plaintiff was then and remains a Board certified radiologist at the Medical Center of Delaware in Newark, Delaware; he is also a partner in a group practice of 19 radiologists. Id. at 96. When he applied for disability insurance he was the hospital's Chief of Vascular and Interventional Radiology, a medical sub-specialty within the radiology discipline. Id. at 52.

Though most laymen may be familiar with the responsibilities of a general radiologist, e.g., interpretation of x-ray and other radiological film studies, the duties of an interventional and vascular radiologist are not as self-evident. The field of interventional and vascular radiology has rapidly expanded over the past decade into a discipline which overlaps many other medical specialties, such as surgery, cardiology, and gastroenterology. Id. A physician practicing interventional and vascular radiology may perform procedures as diverse as balloon angioplasty (opening clogged blood vessels), drainage of abscesses, placement of filters in the blood system supplying the lungs to prevent emboli (blood clots), and gastrostomy (feeding tube) placement. D.I. 61 at 281-82. Plaintiff claims that 80% to 100% of his duties and time were taken up by these responsibilities prior to the onset of his disability. Id. at 283; D.I. 63 at 23, 26, & 29.

At the heart of this action is whether plaintiff is now disabled from practicing such medical procedures. A recap of plaintiffs medical history, a chronology of assorted ailments, is therefore in order. During the 1970s, Oglesby experienced intermittent lower back aches, relieved by aspirin or rest. D.I. 61 at 224. In 1981, he suffered an onset of "severe bolt-like" pain in his neck, which also radiated down his left arm. Id. at 225-227. Consultation with a neurologist revealed a neck condition, cervical radiculopathy (nerve root irritation); this was diagnosed as resulting from cervical spine arthritis. Id. at 225. Oglesby's symptoms abated after treatment with the drug Motrin; his illness lasted approximately two months. Id. at 116, 225-227. Plaintiff did not seek treatment for any recurrence of neck symptoms as of November 1986, the time he applied for the Penn Mutual policy. Id. at 217. In 1985, plaintiff underwent a total hip replacement due to a long history of arthritis in the hip joint. Id. at 51.

Plaintiff submitted his application for Penn Mutual disability insurance on November 24, 1986. Id. at 52. The application's question number 12 asked that he describe his "Occupation and Exact Daily Duties." Id. at 51. Plaintiff answered by declaring he was a "Physician — Radiologist — Diagnostic Radiology and Director of Interventional and Cardiovascular Radiology." Id. The Penn Mutual application also included questions about plaintiff's medical history. Question 20(a) asked, within the past five years, had plaintiff "consulted a physician; been advised to have medical treatment or surgery; been hospitalized; requested, received or been refused insurance benefits for any injury or sickness?" Id. Plaintiff answered affirmatively, stating yes, he had undergone a total hip replacement in 1985 due to degenerative arthritis. Id.

Question 20(c) asked whether plaintiff "ever had any known indication of or been treated for: ... disease or disorders of the . . . bones including spine, back, or joints?" Oglesby answered this by cross-referencing to the answer in 20(a). Id. Question 20(c), however, was not limited to "within the past five years." Oglesby did not disclose his previous cervical spine (neck) problem. Oglesby signed the bottom of the application, certifying that all statements contained therein were true, complete, and correctly recorded. Id. at 52.

On November 3, 1986, a medical examiner for Penn Mutual¹ performed a history and physical on plaintiff. She interviewed him pursuant to questions on a Penn Mutual Medical Examiner Report Form. Id. at 53. On the Report Form, question 2(h) asked, "Have you even been treated for or had any indication of arthritis, gout, or disorder of muscles, bones or joints?". Id. Oglesby answered this in the affirmative, elaborating with details of his total hip replacement. Id.

The medical examiner also documented plaintiff as having a history of "degenerative changes in the lumbar spine — no symptoms" (emphasis added). Id. The lumbar spine, contrasted with the cervical or neck spine, is located in the lower back near the waist area. Dorland's Illustrated Medical Dictionary 759 (26th ed. 1981). The import of this notation is unclear, however, as it was correlated to a nonexistent question number, 4(g). Id. As on the policy application, Oglesby certified as to the truth, accuracy, and completeness of the medical examiner's document. Id.

Penn Mutual issued plaintiff his disability insurance policy February 24, 1987, retroactively effective to February 1, 1987. D.I. 1 at ¶ 3; D.I. 4 at ¶ 3. The policy contained a two year incontestability clause which prohibited the insurer from challenging both misstatements by Oglesby on the policy application and pre-existing sicknesses or conditions for claims submitted more than two years after the policy's effective date. D.I. 61 at 49 § 8. The two year limitation on contestability for pre-existing conditions did not apply to any condition explicitly excluded from coverage by name or specific description. Id.

Oglesby's disability policy contained such an exclusion. In a "Policy Amendment Rider — Specified Condition Not Covered," the defendant provided language that it would "not cover disability or other loss which results in whole or in part" from "any impairment due to degenerative arthritis or rheumatism." Id. at 173. Oglesby negotiated with the company to narrow this language, which resulted in a policy exclusion for only "any impairment due to degenerative arthritis or rheumatism of the hip region." (emphasis added) Id. at 141. Peter Sokop, the underwriter for plaintiffs disability policy, testified during the discovery phase of this litigation that had plaintiff informed the insurer of his 1981 diagnosis of cervical spine arthritis, Penn Mutual would have insisted on, at a minimum, the original rider language, excluding coverage for disability relating to any degenerative arthritic condition. Id. at 263, 266-67.

The Penn Mutual disability policy also afforded Oglesby an annual option to apply for successive five percent increases in his total disability benefits, effective on February 1 of each year, for an increased premium. Id. at 38. Plaintiff availed himself of this option annually. Other significant policy provisions delineated notice and proof of loss requirements, procedures for filing a claim for benefits, waiver of premiums in the event of total disability, and incorporation of the application and any attached riders into the entire insurance contract. Id. at 36-38. In the event of plaintiffs disability from his "regular occupation," the policy would pay Oglesby a monthly...