Paul Revere Life Ins. Co. v. Fish

• Decision Date: 09 January 1996
• Docket Number: C.A. No. 94-0209L.
• Citation: 910 F. Supp. 58
• Parties: The PAUL REVERE LIFE INSURANCE COMPANY, Plaintiff, v. Ronald A. FISH, Defendant.
• Court: U.S. District Court — District of Rhode Island

910 F. Supp. 58

The PAUL REVERE LIFE INSURANCE COMPANY, Plaintiff, v. Ronald A. FISH, Defendant.

C.A. No. 94-0209L.

United States District Court, D. Rhode Island.

January 9, 1996.

Jeffrey C. Schreck, Brown, Rudnick, Freed & Gesmer, Providence, RI, for Plaintiff.

Charles S. Sokoloff, Woonsocket, RI, for Defendant.

MEMORANDUM AND ORDER

LAGUEUX, Chief Judge.

This matter is now before the Court on the motion of plaintiff, Paul Revere Life Insurance Company ("Paul Revere"), for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiff seeks, inter alia, a declaratory judgment allowing it to rescind a disability insurance policy it issued to defendant, Ronald A. Fish ("Fish"), on the ground that defendant made material misrepresentations in his application for insurance. Defendant argues that plaintiff is estopped from rescinding his policy, since the misrepresentations were made by plaintiff's agent who had knowledge of their falsity. Defendant also denies the materiality of the misrepresentations in his application. Defendant has counterclaimed for monetary relief on the basis of plaintiff's alleged "bad faith" refusal to honor his claim under the insurance policy in violation of R.I.Gen.Laws § 9-1-33. Plaintiff now seeks summary judgment on its declaratory judgment claim and defendant's counterclaim. For the reasons that follow, plaintiff's motion for summary judgment is denied in toto.

I. Facts

Although there are relatively few undisputed facts in this case, the parties appear to agree on the following narrative. On March 27, 1992, Fish, a forty-six year old resident of Rhode Island, prepared an application for disability insurance with Paul Revere, a Massachusetts insurance company. Lawrence M. Halperin ("Halperin"), a licensed Rhode Island insurance broker and long time acquaintance of Fish, assisted Fish in the preparation of his application.

The application consisted of a series of questions about the applicant, including questions about his financial status and medical history. Handwritten answers were provided for all of the questions. The application also contained the following declaration:

I have read the statements and answers recorded above. They are, to the best of my knowledge and belief, true and complete and correctly recorded. They will become part of this Application and the basis for any policy issued on it.

Below this statement Fish placed his signature. Halperin also signed the application. The following statement preceded his signature: "I certify that I have truly and accurately recorded on this application the information supplied by the Proposed Insured."

On March 27, 1992, Halperin submitted the application to Paul Revere. Paul Revere approved the application, and a disability insurance policy was issued to Fish as of March 27, 1992.

Under Paul Revere's policy, Fish would receive a monthly benefit of $13,000 for each month of "Total Disability". "Total Disability" was defined as the policy holder being unable to perform the important duties of his occupation due to injury or sickness. Benefits would begin 91 days from the date of the disabling occurrence, and would continue up to a maximum of five years. Fish was required to pay $4,520.90 annually in premiums for this coverage. The policy provided for a contestability period of two years, and the application was incorporated into the insurance contract between the parties.

On August 2, 1993, Fish submitted a claim for disability benefits to Paul Revere on the policy. In the process of investigating Fish's claim, Paul Revere discovered several inaccuracies in Fish's application. On the basis of these alleged misrepresentations Paul Revere rejected Fish's claim.

Paul Revere contends that Fish made the following misrepresentations in his insurance application. Question 8 of the application asked, "have you ever used stimulants, hallucinogens, narcotics or any controlled substance other than prescribed by a physician, or been counseled or treated for excess use of alcohol or drugs?" The box indicating "no" had been checked. In his deposition, however, Fish admitted that he used cocaine twice a day, consuming approximately one gram per week, between 1980 and the beginning of 1986. Fish also stated that he used one-half an ounce of marijuana per month from 1985 to 1992, and that he used a negligible amount in 1993. Finally, Fish professed that he imbibed several alcoholic beverages a day during the 1980s.

Question 6 of the application asked: "have you ever been treated for or had any known indication of ... mental or emotional disorder." A negative reply was given. Fish stated in his deposition, however, that he had seen a counselor prior to March 1992, to deal with personal issues including his depression. Fish was, in fact, taking an antidepressant prescribed by a psychiatrist for some period prior to March 1992.

Paul Revere contends that Fish's application thus omitted information that was important in its assessment of Fish's insurance risk. Claiming that these misrepresentations were material, Paul Revere brought this declaratory judgment action pursuant to 28 U.S.C. § 2201, seeking rescission of the insurance policy.

In order to demonstrate the materiality of these misrepresentations, Paul Revere has submitted an affidavit by one of its underwriters who stated that in his opinion Paul Revere would have rejected Fish's application for disability insurance, if Fish had disclosed his history of substance abuse and depression. In support of his opinion, the underwriter referred to underwriting guidelines that were in place during March 1992.

Paul Revere's underwriting guidelines described generally the negative effects of substance abuse, and the increased risk that may arise from their use. The guidelines included various underwriting considerations, underwriting requirements, and underwriting action charts for each type of substance abuse. The underwriting action charts outlined the course of action that should be taken with respect to potential applicants with histories of substance abuse. The charts' results were contingent upon, among other things, the substance used, the frequency of use, and the date of most recent use.

According to Paul Revere's underwriter, the guidelines required that an individual with Fish's history of substance abuse be declined disability insurance. In particular, he observed that the underwriting action chart for cocaine stated that all non-experimental users should be declined coverage in all cases. Fish was clearly involved in more than "experimental use," defined by the guidelines as using cocaine once or twice. Likewise, the underwriting action chart for marijuana stated that applicants who used moderate to heavy amounts, i.e., more than four times per month, within the three years prior to applying should be declined coverage. Fish admits to using one-half an ounce of marijuana per month up to 1992.

Paul Revere has also submitted an affidavit by Halperin in which he described his role in assisting Fish with the preparation of Paul Revere's application. Halperin stated that he asked Fish the various questions on the application and filled out the application based on the answers provided by Fish. He then presented the application to Fish who reviewed and signed it. Halperin stated that Fish never admitted his history of substance abuse and depression to him, and that had he known this information, he would have advised Fish not to submit his application.

Fish's version of the events of March 27, 1992, is dramatically different. According to Fish's deposition testimony, Halperin never asked Fish any questions regarding his medical history in the process of completing the insurance application. Rather, Halperin presented Fish with a blank application which Fish signed. Fish contends that the application was subsequently filled out by Halperin.

Although Fish does not deny the presence of misrepresentations in his application, he argues that he is not legally responsible for them, since they were made by Halperin. Fish contends that Halperin was an agent of Paul Revere, and that Halperin knew of Fish's substance abuse at the time Halperin completed the application. Therefore, Fish alleges that Paul Revere is estopped from denying coverage, since the misrepresentations were made by its agent who had knowledge of their falsity.

To support his claim that Halperin was Paul Revere's agent, or that he acted with apparent authority, Fish has submitted a business proposal describing Paul Revere's insurance policy that he received from Halperin. The proposal states that it was prepared by Halperin, and it bears Paul Revere's name on the cover page and on the footer of all subsequent pages. Although it states that it was prepared by Halperin, its language seems to indicate that it had been drafted by an employee of Paul Revere.¹

Fish also denies that the misrepresentations in his application were material. Therefore, Fish argues that he did not make a material misrepresentation in his application for insurance with Paul Revere. Consequently, Fish contends that Paul Revere is obligated to honor the insurance policy, and he has filed a counterclaim against Paul Revere under R.I.Gen.Laws § 9-1-33 for its alleged "bad faith" in failing to pay his claim.

Paul Revere responds that Halperin was not its agent, and argues that he was, in fact, Fish's agent. It also disputes the contention that Halperin acted with apparent authority as an agent of Paul Revere. In support of its position, Paul Revere relies on Halperin's affidavit, in which he stated that he had relationships with several disability insurance carriers, and that he had sold Fish insurance from other companies prior to March 27, 1992. Therefore, Paul Revere moves for summary judgment on its declaratory judgment action and on defendant's counterclaim. After hearing oral arguments on plaintiff's motion, the...