Phx. Life Ins. Co. v. Ilit, Index # 104205/10

• Decision Date: 09 August 2011
• Docket Number: Index # 104205/10
• Parties: Phoenix Life Insurance Company, Plaintiff, v. The Antonio Adam ILIT, Defendant.
• Court: New York Supreme Court

2011 NY Slip Op 34101(U)

Phoenix Life Insurance Company, Plaintiff, v. The Antonio Adam ILIT, Defendant.

Index # 104205/10

Supreme Court of the State of New York County of New York: Part 10

August 9, 2011

Decision/Order

Mot. Seq. # 002

Present:

Hon. Judith J. Gische

J.S.C.

Pursuant to CPLR 2219(a) the court considered the following numbered pape this motion:

Upon the foregoing papers the decision and order of the court is as follows:

Defendant, the Antoio Adam ILIT ("Adam Trust") seeks partial summary judgment. Plaintiff, Phoenix Life Insurance Company ("Phoenix") opposes. Issue has been joined and no note of issue has been or is past due to be filed. The motion is, therefore, properly before the court and will be considered on its merits. CPLR § 3212; Brill v. City of New York, 2 NY3d 648 (2004); Mvunq Chun v. North American Mortgage Co., 285 A.D.2d 42 (1st Dept. 2001).

None of the material facts are in dispute. The issue before the court is the remedy available to an insurance party seeking to rescind a life insurance policy ("policy") it previously issued.

In or about March 2008, the Adam Trust purchased a life insurance policy ("policy") from Phoenix on the life of Antonio Adam ("Adam") in the amount of seven million dollars ($7,000,000). There is no dispute that the Adam Trust paid the required premiums. On March 31, 2010, however, Phoenix filed this action claiming that the Adam Trust and Antonio Adam had made material representations relating to Adam's net worth and income in the application to procure insurance.

Phoenix has asserted two causes of action in the complaint for misrepresentation. The first cause of action seeks rescission of the policy and the second cause of action is for a declaratory judgment that the policy is void and unenforceable. The premiums previously paid by the Adam Trust to Phoenix were deposited with the court.

In its complaint Phoenix alleges the following damages in connection with its claim for recision:

"Phoenix has been damaged as a result of the foregoing material representations, in that incurred expenses and costs in connection with, among other things, its underwriting and issuance of the Policy, payments of commissions and fees in connection with the issuance of the Policy, administration and servicing of the Policy, investigation of the misrepresentations and concealments detailed above and the commencement of this action to enforce its rights." (Complaint ¶ 24).

Adam Trust is willing to agree to the rescission of the policy, but it does not agree that it is legally responsible to pay any of the damages demanded by Phoenix. Indeed Adam Trust believes that if it agrees to rescission, it is entitled to have the paid previously paid premiums refunded. Because Phoenix has refused the tender without the payment of its damages, Adam Trust has moved for partial summary judgmentdismissing, as a matter of law, the damages Phoenix seeks on its cause of action for rescission of the policy. Phoenix claims that this case is not ripe for summary adjudication, but that even if it is, Phoenix argues that where a policy is rescinded based upon the insureds' fraud, the insurer is entitled to offset its costs and/or retain some or all of the commissions.

DISCUSSION

A movant seeking summary judgment in its favor must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case " Wineqrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853 (1985). The evidentiary proof tendered, however, must be in admissible form. Friends of Animals v. Assoc. Fur Manufacturers, 46 N.Y.2d 1065 (1979). Once met, this burden shifts to the opposing party who must then demonstrate the existence of a triable issue of fact. Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 (1986); Zuckerman v. City of New York. 49 N.Y.2d 557 (1980). When only an issue of law is raised in connection with a motion for summary judgment, the court may and should resolve it without the need for a testimonial hearing. See: Hindes v. Weisz, 303 A.D.2d 459 (2^nd Dept 2003).

Preliminarily, the court rejects Phoenix's argument that this motion is premature because discovery is not complete. This motion addresses only an issue of law. Phoenix has not shown that the discovery it still seeks would be material and necessary to the issues raised on this motion. Kronish Leib Weiner & Hellman LLP v. Tahari, Ltd., 35 AD3d 317 (1^st dept. 2006).

An insurance policy is a contract. Gram v. Mutual Life Ins. Co. Of NY, 300 NY375 (1950). Rescission of a contract is an equitable remedy that is appropriate when there is no remedy at law. It seeks to put the parties back into the position that they were in prior to the time they entered into the contract. Consequently, it is only available when the pre-contract status quo can be substantially restored. Singh v. Carrington, 18 AD3d 855 (2^nd dept. 2005). Rescission may be an appropriate remedy where a party was fraudulently induced into entering into a particular contract. Sorbaro Co. v. Captial Video Corp., 245 AD2d 364 (2^nd dept. 1997). In such circumstances, the fact that claimed wrongdoer can not be restored to a pre-contract position will not necessarily bar the remedy. Sokolow, Danaud, Mercadier & Carreras v. Lacher, 299 AD2d 64 (1^st dept. 2002).

Where a party's claims are based upon a theory of fraudulent inducement, both a claim for rescission and a claim for fraud my be plead in the complaint. By the time of trial, however, the party must choose the theory s/he is proceeding under. Libassi v. Chelli. 206 AD2d 508 (2^nd dept. 1994). This is because the remedies are inconsistent, rescission vitiates a contract while a claim of fraud affirms the existence of such contract. Thus, at some point, a party to a lawsuit must elect the remedy it wants to proceed under. Vitale v. Coyne Realty, 66 AD2d 562 (4^th dept. 1979).

Where a party elects rescission as opposed to claiming fraud, however, the court is not necessarily restricted against granting other appropriate relief. If complete restoration is impossible, the terms upon which rescission may be granted rest within the sound discretion of the court. Wiebusch v. Hayes, 263 AD2d 389 (1^st dept. 1999); Ungewitter v. Toch, 31 AD2d 583 (3^rd dept. 1968); Vitale v. Coyne Realty, supra; Copland v. Nathaniel 164 Misc2d 507 (Sup Ct. West. Co, 1995); see also Shomron v.Griffen, 70 AD3d 406 (1^st dept. 2010). Rescission, as an equitable remedy, is not so rigid that its rules should be applied in such a way as to become a shield for wrongdoing. Sokolow, Danaud, Mercadier & Carreras v. Lacher, supra. The court has the discretion to award damages in lieu of an equitable remedy where equity impracticable or impossible. Wiebusch v. Haves, supra.

There are specific New York cases that deal with the issue of rescission in the context of insurance policies that have been obtained fraudulently. The remedy of rescission is generally available for fraudulently obtained insurance policies. Such a remedy, however, requires that the insured get credit for the premiums previously paid. Micho v. Bankers' Life Ins. Co, 124 AD 578 (1^st dept. 1908); La Rocca v. John Hancock Mutual Life Ins., 174 Misc 89 (Sup. Ct. AT 1^st dept); Bordon v. Paul Revere Life Ins. Co., 935 F2d 370 (1^st Cir., 1991).

The parties' dispute centers around whether, in addition to rescission, Phoenix can also be awarded monetary damages that would put it back into the position that it was in before it issued the policy.

In Mincho v. Bankers Life Ins Co., supra, the Appellate Division of this department considered the rights of the parties where an insurance company claimed that the policy it issued had been procured by fraud. It held that if a party seeking to rescind a policy of insurance "has incurred expense, or otherwise incurred damage, by reasons of the fraud, equity will not compel him to pay back all he has received but only such part as remains after deducting his loss." Notwithstanding that Mincho is a very old case, the rule of law is still valid. It is consistent with the general propositions of law related to rescission, as stated above, that the terms of rescission may includealternative or additional relief to restore the parties to a pre-policy status quo. Wiebusch v. Hayes, supra; Ungewitter v. Toch, supra. It was also recently relied upon in the May 17, 2010 Report and Recommendation of Magistrate...