Piper v. American Nat. Life Ins. Co. of Texas

• Decision Date: 26 September 2002
• Docket Number: No. CIV.A.1:CV-99-2190.,CIV.A.1:CV-99-2190.
• Citation: 228 F.Supp.2d 553
• Parties: Donald E. PIPER, Sr., Diana L. Piper, Plaintiffs, v. AMERICAN NATIONAL LIFE INSURANCE COMPANY OF TEXAS, Insurance Agency of America, Inc., National Business Association Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

Page 553

228 F.Supp.2d 553

Donald E. PIPER, Sr., Diana L. Piper, Plaintiffs, v. AMERICAN NATIONAL LIFE INSURANCE COMPANY OF TEXAS, Insurance Agency of America, Inc., National Business Association Defendants.

No. CIV.A.1:CV-99-2190.

United States District Court, M.D. Pennsylvania.

September 26, 2002.

COPYRIGHT MATERIAL OMITTED

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Dory L. Sater, Shagin & Anstine LLC, Harrisburg, PA, Crag R. Shagin, Shagin & Anstine LLC, Harrisburg, PA, for Plaintiffs.

Jonathan H. Rudd, McNees, Wallace & Nurick, Harrisburg, PA, Janet L. Rushing, Greer, Herz & Adams, Galveston, TX, for American Nat'l Life Ins. Co. of Texas.

Michael D. Reed, Mette, Evans & Woodside, Harrisburg, PA, for Nat'l Business Ass'n.

MEMORANDUM AND ORDER

KANE, District Judge.

Currently pending before the Court are two motions to dismiss. The first, filed October 2, 2000, is a motion to dismiss Plaintiffs' amended complaint by Defendant American National Life Insurance Company of Texas ("American National"). After the filing of American National's motion to dismiss, the Plaintiffs filed their second amended complaint. By stipulation (Doc. No. 42) between Plaintiffs and American National, the motion to dismiss the amended complaint now applies to all of the claims asserted in the second amended complaint. The second motion to dismiss, which addresses the second amended complaint, was filed by Defendant National Business Association ("NBA") on August 20, 2001. American National and NBA will be known collectively as "Defendants."

The motions have been fully briefed and are ripe for disposition. This Memorandum and Order addresses the merits of each motion seriatum. For the reasons given below, American National's motion will be denied as to Counts I-IV, and granted as to Counts V-VIII, and NBA's motion will be denied as to Counts I-IV, and granted as to Counts V-VIII.

I. Background

Plaintiffs Donald E. Piper, Sr. ("Mr.Piper") and Diana L. Piper ("Mrs.Piper") (collectively, "Plaintiffs") make the following allegations against defendants. On November 19, 1998, Plaintiffs discussed the purchase of health insurance coverage with an insurance salesperson named Dennis Shillen ("Mr.Shillen"). Plaintiffs allege that Mr. Shillen was recruited and trained by NBA, and that he was an authorized agent of American National. Plaintiffs filled out and signed an application for group health insurance that would be provided by American National. In order to be enrolled in the group policy, which was issued by American National to NBA, Plaintiffs were required to become members of NBA. Therefore, Plaintiffs joined NBA at the same time they applied for the health insurance, paying a $12 fee for the membership.

On the application form, in a box marked "Special Request," Mr. Shillen wrote "EFF. 12/28/98" to indicate Plaintiffs' desire to have coverage begin on or before December 28, 1998. Plaintiffs allege that this effective date was an important consideration for them because their Blue Cross/Blue Shield coverage was expired. As of November 19, 1998, it was still possible for Plaintiffs to reinstate their lapsed Blue Cross/Blue Shield health insurance by paying the outstanding premium no later than November 30, 1998. They further aver that they relied on Mr. Shillen's representation that their American National/NBA policy would become effective by December 28, 1998 when they decided not to reinstate their Blue Cross/Blue Shield policy.

Another major concern for the Plaintiffs was Mr. Piper's hypertension, for which he had been treated for several years and which they wanted to be covered by their new health insurance policy. Plaintiffs claim that they discussed this concern with Mr. Shillen and disclosed Mr. Piper's hypertension on the application form, and that he did not inform them of any pre-existing condition restrictions. The second amended complaint also avers that Shillen did not know of the pre-existing condition term in the policy he was selling because Defendants failed to train him properly.

The insurance policy did not become effective by December 28, 1998. Plaintiffs assert that the application process was delayed by American National's failure to obtain and review Mr. Piper's medical records. Mr. Piper suffered a heart attack on January 15, 1999, underwent bypass surgery on January 19, 1999, and was hospitalized until January 31, 1999. Plaintiffs' insurance coverage became effective on February 1, 1999. American National refused to pay for any of the medical bills incurred during January 1999 because the coverage did not become effective until February 1, 1999. American National also refused to pay for medical bills incurred after February 1, 1999 that were attributable to the heart attack because of the preexisting condition policy.

II. Jurisdiction

The Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. Plaintiffs are citizens of Pennsylvania. American National is a Texas corporation with its principal place of business in Galveston, Texas, and NBA is a Mississippi nonprofit organization with its principal place of business in Dallas, Texas. The amount in controversy exceeds the statutory minimum. The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 over Count VIII only.¹

III. Federal Rule of Civil Procedure 12(b)(6)

"A motion to dismiss pursuant to Rule 12(b)(6) may be granted only if, accepting all well pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir.1997). "A court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).²

IV. Discussion

The parties agree that Pennsylvania law applies to the present dispute. Because this is a suit in diversity and many of the significant events, such as the solicitation, the filling out of the application, the eventual issuance of insurance, the underlying injury and the medical treatment, all occurred in Pennsylvania, the Court will apply Pennsylvania law.

A. American National's Motion to Dismiss

Count I: Fraudulent Concealment

Plaintiffs allege fraudulent concealment in Count I of the second amended complaint. They allege that the Defendants' agent and application form failed to inform them of the pre-existing condition policy that would be in the insurance contract. Plaintiffs alleged that the pre-existing condition policy barred coverage of Mr. Piper's heart attack and hypertension.³ Had the Plaintiffs known of this policy, they would not have enrolled, and they would have reinstated their lapsed Blue Cross/Blue Shield coverage.

The elements of fraudulent misrepresentation under Pennsylvania law are:

(1) a false representation of an existing fact or a non-privileged failure to disclose; (2) materiality, unless the misrepresentation is intentional or involves a non-privileged failure to disclose; (3) scienter, which may be either actual knowledge or reckless indifference to the truth; (4) justifiable reliance on the misrepresentation, so that the exercise of common prudence or diligence could not have ascertained the truth; and (5) damage as a proximate result.

Fisher v. Aetna Life Ins. & Annuity Co., 39 F.Supp.2d 508, 511 (M.D.Pa.1998). "The concealment of a material fact can amount to a culpable misrepresentation no less than does an intentional false statement." Moser v. DeSetta, 527 Pa. 157, 589 A.2d 679, 682 (1991). "[F]raud arises ... where there is an intentional concealment calculated to deceive ...." Smith v. Renaut, 387 Pa.Super. 299, 564 A.2d 188, 192 (1989).

In the second amended complaint, the Plaintiffs allege that: 1) Defendants "deliberately concealed" the nature of the health insurance's pre-existing condition policy in order to increase sales of its insurance; 2) the pre-existing condition policy was an important aspect of the Plaintiff's decision to purchase the offered health insurance, and, the concealment was intentional;⁴ 3) Defendants knew or should have known that the pre-existing condition policy would be important to the Plaintiffs and that the policy offered would not cover pre-existing conditions; 4) their reliance was justifiable (implied in ¶ 26 of Complaint, and asserted in ¶ 66 as part of Count II);⁵ and 5) Plaintiffs suffered financial loss and personal injury as a result of their reliance on Defendants' representations because they would have otherwise retained their Blue Cross/Blue Shield policy. These facts as alleged permit recovery for fraudulent concealment, so Court I will not be dismissed.

Count II: Fraudulent Inducement

Plaintiffs allege that the Defendants fraudulently induced them by making misleading statements regarding the starting date of coverage. Mr. Shillen wrote "EFF. 12/28/98" on the application form. This caused Plaintiffs to apply for the insurance and not reinstate their lapsed Blue Cross/Blue Shield coverage.

The elements that must be alleged for a claim of fraudulent inducement are similar to those for fraudulent concealment in Count I above: 1) a false representation; 2) materiality; 3) scienter; 4) justifiable reliance; and 5) damage as a proximate result. The false representation alleged is that if the application for insurance were approved, the effective date would be the one requested by Plaintiffs, promised by the Defendants' agent, and written on the application. The second element, that the starting date was a material aspect of the transaction, is sufficiently alleged. The third element is met because Plaintiffs allege that Defendants' agent represented to them, by writing "EFF. 12/28/98," that the effective date of the would be December 28, 1998, that Defendants knew or should have known of the falsity because they trained Mr....