Principal Life Ins. Co. v. Doctors Vision Ctr. I, PLLC
| Decision Date | 01 December 2014 |
| Docket Number | CIVIL ACTION NO. 5:12-CV-00125-JHM |
| Parties | PRINCIPAL LIFE INSURANCE COMPANY PLAINTIFF v. DOCTORS VISION CENTER I, PLLC and KENNETH B. GROGAN DEFENDANTS and DOCTORS VISION CENTER I, PLLC CROSS-CLAIMANT v. KENNETH B. GROGAN CROSS-DEFENDANT |
| Court | U.S. District Court — Western District of Kentucky |
This matter is before the Court on Principal Life Insurance Company's ("Principal Life") Motion for Partial Summary Judgment [DN 48], Doctors Vision Center I, PLLC's ("DVC") Motion for Additional Discovery [DN 56], Principal Life's Second Motion for Partial Summary Judgment [DN 66], DVC's Second Motion for Additional Discovery [DN 69], and DVC's Motion to Exclude Expert Witness [DN 70]. Fully briefed, this matter is ripe for decision. For the following reasons, Principal Life's Motion for Partial Summary Judgment is GRANTED, DVC's Motion for Additional Discovery is DENIED, and the remaining motions are DENIED as moot. Additionally, DVC's bad faith claims against Principal Life are DISMISSED with prejudice and DVC's crossclaims against Dr. Grogan are DISMISSED without prejudice.
This case arises from the denial of Defendant Kenneth B. Grogan's ("Dr. Grogan") claim for disability insurance benefits under a Key Person Replacement Policy ("the Policy") issued byPlaintiff Principal Life and owned by Defendant DVC. On December 11, 2009, Dr. Grogan, an owner and employee of DVC, and DVC submitted an application for the subject policy. (See Application [DN 48-3] 2.) Under the Policy's terms, Principal Life was to pay benefits to DVC, the owner, if Dr. Grogan, the insured, became disabled. The Policy was subject to various conditions, exclusions, and definitions, including the Mental/Nervous Exclusion Rider ("the Policy Rider" or "the Rider") at issue here. The Mental/Nervous Exclusion Rider states:
(Grogan Policy [DN 48-2] 28 (emphasis added).) The Rider, as well as the rest of the Policy documents, was signed by Dr. Grogan and DVC on March 25, 2010. (Id. at 25-29.)
On April 5, 2010, Dr. Grogan was admitted to a rehabilitation facility, Metro Atlanta Recovery Residence ("MARR"), for alcohol and opiates, as well as secondary issues. (See Apr. 9, 2012 Letter [DN 48-13] 8-9; MARR Diagnosis Report [DN 66-4] 9.) He was discharged July 3, 2010. His discharge diagnoses included alcohol dependence and opioid dependence. (Apr. 9, 2012 Letter [DN 48-13] 9; MARR Diagnosis Report [DN 66-4] 9.) On September 16, 2011, Dr. Grogan was diagnosed by his physician Dr. Troy Nelson with alcohol dependence and alcohol abuse. (Apr. 9, 2012 Letter [DN 48-13] 7-8; Dr. Nelson Medical Records [DN 48-6] 1.)Thereafter, two claims were filed for disability benefits to Principal Life on the Policy. The first on October 24, 2011, signed by "Jerry Grogan POA," stated that Dr. Grogan claimed disability beginning in September 2011 for "Alcohol & Substance Abuse." (Oct. 24, 2011 Claim [DN 48-7] 1, 4.) However, the Power of Attorney that accompanied the claim form was not notarized. (See Grogan Power of Attorney [DN 48-8] 5.) Thus, on December 7, 2011, Dr. Grogan submitted a second claim form to Principal Life that he had signed, claiming "Total Disability" beginning in April 2010 for "CD - Chemical Dependency." (Dec. 7, 2011 Claim [DN 48-9] 1.)
Principal Life denied the claim in a March 1, 2012 letter, stating in pertinent part, "Dr. Grogan is not Disabled under the terms of the policy" because "he is claiming Disability for a medical condition that is specifically excluded by the policy. " (Mar. 1, 2012 Letter [DN 48-12] 3.) In the letter, Principal Life also stated that it had "yet to make a determination regarding the validity of the policy" and that it was "reviewing Dr. Grogan's claim to determine if there were misrepresentations or omissions in the application" that might affect his eligibility for coverage. (Id. at 1.)
Thereafter, DVC sought an additional explanation for the denial of the claim. After receiving Dr. Grogan's signed authorization allowing Principal Life to release his medical information, Principal Life sent DVC a letter further explaining the denial. (Apr. 9, 2012 Letter [DN 48-13].) In the letter, Principal Life noted a number of specific misrepresentations or omissions in the application for the Policy. (Id. at 9.) The letter also reviewed the information Principal Life had received pursuant to its investigation of Dr. Grogan's claim. Then, noting that the "Mental/Nervous Exclusion Rider" of the Policy stated that Principal Life would not pay policy benefits for "any other DSM-IV diagnosis," Principal Life stated, "All Substance Abuse disorders are listed as DSM-IV diagnoses and can be found on page 191 of the latest edition ofthis manual: Diagnostic and Statistical Manual of Mental Disorders-Fourth Edition-Text Revision DSM-IV-TR." (Id. at 10.)
In a letter dated June 26, 2012, DVC, through counsel, requested reconsideration of the denial. (June 26, 2012 Letter [DN 48-14] 1.) Initially, Principal Life promised a response within thirty days. It then asked for an extension through August 24, 2012. After receiving the extension, Principal Life affirmed its denial on August 23, 2012, reiterating that Dr. Grogan was not disabled under the terms of the Policy because he claimed disability for a medical condition that was specifically excluded by a rider. (Aug. 23, 2012 Letter [DN 48-15] 4.) Principal Life also advised DVC that it "would not have issued the policy on Grogan if it had known . . . that [he] was disabled and not actively working when he and DVC signed and submitted the Disability Insurance Application Part D . . . on or about March 25, 2010." (Id.) Principal Life stated that DVC's and Dr. Grogan's material and/or fraudulent misrepresentations, omissions, and incorrect statements in the Policy application entitled Principal Life to rescission of the Policy or a declaration that it is void ab initio. (Id. at 4-5.)
Principal Life also advised DVC of its decision to file a civil action for the rescission of the subject policy and, alternatively, for a declination of Dr. Grogan's claim for benefits. (Id. at 5.) Principal Life filed this action for a declaratory judgment [DN 1] against DVC and Dr. Grogan the next day, on August 24, 2012. In count I of its Complaint (the "rescission" claim), Principal Life seeks to either rescind the Policy or obtain a declaration that the Policy was void ab initio due to fraudulent or material misrepresentations by DVC and Grogan in the Policy application. In the alternative, in count II of its Complaint (the "coverage" claim), Principal Life seeks a declaration that Dr. Grogan was not disabled under theterms of the Policy because he claimed a disability for a medical condition that was specifically excluded by a Policy rider, and that there is therefore no coverage under the Policy. (Id. ¶ 28.)
On September 18, 2012, DVC filed its Answer to the complaint along with a Counterclaim and Crossclaim [DN 7]. In its Counterclaim against Principal Life, DVC brought a claim for breach of contract based on Principal Life's refusal to pay benefits under the Policy and claims for common law and statutory bad faith. (Def. DVC's Countercl. [DN 7] ¶¶ 17-26.) In its Crossclaim against Dr. Grogan, DVC asserts claims for breach of fiduciary duty, fraud and fraudulent misrepresentation, negligent misrepresentation, and tortious interference with a contractual relationship. (Def. DVC's Crosscl. [DN 7] ¶¶ 5-19.)
On December 11, 2012, DVC moved to dismiss this action on the basis of two McCracken Circuit Court actions that had been filed over three months after this action, neither of which named Principal Life as a party [DN 19].1 In a Memorandum Opinion and Order dated April 15, 2013, this Court denied DVC's Motion to Dismiss [DN 25].
Principal Life then moved to bifurcate Principal Life's rescission and coverage claims and the corresponding breach of contract counterclaim from DVC's bad faith claims and to stay discovery on the bad faith claims pending the resolution of the rescission and coverage claims [DN 35]. This Court granted the Motion to Bifurcate and the Motion to Stay Discovery by Order dated December 3, 2013 [DN 41].
On March 7, 2014, counsel for DVC sent a letter to counsel for Principal Life requesting a deposition date for Principal Life's corporate representative. (Mar. 7, 2014 Letter [DN 56-2].)Principal Life's counsel responded via letter, on March 12, 2014, noting that he had conveyed DVC's request to Principal Life. (Mar. 12, 2014 Letter [DN 56-3].)
On March 26, 2014, Principal Life filed a Motion for Partial Summary Judgment (the "Coverage Summary Judgment Motion") [DN 48], seeking summary judgment as to its coverage claim and DVC's counterclaim for breach of contract. On April 2, 2014, counsel for Principal Life sent a letter to counsel for DVC seeking DVC's agreement to stay discovery pending resolution of that summary judgment motion on the basis that the motion involved pure questions of law (contract interpretation) that could effectively end the case as to Principal Life. (Apr....
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