Taylor v. Sentry Life Ins. Co.

• Decision Date: 30 March 1984
• Docket Number: No. 83-6057,83-6057
• Citation: 729 F.2d 652
• Parties: Karen TAYLOR, Plaintiff/Appellant, v. SENTRY LIFE INSURANCE COMPANY, Kirke-Van Orsdel, Inc., National Rifle Association, National Rifle Association Insurance Trust, and Does 1 through 100, Defendants/Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 652

729 F.2d 652

Karen TAYLOR, Plaintiff/Appellant, v. SENTRY LIFE INSURANCE COMPANY, Kirke-Van Orsdel, Inc.,

National Rifle Association, National Rifle

Association Insurance Trust, and Does 1

through 100, Defendants/Appellees.

No. 83-6057.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 10, 1984.

Decided March 30, 1984.

John Hagen, Joseph E. Deering, Jr., Deering, Walther & Sands, Santa Monica, Cal., for plaintiff/appellant.

Terry Sterling, Adams, Duque & Hazeltine, Los Angeles, Cal., for defendants/appellees.

Appeal from the United States District Court for the Central District of California.

Before CHOY, NELSON and CANBY, Circuit Judges.

PER CURIAM:

Karen Taylor appeals from the district court's order granting summary judgment in favor of Sentry Insurance Company (Sentry) and its co-defendants. Taylor sued Sentry for breach of various state common law and statutory duties after Sentry rescinded a certificate of life insurance issued to Karen Taylor's mother, Barbara. Both parties agree that Barbara Taylor misrepresented facts about her health on her insurance application. On appeal Taylor contends that the district court's order was erroneous in light of the several issues of material fact she alleged were still outstanding. Sentry argues that Taylor's appeal is frivolous and requests an award of attorney's fees. We affirm the order granting summary judgment and award attorney's fees and costs to defendants.

Facts and Procedural Background

This case arises out of a claim by Karen Taylor under a certificate of life insurance issued to her mother Barbara Taylor. The insurance was offered by Sentry through Kirke-Van Orsdel, Inc. to members of the National Rifle Association (NRA). After reading the NRA's Guidebook to Membership Services, Barbara Taylor applied to Sentry on February 19, 1981, for $25,000 coverage.

The first question on the application form asked the applicant to fill in various boxes with specified information, including her weight. Barbara Taylor filled in that box with "186 lbs," although she actually weighed over 300 pounds. The form also asked whether the applicant had been treated for any of a number of specific diseases, including diabetes, and whether he or she had consulted a physician for any illness during the past five years. Barbara Taylor answered both questions "no." For several years, however, she had in fact suffered from diabetes mellitus and had regularly consulted a physician who prescribed insulin for treatment. The application concluded with a provision asking the applicant to affirm the truthfulness of all answers and noting that those answers would form the basis of the contract between Sentry and the insured represented by the certificate of insurance. Barbara Taylor signed that provision. Based on the information provided in the application Sentry issued the certificate for the amount she requested.

Barbara Taylor paid all applicable premiums until her death one year later on January 26, 1982. In late February her daughter Karen filed a claim with Sentry. Pursuant to Cal.Ins.Code Sec. 10206, the policy contained a clause stating that Sentry could not contest the validity of its issuance after two years. Since Barbara Taylor had died within the contestable period, Sentry sought appropriate documentation of her daughter's claim. Once it received the records of her treating physician, which indicated the actual state of her health when she applied for insurance, Sentry determined that it would not have insured Barbara Taylor had it known her true health history. Accordingly, Sentry rescinded the certificate, denied the Taylor claim, and refunded the full amount of premiums paid.

Karen Taylor sued Sentry in the California Superior Court of Los Angeles alleging numerous state common law and statutory claims. Sentry removed the suit to the District Court for the Central District of California on the basis of diversity of citizenship pursuant to 28 U.S.C. Secs. 1332, 1441. Sentry moved for summary judgment and the court granted its motion on June 20, 1983. Karen Taylor appeals alleging that material issues of fact remain to be decided. Sentry requests attorney's fees on the ground that Taylor's appeal is frivolous.

Discussion

I. Summary Judgment

The district court ruled that Karen Taylor failed to present triable issues of material fact concerning Sentry's denial of her claim for insurance benefits under her mother's policy. On appeal, the question whether summary judgment was properly granted is one of law. Boone v. Mechanical Specialities Co., 609 F.2d 956, 958 (9th Cir.1979). The standard governing this court's review is the same as that employed by the trial court under Fed.R.Civ.P. 56(c). Twentieth Century-Fox Film Corp. v. MCA, Inc., 715 F.2d 1327, 1328 (9th Cir.1983). This court must view the evidence and inferences therefrom in the light most favorable to the nonmoving party. Angel v. Seattle-First National Bank, 653 F.2d 1293 (9th Cir.1981).

A. Rescission

Sentry correctly frames the issue as whether an insurance company may rescind a certificate of insurance issued on the basis of material misrepresentations by an insured about her medical condition. Because Barbara Taylor resided in California, the contract was made in California, and jurisdiction is based on diversity of citizenship, this question is governed by California law. See Merchants Fire Assurance Corp. v. Lattimore, 263 F.2d 232, 239 & n. 6 (9th Cir.1959). Substantial deference will be accorded the district court's interpretation of the law of the state in which it sits. Pacific Mutual Life Ins. Co. v. Am. Guar. Life Ins., 722 F.2d 1498 (9th Cir.1984). Ordinarily we will accept that determination unless it is "clearly wrong." In re Mistura, Inc., 705 F.2d 1496, 1497 (9th Cir.1983).

Cal.Ins.Code Secs. 331 and 359 state that material misrepresentations or concealments in an application for insurance are grounds for rescission of the policy. Karen Taylor concedes that her mother concealed her actual weight and her diabetic condition from Sentry. Cal.Ins.Code Sec. 334 specifies that "[m]ateriality is to be determined ... solely by the probable and reasonable influence of the facts upon the party to whom the communication is due...." The sole question to be resolved, therefore, is whether Barbara Taylor's misrepresentations to Sentry were material under California law.

In the course of selecting and classifying its risks, a life insurance company may demand a truthful statement of the applicant's medical history. Burns v. Prudential Ins. Co., 201 Cal.App.2d 868, 869-70, 20 Cal.Rptr. 535 (1962). That the insurer puts questions in writing and asks for written answers has itself been deemed proof of materiality. See Cohen v. Penn Mutual Life Ins. Co., 48 Cal.2d 720, 726, 312 P.2d 241 (1957). Sentry's application asked Barbara Taylor specific questions about named diseases and medical consultations. When an applicant is asked specific questions as to his medical history, false answers have been held to vitiate the contract. See, e.g., Cohen, supra, 48 Cal.2d at 725, 312 P.2d 241 (heart symptoms); Parrish v. Acacia Mutual Life Ins. Co., 92 F.Supp. 300 (S.D.Cal.1949) (ulcer).

Other cases, however, inquire into the nature of the information withheld, and the likely practice of the insurance company had the concealed facts been truthfully disclosed. See, e.g., Burns, supra, 201 Cal.App.2d at 872, 20 Cal.Rptr. 535. The test is the effect which truthful answers would have had upon the insurer. Id. at 871, 20 Cal.Rptr. 535. In the present case, Sentry submitted uncontradicted affidavits to the effect that it would not have issued life insurance to Barbara Taylor had it known her actual medical condition. Sentry uses a "debit" system to determine the risk of covering particular applicants. Sentry accepts only those applicants who present standard risks--those whose physical conditions represent 0-50 debits. Had Sentry known of Barbara Taylor's actual weight, it would have added at least 200 debits to her eligibility rating. Her diabetes and dependence on insulin would have added another 100 debits. Moreover, the combination of obesity and diabetes would have added 100 more debits to the sum of the ratings. Under California law Sentry was entitled to determine for itself whether Barbara Taylor was insurable. Because the misrepresentations she made were obviously material to that determination, Sentry was entitled to rescind her certificate of insurance.

B. Deceptive Advertising

Karen Taylor claims that Barbara Taylor believed, on the basis of the NRA Guide, that she was entitled to insurance regardless of her physical condition. She argues that Barbara Taylor thus did not appreciate the need to answer the questions on Sentry's application truthfully.

The material distributed to Barbara Taylor merely stated that NRA members are eligible to apply for life insurance. The NRA Guide did offer certain kinds of insurance, such as property insurance for firearms and insurance for firearm-related accidents, without regard to eligibility criteria. The offer of life insurance, however, was discussed in a separate section of the pamphlet. Karen Taylor has offered no evidence that a reasonable person of ordinary understanding would interpret either the NRA offer or Sentry's application as Barbara Taylor allegedly did. See Ransom v. Penn Mutual Life Ins. Co., 43 Cal.2d 420, 424, 274 P.2d 633 (1954). Furthermore, Barbara Taylor's own actions with respect to the application undermine Karen Taylor's contention. That Barbara Taylor falsified her weight, withheld information about her diabetes, and signed the provision affirming the truthfulness of her answers all tend to show that she appreciated the importance Sentry placed on the application. Moreover, Sentry need not show that Barbara Taylor actually intended to deceive it. A fraudulent intent to deceive is not necessary for...