Time Ins. Co. v. Bishop, 920348

• Decision Date: 08 January 1993
• Docket Number: No. 920348,920348
• Citation: 245 Va. 48,425 S.E.2d 489
• Parties: TIME INSURANCE COMPANY v. Doris J. BISHOP, Individually and as Administrator of the Estate of Beeken E. Bishop, Deceased. Record
• Court: Virginia Supreme Court

Page 489

425 S.E.2d 489

245 Va. 48

TIME INSURANCE COMPANY v. Doris J. BISHOP, Individually and as Administrator of the Estate of Beeken E. Bishop, Deceased.

Record No. 920348.

Supreme Court of Virginia.

Jan. 8, 1993.

Melissa Warner Scoggins, Daniel Patrick Frankl, Roanoke (Gentry, Locke, Rakes & Moore, on briefs), for appellant.

Charles R. Beller, III, Christiansburg (Paul M. Barnett, Crowgey & Barnett, on brief), for appellee.

Present: All the Justices.

WHITING, Justice.

The sole issue in this insurance case is whether the evidence establishes as a matter of law that an insured knowingly misrepresented a material fact in his application for insurance.

On July 1, 1987, Beeken E. Bishop applied for a policy of hospitalization and life insurance to be issued by Time Insurance Company (Time). Charles M. James, an agent of Time, filled in an application for this insurance by recording Bishop's answers to the questions on Time's application form. In a section entitled "Evidence of Insurability," the following question was asked of Bishop: "To the best of your knowledge and belief, have you or any family member applying for the insurance: 1. Ever had any indication, diagnosis or treatment for: ... use of alcohol or drugs?" James recorded Bishop's negative response in the "No" block opposite this question.

In fact, however, unbeknownst to Time or James, Dr. Michael E. Slayton, an internal medicine specialist in Montgomery County, had been treating Bishop during the preceding 15-month period for physical problems arising out of Bishop's abuse of alcohol. Dr. Slayton's treatment involved eight office visits and one hospitalization.

James checked the appropriate "Yes" blocks to indicate Bishop's affirmative responses concerning his confinement in a hospital during the preceding five years and his treatment by a physician within the preceding two years. And, with the information furnished by Bishop, in the blank space next to these questions, James wrote: "Beeken had Broken Blood Vessell in Esophagus in Sept 1986 Treated at Montgomery Hospital by Dr. Slayton for 10 Days--Fully Recovered." (Quoted with errors in spelling and grammar from the original.) Again, unknown to Time and James, Dr. Slayton's notes regarding this hospital discharge stated, among other things, that Bishop had "alcoholic liver disease with portal hypertension [and] chronic alcohol abuse."

The application contained the following language just above Bishop's signature:

I represent that all statements and answers to the above questions are complete and true to the best of my knowledge and belief. I apply for insurance to be issued solely in reliance upon this application. I understand that the insurance contains a two year contestability period in the event of material misrepresentation.

After James completed the application, Bishop read and signed it. On August 1, 1987, without any further investigation, Time issued the policy.

Thereafter, Dr. Slayton and others continued to treat Bishop for his alcohol-related and other problems. When Time received the bills for such treatments, it began an independent investigation of Bishop's medical history to determine whether it should contest coverage on the ground that Bishop had given false information in his application.

However, on January 31, 1989, before Time's investigation was completed, Bishop died in a Roanoke hospital. Bishop's death was attributed to cirrhosis of the liver caused by his excessive use of alcohol.

Upon Time's refusal to pay Bishop's bills for treatment and the life insurance benefits provided by the policy, his widow, Doris J. Bishop, individually and as administrator of his estate, filed this action seeking damages for Time's breach of contract. Time agreed in the trial court that if it were liable under its policy, it would be responsible for Bishop's medical, nursing, and hospital expenses in the sum of $130,625.10 and life insurance benefits of $10,000.

At a jury trial, Time asserted that the policy was void because of Bishop's material misrepresentations, and it introduced evidence in support of this affirmative defense. One of Time's witnesses was Dr. Slayton, whose notes of Bishop's first interview disclose that Bishop "readily admits that his main problem is one of excessive alcohol consumption. For at least the last 5 years, he has drank alcohol to excess of as much as a fifth a day."

In describing his treatment of Bishop for liver disease and associated illnesses linked to Bishop's abuse of alcohol in the 15 months prior to Bishop's application for insurance, Dr. Slayton testified that:

We explained to him that we thought he had liver disease as a complication of alcohol exposure.

....

[W]e spoke to him at length about the concerns that we had about continued alcohol exposure on his part and requested that he abstain henceforth. We tried to educate him as to the risk of not doing so.... I dare say that the gist of the conversation was that continued alcohol exposure would be extremely dangerous and may result in further complications of the problem other than what we had already seen.

And in each of Bishop's eight office treatments, Dr. Slayton stressed the importance of abstaining from alcohol.

To assist Bishop in abstaining from alcohol, Dr. Slayton prescribed two drugs that are similar to drugs used in detoxification facilities. Initially, he prescribed Valium or Diazepam, anti-anxiety medication that "might be beneficial to [Bishop] if indeed he was going to be compliant as far as alcohol abstinence." When Bishop reported on one of those visits that he had resumed drinking, Dr. Slayton changed the prescription from Valium or Diazepam to Librium, another anti-anxiety medication, to help "wean" Bishop off alcohol.

The court submitted to the jury the issue whether Bishop's alleged misstatements were "knowingly" made. The jury returned a verdict in favor of the plaintiff in the agreed amount, and Time appeals.

Time had the affirmative burden of "clearly" proving that Bishop's representation was untrue and that it was material to the risk. Mutual of Omaha Ins. Co. v. Dingus, 219 Va. 706, 713, 250 S.E.2d 352, 355 (1979). We think Time carried this burden of proof.

In responding to Time's questions, Bishop clearly misstated the facts in denying that he "ever had any indication, diagnosis or treatment" for "use" of alcohol. The evidence is overwhelming that Dr. Slayton was treating Bishop for conditions directly related to the latter's use of alcohol.

And Bishop's representation would be material to the risk if it would reasonably influence the insurance company in deciding whether to issue the policy. Mutual of Omaha Ins. Co. v. Echols, 207 Va. 949, 953-54, 154 S.E.2d 169, 172 (1967). Steven Liebherr, Time's underwriting supervisor, testified that given the information on Bishop's application, Time would have decided to issue the policy without any additional investigation and at standard premium rates. Liebherr testified further, however, that if Bishop had disclosed that he had consulted Dr. Slayton for alcohol-related problems during the 15-month period preceding the issuance of the policy, Time would not have issued the policy.

There was no contradiction of Time's evidence relating to the falsity or the materiality of Bishop's representation. Hence, the trial court should have ruled as a matter of law that the representation was both untrue and material. ¹

The plaintiff argues correctly, however, that because Bishop's application recited that his answers were correct "to the best of [his] knowledge and belief," Time had the further burden of establishing that Bishop's false statement was "knowingly" made. Old Republic Life Ins. Co. v. Bales, 213 Va. 771, 773, 195 S.E.2d 854, 856 (1973). And, the plaintiff maintains, because the evidence was in conflict on this issue, a jury question was created.

We do not agree. In this phase of the case, the plaintiff called Susan Dawn Pauley, director of the substance abuse division of the local Community Services Board, and qualified her as "an expert in the field of substance abuse counselling." Over Time's objection, Pauley was permitted to testify that alcohol abusers unconsciously use a "defense mechanism" termed "denial," by which they "deny information."

However, even though a jury may have accepted Pauley's testimony of Bishop's probable "denial" or "rationalization" as an indication that he did not believe he had a problem with alcohol, whether he had a problem with alcohol was not the question he was asked in the application. Rather, the question was whether, to the best of his knowledge and belief, he had ever had any indication, ² diagnosis or treatment for use of alcohol. And, with respect to that question, Pauley's testimony about Bishop's state of denial was irrelevant. ³

A similar observation may be made concerning testimony elicited from members of Bishop's family. These witnesses testified variously that no one ever told Bishop he was an alcoholic, that neither the family members nor Bishop himself regarded him as an alcoholic because he worked regularly and led a normal life, that after his period of hospitalization in September 1986, he said "[he would] never touch another drop," and that he did, in fact, abstain for a period of time. But with the question in the application focused narrowly upon indication, diagnosis, or treatment for the use of alcohol, whether Bishop himself or someone else believed he was not an alcoholic was completely beside the point. ⁴

Given the evidence concerning Bishop's excessive use of alcohol, the admission he made to Dr. Slayton that alcohol was his "main problem," the warnings he received from Dr. Slayton about the effect of his continued use of alcohol upon his already damaged liver, and the prescriptions for drugs Dr. Slayton gave him to help him stop drinking alcohol, we hold that no reasonable person could conclude that Bishop unknowingly...