Van Riper v. Equitable Life Assur. Soc. of US, Civ. A. No. 81-4937.

• Decision Date: 21 April 1982
• Docket Number: Civ. A. No. 81-4937.
• Citation: 561 F. Supp. 26
• Parties: W. Russell VAN RIPER v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES.
• Court: U.S. District Court — Eastern District of Pennsylvania

561 F. Supp. 26

W. Russell VAN RIPER v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES.

Civ. A. No. 81-4937.

United States District Court, E.D. Pennsylvania.

April 21, 1982.

COPYRIGHT MATERIAL OMITTED

M. Patricia Carroll, Carroll & Carroll, Philadelphia, Pa., for plaintiff.

Joseph R. Davison, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, Pa., for defendant.

MEMORANDUM OF DECISION

McGLYNN, District Judge.

This is an action by plaintiff, W. Russell Van Riper, to enjoin defendant, the Equitable Life Assurance Society of the United States ("Equitable") from rescinding a disability income policy of insurance issued to plaintiff. The action was originally filed in the Philadelphia Court of Common Pleas but was later removed to this court pursuant to 28 U.S.C. § 1441(a). Jurisdiction is based on diversity of citizenship.

In defense to this lawsuit, Equitable alleges that plaintiff failed to answer truthfully and fully questions on his insurance application which related to his past medical history thereby justifying a rescission of the policy. In addition, defendant counterclaimed to recover payments made to the plaintiff prior to the date of the policy's rescission. The case was tried to the court without a jury. This memorandum will set forth my findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52.

FINDINGS OF FACT

1. Plaintiff is a citizen of the Commonwealth of Pennsylvania. Defendant is a corporation, incorporated under the laws of the State of New York and has its principal place of business in New York.

2. Since September 1977, plaintiff was employed by the Graduate Hospital in Philadelphia, Pennsylvania as Director of Personnel. As part of his duties, he arranged for pensions and other benefits for the employees of the Hospital.

3. In early 1980, the management of the Hospital decided to purchase disability income insurance for certain executives of the Hospital, including the plaintiff. Plaintiff was therefore instructed to obtain information concerning the available policies and make arrangements for obtaining the insurance.

4. In the Spring of 1980, plaintiff was approached by Jack Schall, an agent of the defendant. Schall proposed that the Hospital purchase disability income policies from Equitable. He offered the policies on a "guaranteed to issue" basis which meant that each of the proposed insureds was guaranteed an insurance policy but that an individual insured may be issued a policy with exclusions for disability from certain causes or the premium rate for an individual may be higher because of certain conditions in that individual's medical background.

5. Plaintiff recommended to his superiors that the Hospital purchase the Disability Insurance Plan that was proposed by Mr. Schall and eventually the purchase was approved by the Board of Directors.

6. In the summer of 1980, the plaintiff, as well as other professional members of the staff of Graduate Hospital, applied for individual disability insurance policies with the Equitable.

7. Plaintiff's application for the policy of insurance consisted of two separate and distinct forms. The first of these forms pertains to the plaintiff's employment history, social background and his insurance experience. The second form relates to the plaintiff's past medical history.

8. This second form, identified as "Application Part 2", was completed on two different occasions. As an initial screening device, Jack Schall, the insurance agent, posed the questions on July 2, 1980 and completed the form on the basis of information supplied by the plaintiff.

9. Later, on August 13, 1980, Dr. Harvey L. Kaufman, a self-employed physician specializing in family practice in Cherry Hill, New Jersey and periodically hired by the Equitable and other insurance companies, performed a general medical checkup on Van Riper, and then sat down with him and asked him each question appearing on the medical history part of the application form. Dr. Kaufman completed the form by recording plaintiff's responses which plaintiff then signed.

10. According to Mr. Schall and Dr. Kaufman, plaintiff's answers to the pertinent questions were as follows:

3. Has Proposed Insured ever been treated for or ever had any known indication of:

c. Shortness of breath; blood spitting; bronchitis, asthma, emphysema, tuberculosis or other chronic respiratory disease or disorder? .... No.

j. Allergies; anemia; other blood or lymph disease or disorder? .... Yes.

5. Has Proposed Insured:

b. Ever received counseling or treatment regarding the use of alcohol or drugs? .... No.

6. Other than as stated in answers to Questions 2-5, has Proposed Insured within the last 5 years:

b. Had any illness, injury or surgery? .... No.

c. Been a patient in or been examined or treated at a hospital, clinic, sanatorium, or other medical facility? .... No.

11. The only past medical infirmity noted on the application was an episode of megaloblastic anemia in 1972, which plaintiff stated resulted in no sequelae. This is the only response which plaintiff gave in answering question 3(j).

12. In signing the application for insurance, plaintiff unconditionally subscribed to the following statement:

The above statements and answers are true and complete to the best of my knowledge and belief. I agree that such statements and answers shall be part of the application for insurance or request for policy change or reinstatement, as the case may be. The Insurer may rely on them in acting on the application or making the policy change or reinstatement.

13. Relying on the information provided by plaintiff in his application for insurance, the Equitable issued a disability policy, without reservation, exception, or rate-up, to the plaintiff on August 25, 1980. The policy provided for a monthly payment in the amount of twelve hundred dollars during the duration of the disability or for the lifetime of the insured in the event of total disability.

14. In April 1981, plaintiff developed a duodenal ulcer which plaintiff claimed prevented him from engaging in meaningful employment. Plaintiff then filed a claim in August of 1981 with the defendant requesting payment of disability benefits.

15. Equitable made payments to the plaintiff in accordance with the policy of insurance for the three months prior to the notification. These payments totaled thirty-six hundred dollars in amount.

16. In the course of investigating plaintiff's claim for total disability, Equitable uncovered information which showed that answers allegedly given by plaintiff in response to questions posed by Mr. Schall and Dr. Kaufman were false.

17. Specifically, plaintiff had a history of alcoholism dating back to at least 1965. In fact, plaintiff had been hospitalized for that problem as recently as January of 1979 at Philadelphia's Graduate Hospital for four days. Upon his discharge from the Hospital, plaintiff was admitted to the Livingrin Rehabilitation Center for alcoholism for twenty-eight days.

18. Equitable's investigation also revealed that Mr. Van Riper had failed to disclose that he had been hospitalized in August 1978 at Graduate Hospital after he had experienced an episode of hemoptysis or "blood-spitting".

19. On the basis of this information Equitable gave notice of rescission of the insurance policy on October 9, 1981.

20. Mr. Van Riper has been actively involved in service organizations dedicated to the treatment of alcoholics and he has frequently spoken to the public on the subject.

DISCUSSION

I. Plaintiff's Action

Under Pennsylvania law,¹ an insurer must establish three elements in order to void an insurance policy on the grounds of false and fraudulent representations. "`These are: (1) the declaration must be false; (2) its subject matter must be material to the risk; and (3) the applicant must have known it to be false or must have made the statement in bad faith.'" Lotman v. Security Mut. Life Ins. Co., 478 F.2d 868, 870 (3d Cir.1973) (quoting Bremmer v. Protected Home Mut. Life Ins. Co., 218 Pa.Super.Ct. 364, 366, 280 A.2d 664, 665 (1971)); Evans v. Penn Mut. Life Ins. Co., 322 Pa. 547, 560, 186 A. 133, 141 (1936). From the evidence presented at trial, I find that Equitable has satisfied all three of these elements.²

A. The Falsity of the Declarations and Their Materiality

First, Van Riper's declarations that he was never treated for "blood spitting" or for "alcoholism" and that he did not have any illness or had not been treated at any "hospital clinic, sanatorium, or other medical facility" during the five years prior to his application were false. Indeed, the plaintiff conceded that his answers to the above questions on the Application for Insurance as recorded by Mr. Schall and Dr. Kaufman were untrue or incomplete but contends he was never asked these questions. Nonetheless, on cross-examination, Van Riper admitted that had these questions been propounded to him by Dr. Kaufman or Mr. Schall then his answers as presently recorded on his application would be incorrect:

Q. Assuming the doctor did ask you the question, "Have you ever received counseling or treatment regarding the use of alcohol," and you replied in response to the doctor's question no, would that reply in your mind be dishonest, sir?

A. Yes, it would.

Q. Assuming that the doctor asked you if you had been examined or treated at a hospital within the past five years, that would be from 1975 to 1980, and you had said no to that question, would you consider that answer to be incorrect, sir?

A. I would consider that also to be incorrect, of course.

N.T. at 47.

The second element has also been proven by the defendant. Pennsylvania courts have held that false answers relating to the insured's prior treatment for alcoholism or for blood spitting are material to the risk as a matter of law. Soltaniuk v. Metropolitan Life Ins. Co., 133 Pa.Super.Ct. 139, 2 A.2d 501 (1938) (alcoholism);³ Smith v. Northwestern...