Watson v. Golden Rule Ins. Co.

• Decision Date: 19 December 1990
• Docket Number: No. 45A03-9002-CV-67,45A03-9002-CV-67
• Citation: 564 N.E.2d 302
• Parties: Robert H. WATSON, Appellant (Defendant Below), v. GOLDEN RULE INSURANCE COMPANY, Appellee (Plaintiff Below).
• Court: Indiana Appellate Court

Page 302

564 N.E.2d 302

Robert H. WATSON, Appellant (Defendant Below), v. GOLDEN RULE INSURANCE COMPANY, Appellee (Plaintiff Below).

No. 45A03-9002-CV-67.

Court of Appeals of Indiana Third District.

Dec. 19, 1990.

Nathaniel Ruff, Lesniak & Ruff, East Chicago, for appellant.

Michael V. Gooch, John S. Beeman, Sandra S. Carr, Harrison & Moberly, Indianapolis, for appellee.

STATON, Judge.

Robert H. Watson appeals a summary judgment in favor of Golden Rule Insurance Company (Golden Rule) denying coverage under a health insurance policy and rescinding the policy. He raises four issues for our consideration, which we consolidate and rephrase as follows:

Whether the trial court properly granted summary judgment in favor of Golden Rule on the basis that the terms of the insurance policy allowed Golden Rule to rescind the contract based upon misrepresentations in the application for insurance.

We affirm.

On March 15, 1986, Watson applied for health insurance with Golden Rule by filling out and signing an "Application for Insurance." The application asked the following questions:

7. Has any person on this application, within the last 10 years, had any indication, diagnosis or treatment of:

* * * * * *

(f) any other disease, disorder (including alcohol or drug problems) or injury in the last 5 years?

8. Has any person on this application consulted or been treated by a doctor in the past 3 years?

Record, p. 54.

Watson answered "No" to question 7(f), and "Yes" to question 8, indicating that he had seen a Dr. Deporter in Hammond. Upon being contacted by a representative from Golden Rule, Watson indicated that he had seen Dr. Deporter for a cold. Relying upon Watson's representations in the application, Golden Rule issued a health and accident insurance policy.

In January, 1987, nine months after completing the application, Watson was hospitalized for treatment of alcohol and drug dependency. Watson submitted claims for reimbursement for this hospital stay to Golden Rule. Golden Rule investigated the claims and discovered that Watson, then 40, had a history of alcohol and drug abuse since he was 28. He consumed a fifth of whiskey a day, and for several years he had exhibited symptoms of chronic alcohol abuse such as amnesic blackouts, shakes, and hallucinations. His alcoholism affected his business and family life as well; he attributed the failure of a trucking business, at least in part, to his substance abuse. Watson's father had died of alcoholism.

Watson began using cocaine in 1979 or 1980, and by 1987 snorted or freebased up to a fourth of an ounce of cocaine per week. His cocaine abuse caused nosebleeds, paranoia, cocaine headaches, and hallucinations. In addition, Watson experimented extensively with other amphetamines, barbiturates, and hallucinogenics, including Quaaludes, M.D.A., L.S.D., mushrooms, mescaline, and heroin. He sometimes took barbiturates after cocaine use to allow him to sleep. At least four people had indicated to him that he had an alcohol and drug problem before he filled out the insurance application, and encouraged him to quit. He had attempted to quit using drugs himself several times, discontinuing drug use for six or seven weeks at a time.

In the course of its investigation, Golden Rule also discovered that Watson had visited Dr. Deporter several times, and that Valium had been prescribed for Watson's inability to sleep, his anxiety, and his alcohol craving.

Golden Rule denied Watson's claim, voided the insurance contract on the basis of his misrepresentations on the application, and refunded his premiums. Watson filed this action on November 26, 1987, alleging that Golden Rule should pay $10,000 of his medical bills pursuant to the policy. Golden Rule counter-claimed for rescission of the policy. The trial court granted Golden Rule's motion for summary judgment on both claims, and Watson appeals.

Our standard of review upon appeal from a summary judgment is well settled. We look to the record to determine whether there are genuine issues of material fact which would preclude the entry of judgment in favor of the movant, and whether the trial court correctly applied the law. Mauller v. City of Columbus (1990), Ind.App., 552 N.E.2d 500, 502, transfer denied. In doing so, we resolve all doubts and inferences in favor of the nonmovant. Id. We will affirm if the judgment is sustainable upon any theory supported by the record. Schultz v. Hodus (1989), Ind.App., 535 N.E.2d 1235, 1236, rehearing denied.

Watson first argues that the trial court incorrectly concluded that the terms of the insurance policy allowed Golden Rule to void the policy. He points to language on the front of the policy and the "pre-existing condition" provision of the policy which he claims, if construed in his favor, would prevent Golden Rule from voiding the policy.

Watson claims that the following language found on the front page of the policy is ambiguous, and should be construed in his favor:

Check the Attached Application:

Please read the copy of the application attached to your certificate. If it is not complete or has an error, please let us know immediately. An incorrect application may cause your coverage under the policy to be voided or a claim to be reduced or denied.

Pre-Existing Conditions:

Health conditions which exist prior to the effective date of a person's coverage and which are not fully disclosed to us are most likely not covered during the first 12 months of coverage. See the Pre-Existing Limitation provision in Section 7 for details.

Watson argues that these two paragraphs are ambiguous because they give conflicting messages to the insured regarding the consequences of an erroneous application. Since rules of insurance policy construction require the court to resolve all ambiguities in favor of the insured, he contends that the only reasonable construction of these clauses precludes Golden Rule from voiding the policy. Watson points out that questions seven through ten on the application asked about his medical history in the last ten years. Thus, he argues that those questions are covered by the "pre-existing condition" limitation, not the prior paragraph which speaks to the possibility of the insurance contract being voided for incorrect answers. Therefore, the "voided" option applies only to questions one through six on the application, which ask for name, age, marital status, dependents, address, height, weight, beneficiary, occupation, and weekly earnings. Accordingly, Watson argues that the trial court's judgment permitting Golden Rule to rescind the policy was an incorrect application of the law.

An insurer may cancel a policy if representations in an application are (1) false; and (2) material to the risk involved. Prudential Insurance Co. of America v. Winans (1975), 263 Ind. 111, 325 N.E.2d 204, 206. The determination of whether the misrepresentation, intentional or innocent, is material is a question for the trier of fact unless the evidence is such that there can be no reasonable difference of opinion. Id. A representation is "material" if the fact omitted or misstated, if truly stated, might reasonably have influenced the insurer in deciding whether to reject or accept the risk or charge a higher premium. Bush v. Washington National Ins. Co. (1989), Ind.App., 534 N.E.2d 1139, 1142, transfer denied. Like any other contract, an insurance contract may be avoided by false representations which mislead, regardless of whether the representation was innocently made or made with a fraudulent intent. Id. Of course an insurer, by the terms of the policy which it has drafted, may further limit its ability to avoid the policy.

Section seven of the insurance policy provides in relevant part:

PRE-EXISTING CONDITIONS

The Company will pay for Covered Expenses that:

(a) are incurred during the first 12 months of the Covered Person's insurance under the Policy; and

(b) result from a pre-existing condition that was:

(i) fully disclosed to the Company prior to the effective date of the Covered Person's insurance under the Policy; and

(ii) not excluded or limited by name or specific description.

Otherwise, loss due to pre-existing conditions will not be covered during the first 12 months after the effective date of the Covered Person's insurance under the Policy.

A "pre-existing condition" is a condition:

(1) for which the Covered Person received medical advice or...