West Coast Life Ins. Co. v. Hoar
| Decision Date | 25 January 2007 |
| Docket Number | Civil Action No. 05-cv-01765-EWN-BNB. |
| Citation | 505 F.Supp.2d 734 |
| Parties | WEST COAST LIFE INSURANCE COMPANY, a Nebraska corporation, Plaintiff, v. Martha HOAR, as the personal representative of The Estate of Stephen M. Butts, Telluride Properties, LLC, a Colorado limited liability company, Telluride Properties, Inc., a Colorado corporation, Albert D. Roer, an individual, and Polly Lychee, an individual, Defendants. |
| Court | U.S. District Court — District of Colorado |
Jose Antonio Ramirez, Holland & Hart, LLP, Greenwood Village, CO, Lee Frederick Johnston, Holland & Hart, LLP, Denver, CO, for Plaintiff.
Kara Dawn Lae-Gae Veitch, Stuart Harris Pack, Richard D. Greengard, Isaacson Rosenbaum, P.C., Denver, CO, for Defendants.
This is an insurance case. Plaintiff West Coast Life Insurance Company seeks an order from the court declaring void a contract insuring the life of Mr. Steven M. Butts based on an alleged misrepresentation made in Mr. Butts' application for insurance. Defendants assert counter-claims for breach of insurance contract and bad faith. This matter is before the court on: (1) "Plaintiff West Coast Life Insurance Company's Motion for Summary Judgment," filed June 26, 2006; and (2) "Defendants' Motion for Partial Summary Judgment," filed the same day. Jurisdiction is premised upon 28 U.S.C. § 1332 (2006).
In August 2004, Mr. Butts and two other principals formed a new company, Telluride Properties, LLC. (Pl. W. Coast Life Ins. Co.'s Opening Br. in Supp. of its Mot. for Summ. J., Statement of Undisputed Material Facts ¶¶ 1-2 [filed June 26, 2006] [hereinafter "Pl.'s Br."]; admitted at Resp. to Pl.'s Motion for Summ. J., Resp. to Statement of Undisputed Material Facts ¶¶ 1-2 [filed July 17, 2006] [hereinafter ].) The three principals entered into a buy-sell agreement requiring each principal to sell his or her interest in the business to the remaining principals in the event of his or her death. The agreement was financed by insurance policies on the lives of each of the three principals.
On September 21, 2004, Mr. Butts contacted Plaintiffs agent, Ms. Sharon Evanson, by phone to complete an application for a three million dollar life insurance policy (the "Butts Application"). Ms. Evanson read the questions on the application and transcribed Mr. Butts' responses. `The Butts Application contained, a declaration that all statements and answers were full, complete, and true to the best of Mr. Butts' "knowledge and belief." At no point during the call did Mr. Butts mention that he was a "heli-skier."1
The fifth question of the Butts Application ("Question 5") asked Mr. Butts if he had "engaged in auto, motorcycle or boat racing, parachuting, skin or scuba diving, skydiving, or [sic] hang gliding or other hazardous avocation or hobby." Mr. Butts answered the question in the negative.
First Financial Underwriting ("First Financial") is an independent, third-party company that, at the request of its insurance company clients, gathers information about the lifestyles and finances of life insurance applicants, typically through telephonic interviews. Mr. Alex Chu, a senior life insurance reporter with thirteen years experience at First Financial, conducted a telephonic interview with Mr. Butts on October 12, 2004.
Mr. Chu's interview outline contains two relevant questions concerning lifestyle: (1) "Any involvement in any private aviation, scuba diving, or sky diving?"; and (2) "Any other recreational activities or exercise in your spare time?" (Id., Ex. 13 at 2 [Chu Notes].) Mr. Chu specifically asked Mr. Butts if he engaged in "any hazardous activities." Mr. Butts did not seek any clarification of this question or voice concerns or confusion as to the meaning of "hazardous activities." In response to Mr. Chu's question about hazardous activities, Mr. Butts stated he was involved in scuba diving and private aviation as a pilot. During his tenure at First Financial, applicants have identified heli-skiing in response to Mr. Chu's hazardous activity question.
Mr. Chu followed up with additional questions exploring the nature of Mr. Butts' flying and diving activities. Mr. Chu then asked Mr. Butts about what he did for recreation and exercise in his spare time. Mr. Butts stated that he skied and golfed.
Under a heading titled "Aviation-Recreation-Driving Record," Mr. Chu's report to Plaintiff on behalf of First Financial (the "First Financial Report") detailed Mr. Butts' piloting experience, briefly noted his scuba diving activities, and stated: (Id., Ex. 14 at 4 [First Fin. Report].)
In October 2004, Mr. Mark Youngquist, an underwriter for Plaintiff, underwrote a three million dollar policy insuring Mr. Butts' life (the "Butts Policy"). In so doing, Mr. Youngquist reviewed the Butts Application, Mr. Butts' medical records, the First Financial Report, and a questionnaire Mr. Butts completed regarding his aviation activities. Mr. Youngquist, who had worked as an underwriter since 1995 for other insurance companies, had worked for Plaintiff for less than a month when he approved the Butts Application. (Defs.' Mem.Br. in Supp of Mot. for Partial Summ. J., Statement of Undisputed Material Facts ¶¶ 13, 17 [filed June 26, 2006] [hereinafter ]; admitted at Pl. W. Coast Life Ins. Co.'s Resp.
Plaintiff's underwriting manual, published by reinsurer Swiss Re, does not rate resort skiing as a hazardous activity to be factored into the underwriting process. .) "heli-skiing," however, is a rated activity. (Defs.' Br., Ex. A-14 at 1 [Rating Table].) Mr. Youngquist never saw this rating table until after working on the Butts Policy. (Id., Statement of Undisputed Material Facts ¶¶ 31, 33; admitted at Pl.'s Rep., Resp. to Statement of Undisputed Material Facts ¶¶ 31, 33.)
Mr. Youngquist evaluated the answers in the Butts Application as if Mr. Butts were a reasonable person who had answered the questions objectively. (Id., Ex. A-6 at 80 [Youngquist Dep.].) Based on the information before him, Mr. Youngquist believed that Mr. Butts engaged only in non-rated resort skiing. (Pl.'s Br., Ex. 15 ¶¶ 14-6 [Youngquist Aff.].) Mr. Youngquist made no inquiry into the nature of the "skiing" activity mentioned in the First Financial Report. (Defs.' Br., Statement of Undisputed Material Facts ¶ 28; admitted at Pl.'s Resp., Resp. to Statement of Undisputed Material Facts ¶ 28.) Mr. Youngquist determined the Butts Policy should be issued on a "Standard, Non-Tobacco" basis as a result of Mr. Butts' aviation activities and some potential liver problems. ...
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