Balentine et al v. Direct General Insurance Company

Filing 32

MEMORANDUM OPINION and ORDER denying 26 MOTION for Summary Judgment; The plaintiff's were injured in a motorcycle accident and filed a claim for uninsured motorist benefits with Direct General Insurance Co, 1 ; After Direct General deni ed the claim, the Plaintiff's filed suit in state court, which Direct General removed to this court based on diversity jurisdiction, 1 ; Direct General now moves for a summary judgment, 26 ; As state fully within, consistent with this opinion, the motion for summary judgment, 26 , is DENIED. Signed by Judge Abdul K Kallon on 4/19/2018. (KBB)

FILED
2018 Apr-19 AM 09:07
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHWESTERN DIVISION
JOSHUA M BALENTINE, et al.,
Plaintiffs

vs.
DIRECT GENERAL INSURANCE
COMPANY,
Defendant,

_______________________________
DIRECT GENERAL INSURANCE
COMPANY,
Third Party Plaintiff,
vs.
CYNTHIA GLOVER
Third Party Defendant.

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

Civil Action Number
3:16-cv-01654-AKK

MEMORANDUM OPINION AND ORDER
Joshua Balentine and Nichole Meyers were injured in a motorcycle accident
and filed a claim for uninsured motorist benefits with Direct General Insurance
Company. Doc. 1. After Direct General denied the claim, doc. 28-1, Balentine
and Meyers filed suit in state court, doc. 1-4, which Direct General removed to this
court based on diversity jurisdiction, doc. 1.

Direct General now moves for

summary judgment, arguing that it is entitled to rescind the policy in question
because the insured’s application for insurance failed to include purportedly

material information.

Doc. 26.

The motion is fully briefed and ripe for

adjudication. Docs. 26 & 28. After reading the briefs, viewing the evidence, and
considering the relevant law, the court finds that the motion is due to be denied.
I.

LEGAL STANDARD FOR SUMMARY JUDGMENT
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary

judgment is proper “if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56. “Rule 56[] mandates the entry of summary judgment, after adequate
time for discovery and upon motion, against a party who fails to make a showing
sufficient to establish the existence of an element essential to that party’s case, and
on which that party will bear the burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986) (alteration in original). The moving party bears
the initial burden of proving the absence of a genuine issue of material fact. Id. at
323. The burden then shifts to the nonmoving party, who is required to “go
beyond the pleadings” to establish that there is a “genuine issue for trial.” Id. at
324 (internal quotations omitted). A dispute about a material fact is genuine “if the
evidence is such that a reasonable jury could return a verdict for the nonmoving
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
At summary judgment, the court must construe the evidence and all
reasonable inferences arising from it in the light most favorable to the non-moving

2

party. Adickes v. S. H. Kress & Co., 398 U.S. 144, 157 (1970); see also Anderson,
477 U.S. at 255. Any factual disputes will be resolved in the non-moving party’s
favor when sufficient competent evidence supports the non-moving party’s version
of the disputed facts. See Pace v. Capobianco, 283 F.3d 1275, 1276, 1278 (11th
Cir. 2002). However, “mere conclusions and unsupported factual allegations are
legally insufficient to defeat a summary judgment motion.” Ellis v. England, 432
F.3d 1321, 1326 (11th Cir. 2005) (per curiam) (citing Bald Mountain Park, Ltd. v.
Oliver, 863 F.2d 1560, 1563 (11th Cir. 1989)). Moreover, “[a] mere ‘scintilla’ of
evidence supporting the opposing party’s position will not suffice; there must be
enough of a showing that the jury could reasonably find for that party.” Walker v.
Darby, 911 F.2d 1573, 1577 (11th Cir. 1990) (citing Anderson, 477 U.S. at 252)).
II.

FACTUAL BACKGROUND
Direct General issued an auto insurance policy to Cynthia Glover that

contained uninsured motorist coverage. Doc. 26-2. Glover signed a one-page
application which contains an acknowledgement that “ALL PERSONS AGES 14
AND OLDER WHO LIVE WITH ME HAVE BEEN REPORTED TO THE
COMPANY.” Doc. 26-2 at 7. The application also included an agreement that the
policy “may be null and void and no coverage provided if the information
provided in this application is false or misleading and would materially affect
acceptance or rating of the risk by the Company.” Id.

3

Sometime after Glover obtained the policy, her son, Balentine, and his
girlfriend, Meyers, were riding Balentine’s motorcycle when an allegedly negligent
driver collided with them, causing them serious injuries. Docs. 1; 1-4. Balentine
and Meyers filed suit in state court against the driver and the driver’s insurance
company, Progressive Specialty Insurance Company. Doc. 1-4. Progressive paid
Balentine and Meyers $25,000 each, which represented the full liability limit
available under the driver’s policy. Doc. 1-9. Because their bills totaled more than
$100,000, Balentine and Meyers filed an uninsured motorist claim with Direct
General, asserting that they qualified as “family members” under Glover’s policy.
Doc. 1-1 at 4. Direct General denied the claim after learning that Glover had failed
to disclose that Balentine was living with Glover when she applied for the policy,
docs. 26-1 at 3; 28-1 at 1, and now seeks to rescind the policy.
III.

ANALYSIS

Alabama law regulates insurance policies, and “where a statute governs the
rights, obligations, and duties of an insurer or insured, that statute is read into and
becomes a part of the insurance contract.” Thomas v. Liberty Nat. Life Ins. Co.,
368 So. 2d 254, 258 (Ala. 1979). The statute at issue here states, in relevant part,
that:
Misrepresentations, omissions, concealment of facts and incorrect
statements [in an application for insurance] shall not prevent a
recovery under the policy or contract unless either:

4

(1) Fraudulent;
(2) Material either to the acceptance of the risk or to the hazard
assumed by the insurer; or
(3) The insurer in good faith would either not have issued the
policy or contract, or would not have issued a policy or contract
at the premium rate as applied for, or would not have issued a
policy or contract in as large an amount or would not have
provided coverage with respect to the hazard resulting in the
loss if the true facts had been made known to the insurer as
required either by the application for the policy or contract or
otherwise.
Ala. Code § 27-14-7. A showing of fraud is not necessary. “[E]ven if innocently
made, an incorrect statement that is material to the risk assumed by the insurer or
that would have caused the insurer in good faith not to issue the policy in the
manner that it did provides a basis for the insurer to avoid the policy.” Alfa Life
Ins. Corp. v. Lewis, 910 So. 2d 757, 762 (Ala. 2005).
Direct General argues that Glover’s failure to disclose that Balentine was
residing with her at the time she applied for the policy constitutes a material
omission entitling it to rescind the policy under §§ 27-14-7(a)(2) or (3). Doc. 26.
Balentine and Meyers disagree, contending that (1) the materiality of the omission
is a jury question; and (2) Direct General has offered no evidence that it
universally applies its own guidelines to claims involving similar omissions.1 Doc.
28. The court addresses these contentions below.

1

Balentine and Meyers also contend that the application for insurance is inconsistent
with the language of the policy itself. Doc. 28. However, this argument is unavailing, as
5

A. The materiality of the omission is a jury question.
To prove its rescission claim under Ala. Code § 27-14-7(a)(2), Direct
General must demonstrate that Glover’s failure to list Balentine as a resident in her
household was a material omission as a matter of law. To be sure, applicants for
insurance have a duty to read what they sign, and insurers have a “right to rely on
the representations in the application.” Nationwide Mut. Fire Ins. Co. v. Pabon,
903 So. 2d 759, 767 (Ala. 2004). Nonetheless, omissions only trigger the right to
rescission where they are material, and the materiality of an omission in a policy
application “is almost invariably a question for the jury, which is entitled to
consider the factual context in which the determination is to be made.” First Fin.
Ins. Co. v. Tillery, 626 So. 2d 1252, 1255 (Ala. 1993) (internal quotations omitted).
Some misrepresentations, however, “increase the risk of loss as a matter of law and
are therefore material to the issuance of the policy.” Lewis, 910 So. 2d at 762. For
example, failing to disclose a congestive heart failure diagnosis on an application
for life insurance constitutes a material omission as a matter of law because a
policy holder’s heart condition increases an insurer’s risk. Id. at 761-63. In
contrast, misstating the location at which an insured will garage an automobile “is
merely a statement of expectation, . . . and as such is not material to the acceptance
of the risk” for an auto insurance policy. Alabama Farm Bureau Mut. Ins. Co. v.
insurers must rely on applicants’ representations made in the application, not the policy that
insurer itself prepares. See Ala. Code 27-14-7.
6

Davis, 354 So. 2d 15, 20 (Ala. Civ. App. 1978) (“[T]he insurer’s liability of risk
must stem from the use to which a car is put rather than where it is garaged.”).
Here, the only evidence of materiality that Direct General offers is an
affidavit from an underwriter stating that Direct General would not have issued the
policy had it known of the omission. Docs. 26 at 8; 26-1 at 3-4. However, an
insurer cannot “avoid coverage simply because its own employee testified that the
company would not have undertaken the risk had it known the truth as to the
particular fact.” Tillery, 626 So. 2d at 1255. See also Bennett v. Mut. of Omaha
Ins. Co., 976 F.2d 659, 661 (11th Cir. 1992) (“[T]he uncontradicted testimony of
an insurance company’s underwriter that a misrepresentation was material and that
the company in good faith would not have issued the policy as written, is not
necessarily dispositive.”).

To prove materiality, Direct General needs more

evidence than a “self-serving evaluation by an insurers employee.” Nationwide
Mut. Fire Ins. Co. v. Guster Law Firm, LLC, 944 F. Supp. 2d 1116, 1128 (N.D.
Ala. 2013).
For example, the court in Integon Nat. Ins. Co. v. MT & R Enterprises, Inc.
granted summary judgment for the insurer where the insured failed to list one of
the employees who would drive the vehicles in its application for auto insurance.
No. 4:10-CV-02021-HGD, 2012 WL 6043504, at *3 (N.D. Ala. Nov. 8,
2012), report and recommendation adopted, No. 4:10-CV-02021-AKK, 2012 WL

7

6043518 (N.D. Ala. Nov. 29, 2012). The insurer offered evidence that it had a
policy of running background checks on all listed drivers, and that the driver in
question had a suspended driver’s license, which the insurer likely would have
discovered had the insured listed him in its application. Id. Because insuring a
driver with a suspended license increases the insurer’s risk, the court found that the
omission was material as a matter of law. Id.
Based on the record in this case, Direct General has failed to produce any
similar evidence at this juncture to show that Balentine’s presence in the household
increased its risk of liability. Consequently, because of the strong presumption that
materiality is a jury question, see Tillery, 626 So. 2d at 1255, Direct General has
not met its burden to show it is entitled to rescind the policy as a matter of law.
B. There is no evidence in the record that Direct General has a policy or
practice of denying claims based on similar omissions.
Even where a misrepresentation or omission is not material under § 27-147(a)(2), an insurer is still entitled to rescission under § 27-14-7(a)(3) if it can prove
that, had it known the facts, it “in good faith would either not have issued the
policy or contract, or would not have issued a policy or contract at the premium
rate as applied for,” or would have limited the amount of coverage. Ala. Code §
27-14-7. Under this Section, “the only question is the good faith of the insurer in
refusing to issue the policy.” Henson v. Celtic Life Ins. Co., 621 So. 2d 1268, 1275
8

(Ala. 1993). To prove good faith, the insurer needs evidence that it “universally
applie[s]” its underwriting guidelines in dealing with similar misrepresentations.
Id. Typically, this requires official documentation of the insurer’s underwriting
guidelines. See id. However, “testimony articulating a rational basis for the
policy,” though not dispositive, is also “relevant evidence in a factual
determination of whether the underwriting policy existed in the first place.” Mega
Life And Health Ins. Co. v. Pieniozek, 516 F.3d 985, 990–91 (11th Cir. 2008).
Direct General has offered no evidence that it has a universally applied
policy or practice of denying coverage for similar omissions.

Nor does its

underwriter’s affidavit articulate any rational basis for rescinding Glover’s policy. 2
See doc. 26-1. In light of Direct General’s failure to prove that it universally
applies a uniform set of underwriting standards for similar omissions, a jury must
decide whether Direct General—acting in good faith and armed with the
knowledge that Balentine was living in Glover’s home—would have declined to
issue the policy, charged Glover a higher premium, or limited her coverage.

2

Indeed, even if the court itself “can envision a rational basis” for denying or limiting
coverage based on an additional household member, Direct General is still required to produce
evidence of universal application of the guidelines to succeed under § 27-14-7(a)(3). Pieniozek,
516 F.3d at 990; see also Baker v. Travelers Ins. Co., 207 F. Supp. 3d 1246, 1253 (N.D. Ala.
2016) (“While Travelers’ assertions are logically sound, Travelers failed to provide evidence of a
universal application of its underwriting policy or similar situations in which it denied coverage.
Therefore, the court cannot conclude as a matter of law that Travelers in good faith would not
have issued the policy.”).
9

CONCLUSION AND ORDER
Consistent with this opinion, the motion for summary judgment, doc. 26, is
DENIED.
DONE the 19th day of April, 2018.

_________________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE

10