Mi Ok Moon v. Pruco Life Insurance Company et al

Filing 38

STATEMENT OF DECISION GRANTING DEFENDANT MOTION FOR SUMMARY JUDGMENT; JUDGMENT by Judge John F. Walter. Pruco is entitled to judgment in its favor and against Plaintiff on Plaintiffs entire Complaint. Pruco is also entitled to judgment in its favor and against Plaintiff on Pruco Counterclaim. Accordingly, life insurance policy number L9038302, which Pruco issued to the insured Jin Hyung Kim in 2014, with a face value of $120,000, is hereby rescinded. (jp)

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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 CENTRAL DISTRICT OF CALIFORNIA 9 MI OK MOON, an individual, 10 11 Case No. 2:16-cv-6217 JFW (GJSx) Plaintiff, Hon. John F. Walter v. 12 PRUCO LIFE INSURANCE 13 COMPANY, a New Jersey Corporation, and DOES 1-25, 14 Defendants. 15 STATEMENT OF DECISION GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT; JUDGMENT 16 PRUCO LIFE INSURANCE COMPANY, an Arizona Corporation, 17 and DOES 1-25, 18 Counter-Claimant, 19 v. 20 MI OK MOON, an individual, 21 Counter-Defendant. 22 23 24 25 26 27 28 CASE NO. 2:16-cv-6217 JFW (GJSx) STATEMENT OF DECISION; JUDGMENT 1 On February 17, 2017, Defendant/Counter-Claimant Pruco Life Insurance 2 Company (“Pruco”) moved the Court for an order granting summary judgment, or 3 alternatively partial summary judgment, or alternatively to have facts deemed 4 established, in favor of Pruco and against Plaintiff/Counter-Defendant Mi Ok Moon 5 (“Plaintiff”). Docket No. 32. Plaintiff did not file an opposition. On March 6, 2017, 6 Pruco filed a reply. Docket No. 34. 7 After consideration of the moving papers and arguments at hearing, the Court 8 rules as follows: 9 10 I. INTRODUCTION 11 Defendant Pruco seeks summary judgment rescinding a $120,000 life 12 insurance policy, with policy number L9038302 (the “Policy”), it issued to decedent 13 insured Jim Hyung Kim (“Kim”), based on misrepresentations Kim made about his 14 medical and smoking history when he applied for the Policy. 15 Pruco’s motion seeks the following specific relief: (1) summary judgment 16 against Plaintiff’s entire Complaint; and (2) summary judgment on Pruco’s 17 Counterclaim. In the alternative, Pruco seeks partial summary judgment: (3) in favor 18 of its claim for rescission of Kim’s life insurance Policy; (4) against Plaintiff’s 19 breach of insurance contract claim; (5) against Plaintiff’s claim for breach of the 20 implied covenant and fair dealing. Finally, (6) in the alternative to summary 21 judgment or partial summary judgment, Pruco seeks an order finding certain 22 material facts deemed established under Fed. R. Civ. P. 56(g). 23 II. FINDINGS OF FACT 24 The Court finds that the following facts are supported by uncontroverted 25 evidence and are not materially in dispute: 26 27 28 1 CASE NO. 2:16-cv-6217 JFW (GJSx) STATEMENT OF DECISION; JUDGMENT 1 Undisputed Material Fact (“UMF”) No. 11: Pruco issued the Policy to Kim. 2 UMF No. 2: Kim initiated his application for a life insurance policy from 3 Pruco on December 20, 2013. 4 UMF No. 3: Kim signed his Policy application on February 3, 2014. 5 UMF No. 4: Kim acknowledged delivery of his life insurance policy on 6 February 3, 2014. 7 UMF No. 5: Kim did not disclose to Pruco at the time he applied for his 8 Policy, or any time after, that he had been hospitalized for two heart attacks 9 requiring two coronary artery stenting surgeries within five years before applying 10 for the Policy. 11 UMF No. 6: Kim did not disclose to Pruco at the time he applied for his 12 Policy, or any time after, that he had previously been diagnosed with coronary artery 13 disease, myocardial infarction and hypertension. 14 UMF No. 7: Kim did not disclose to Pruco at the time he applied for his 15 Policy, or any time after, medications he was taking. 16 UMF No. 8: Kim did not disclose to Pruco at the time he applied for his 17 Policy, or any time after, his cigarette-smoking history. 18 UMF No. 9: Kim died on August 17, 2015, within two years of the Policy 19 being issued. 20 UMF No. 10: Moon submitted a death benefit claim on the Policy dated 21 September 22, 2015. 22 UMF No. 11: Pruco first discovered the falsity of Kim’s representations after 23 his death. 24 25 1 The Court’s findings of fact adopt the numbering used by Pruco in its Statement of 26 Undisputed Material Facts and Conclusions of Law in Support of Motion by 27 Defendant Pruco Life Insurance Company for Summary Judgment. Dkt. 32-2. The evidence supporting Pruco’s Statement is incorporated into these fact findings. 28 CASE NO. 2:16-cv-6217 JFW (GJSx) 2 STATEMENT OF DECISION; JUDGMENT 1 UMF No. 12: Pruco would not have issued the Policy to Kim had it known 2 the truth about his medical history. 3 UMF No. 13: Had Pruco known the truth about Kim’s smoking history, it 4 would have offered him a smoker’s policy, which requires the payment of 5 significantly higher premiums 6 UMF No. 14: Pruco gave Moon notice of rescission of the Policy and 7 returned all past-paid premiums within the two-year contestability period. 8 III. CONCLUSIONS OF LAW 9 The undisputed material facts demonstrate that Pruco is entitled to rescind the 10 Policy. To prevail on its rescission claim, Pruco must prove seven elements under 11 California law. See CACI 2308 (setting forth the seven requisite elements and 12 collecting legal authorities supporting each element). Each requisite element is met: 13 (1) Kim applied for life insurance with Pruco (UMF No. 2-3); (2) Kim made 14 misrepresentations or omissions to Pruco during the application process (UMF Nos. 15 5-8); (3) Kim was asked questions about the misrepresented information (UMF Nos. 16 3, 5-8); (4) Kim knew his representations were not true (UMF Nos. 5-8); (5) Pruco 17 would not have issued the policy if Kim had stated the true facts about his heart 18 disease and heart attacks (UMF Nos. 11-12); (6) if Pruco had known the truth about 19 Kim’s smoking history, it would have charged a much higher premium (UMF Nos. 20 11, 13); (7) Pruco gave notice that it was rescinding the policy (UMF No. 14); and 21 (8) Pruco returned the insurance premiums paid on the policy (UMF No. 14). 22 Because each element is met, rescission is warranted. 23 A. 24 25 Material Misrepresentations Justify Rescission. 1. Materiality May be Decided as a Matter of Law. Where the facts are undisputed, materiality is determined as a matter of law. 26 Imperial Casualty & Indemnity Co. v. Sogomonian, 198 Cal. App. 3d 169, 181 27 (1988) (upholding summary judgment for rescission); TIG Ins. Co. of Michigan v. 28 Homestore, Inc., 137 Cal. App. 4th 749, 762 (2006) (same); U.S. Specialty Ins. Co. CASE NO. 2:16-cv-6217 JFW (GJSx) 3 STATEMENT OF DECISION; JUDGMENT 1 v. Bridge Capital Corp., 482 F. Supp. 2d 1164, 1168 (C.D. Cal. 2007) (applying 2 California law) (same). 3 Where the policy provides that the insurer relies on the applicant’s health 4 representations in issuing the policy, misrepresentations in an insurance application 5 are material as a matter of law. See TIG, 137 Cal. App. 4th at 761-62. In addition, 6 where an insurer asks specific questions on the application, the answers are 7 “material” as a matter of law. California-Western States Life Ins. Co. v. Feinstein, 8 15 Cal. 2d 413, 423 (1940) (“answers to written questions set forth in application 9 forms relative to insurance are generally deemed material representations”) 10 (emphasis original); see also Cohen v. Penn Mut. Life Ins. Co., 48 Cal. 2d 720, 726 11 (1957); Thompson, 9 Cal. 3d 904, 916 (1973); LA Sound, 156 Cal. App. 4th at 126812 69. 13 In Wilson v. Western Nat’l Life Ins. Co., 235 Cal. App. 3d 981, 995 (1991), 14 the applicant failed to disclose that he suffered fainting spells and had been recently 15 hospitalized for a heroin overdose in response to specific questions on the 16 application. The misrepresentations were material as a matter of law, and summary 17 judgment was granted in favor of the insurer for rescission. Id. 18 In Freeman v. Allstate Life Ins. Co., 253 F.3d 533, 534 (9th Cir. 2001), an 19 applicant with epilepsy answered “no” on her application when asked whether she 20 sought or received treatment within the prior two years for a disease of the nervous 21 system. It was immaterial that applicant’s condition was controlled with medication: 22 the insurer was entitled to know of the condition. Id. at 536-37. “Because a material, 23 albeit innocent, misstatement is grounds for recession, Allstate was entitled to 24 rescind the policy and did not act in bad faith by doing so.” Id. at 534. 25 2. False Statements Made to an Insurer During the Application 26 Process for Life Insurance Constitute Material 27 Misrepresentation. 28 “Governing law permits an insurer to rescind a policy when the insured has CASE NO. 2:16-cv-6217 JFW (GJSx) 4 STATEMENT OF DECISION; JUDGMENT 1 misrepresented or concealed material information in connection with obtaining 2 insurance.” Nieto v. Blue Shield of California Life & Health Ins. Co., 181 Cal. App. 3 4th 60, 75 (2010) (citation omitted); see Cal. Ins. Code § 331 (“concealment, 4 whether intentional or unintentional, entitles the injured party to rescind insurance”); 5 id. § 359 (“If a representation is false in a material point, whether affirmative or 6 promissory, the injured party is entitled to rescind the contract from the time the 7 representation becomes false”). When an applicant seeks to procure insurance, “an 8 insurer has a right to know all that the applicant . . . knows regarding the state of his 9 health and medical history.” Thompson v. Occidental Life Ins. Co., 9 Cal. 3d 904, 10 915 (1973); see Cal. Ins. Code § 332 (each party to insurance contract “shall 11 communicate to the other, in good faith, all facts within his knowledge which are or 12 which he believes to be material to the contract . . . .”). 13 “[H]eavy burdens of disclosure are placed upon both parties to a contract of 14 insurance and any material misrepresentation or the failure, whether intentional or 15 unintentional, to provide requested information permits rescission of the policy by 16 the injured party.” Imperial Cas. & Indem. Co. v. Sogomonia, 198 Cal. App. 3d 169, 17 179-80 (1988) (where specific questions are asked of the insured, the answers are 18 material to the contract). These disclosure obligations and the statutory right to 19 rescind based on concealment or material misrepresentation safeguard the parties’ 20 freedom to contract. Mitchell v. United National Ins. Co., 127 Cal. App. 4th 457, 21 468-69 (2005). Even an unintentional failure to provide requested information 22 permits the injured party to rescind the policy. Id. 23 The materiality of questions and answers in an insurance application is 24 determined “solely by the probable and reasonable influence” which truthful 25 answers would have had upon that insurer. Cal. Ins. Code §§ 334, 360; Thompson, 9 26 Cal. 3d at 916. This is a subjective test; i.e., what effect truthful answers would have 27 had upon the particular insurer, not some “average, reasonable” insurer. Information 28 is material if it would have caused Pruco’s underwriter to reject the application or to CASE NO. 2:16-cv-6217 JFW (GJSx) 5 STATEMENT OF DECISION; JUDGMENT 1 charge a higher premium for the policy or to amend the policy terms. Sogomonian, 2 198 Cal. App. 3d at 181 (1988); Mitchell, 127 Cal. App. 4th at 474; LA Sound USA, 3 Inc. v. St. Paul Fire & Marine Ins. Co., 156 Cal. App. 4th 1259, 1268-69 (2007). 4 “The most generally accepted test of materiality is whether or not the matter 5 misstated could reasonably be considered material in affecting the insurer’s decision 6 as to . . . enter into the contract, in estimating the degree or character of the risk, or 7 in fixing the premium rate thereon.” Old Line, 229 Cal. App. 3d at 1604 (emphasis 8 original; internal quotes omitted); see also Merced County Mut. Fire Ins. Co. v. 9 State of Calif., 233 Cal. App. 3d 765, 772 (1991). 10 For example, in Nieto, the court upheld summary judgment where the insured 11 “responded in the negative to the inquiries in the ‘Medical History’ portion of the 12 application, when in fact [the insured] had suffered from chronic back pain,” failed 13 to disclose her recent medical treatments for that back pain and failed to disclose 14 medications she was currently taking for her back pain. Nieto, 181 Cal. App. 4th at 15 76-78. 16 Likewise, in Torbensen v. Family Life Ins. Co., 163 Cal. App. 2d 401, 405 17 (1958), the insured’s application stated he was in good health and had never been 18 diagnosed with heart disease. In truth, he was then under medical care for a heart 19 condition, and he later died of lung cancer. Id. The insurer was entitled to rescind 20 because it would not have issued the policy at all if it had known of the heart 21 condition. Id. 22 Similarly, in Life Ins. Co. of No. America v. Capps, 660 F.2d 392, 394 (9th 23 Cir. 1981) (applying Calif. law), the applicant answered “no” to questions regarding 24 heart trouble and chest pains, although aware she had these conditions. Rescission 25 was proper even though the applicant was unaware how ill she was (her spouse and 26 doctor had told her the conditions were not serious). Id. 27 In addition, rescission is appropriate even if the insurer would only have 28 increased the premium. Old Line Life Ins. Co. of America v. Sup.Ct. (Silvera Trust), CASE NO. 2:16-cv-6217 JFW (GJSx) 6 STATEMENT OF DECISION; JUDGMENT 1 229 Cal. App. 3d 1600, 1604, 1606 (1991). In Old Line, the insured falsely stated 2 she had not smoked in applying for life insurance. Id. She died of breast cancer. Id. 3 The insurer was entitled to rescind although the misrepresentation affected only the 4 amount of premium (the insurer still would have issued the policy, but at a higher 5 premium). Id. 6 B. 7 the Misrepresentations to be False When He Made Them, and Pruco 8 Would Not Have Issued the Policy if It Had Known the 9 Misrepresentations Were False. 10 Kim’s Misrepresentations to Pruco Were Material, Kim Knew Pruco asked Kim about his medical and smoking history, his hospitalizations, 11 and his physician and medication information, and relied upon that information in 12 making the decision to issue the Policy.2 UMF Nos. 3, 5-8. 13 As in Nieto, Torbensen, and Capps, Kim falsely responded “no” to several 14 material questions during his recorded underwriting interview and in the “Medical 15 Information” section of the application. UMF Nos. 5-8. At the time he applied for 16 the Policy, Kim had suffered two heart attacks in the previous five years, both of 17 which required emergency coronary artery stenting surgery, including one just a 18 month before applying. UMF No. 5. Since 2009, he was taking medications 19 prescribed to treat his coronary artery disease and hypertension. UMF Nos. 6-7. 20 However, when asked: “has a member of the medical profession ever treated 21 22 2 In fact, the Policy provides: 23 We assume that all statements in an application are made 24 to the best of the knowledge and belief of the person(s) 25 who make them . . . they are deemed representations. . . . 26 We rely on those statements when we issue the contract. . . 27 UMF No. 4. 28 7 CASE NO. 2:16-cv-6217 JFW (GJSx) STATEMENT OF DECISION; JUDGMENT 1 you or diagnosed you with: high blood pressure, chest pain, a heart attack, coronary 2 artery disease . . .”; “within the past five years, have you: . . . been a patient in a 3 hospital or other medical facility . . .[or] had any other disease, disorder or 4 condition”; “are you currently receiving medical treatment or taking any other 5 medication. . . ,” Kim answered “no.” UMF Nos. 3, 5-7. Kim also concealed the 6 identity of his treating doctors. Id. When asked in Part 2, Section A of his 7 Application, entitled “Personal Physician Information,” seeking Kim’s physician 8 information, he answered, “unknown.” UMF Nos. 3, 5-7. This prevented any 9 reasonable attempt by Pruco to obtain medical records reflecting his past treatments 10 and hospitalizations. Pruco would not have offered Kim a life insurance policy had 11 it known any of these facts. UMF No. 12. 12 In addition, Kim was asked directly if he had “ever used tobacco.” Even 13 though Kim had previously been a half-a-pack a day smoker for over 30 years, he 14 answered “no.” UMF Nos. 3, 8. Although Pruco may have issued the Policy had it 15 known Kim’s smoking history, it would have done so at much higher premiums had 16 Kim answered truthfully. 17 Pruco has established that it would not have issued the Policy to Kim had he 18 truthfully answered the questions regarding his medical history in his policy 19 application. UMF No. 12. However, Kim’s true medical history was not revealed 20 until Pruco conducted its timely contestability review. UMF No. 11. Pruco obtained 21 a copy of Kim’s death certificate which was signed by Dr. David Park. Pruco used 22 this information to obtain medical records from Dr. Park and learned the identity of 23 additional treating physicians for Kim in the years immediately preceding his death, 24 including Dr. Daniel Choo and Dr. Daniel Oh. Pruco also obtained Kim’s medical 25 prescription information. UMF No. 11. 26 Pruco senior underwriter’s review of Kim’s medical records revealed Kim’s 27 treatment for coronary artery disease and hypertension since at least June 2009, his 28 heart surgery in June 2009 after suffering a heart attack, his second heart attack and CASE NO. 2:16-cv-6217 JFW (GJSx) 8 STATEMENT OF DECISION; JUDGMENT 1 surgery in 2013, the long list of medications he was taking, and that Kim told his 2 doctor he smoked half-a-pack of cigarettes per day for 30 years and had only quit in 3 2013. UMF No. 11. When Ms. Swenson compared the facts discovered about Kim’s 4 medical history to Pruco’s underwriting guidelines, which Pruco routinely follows 5 as part of its standard underwriting practices, she determined Pruco would “never 6 have issued the Policy to Kim had it known the truth about his medical history.” 7 UMF No. 12. Specifically, his two heart attacks within the previous five years and 8 stenting surgery would have disqualified him for a policy “no matter the premium 9 amount”—no policy would have been offered.3 UMF No. 12. 10 Pruco relied on Kim’s representations in issuing the Policy and would not 11 have issued it had it known the true facts. UMF Nos. 3, 4. Therefore, the Court 12 concludes that rescission is justified. 13 C. 14 Rescission is accomplished by giving notice of rescission to the insured; and Pruco Properly Rescinded the Policy. 15 tendering repayment of all premiums received. Cal. Civ. Code § 1691. Pruco 16 provided Plaintiff with notice that the Policy was rescinded and returned all past17 paid premiums. UMF No. 14. 18 Grounds for rescission may also be asserted as a defense to the insured’s 19 action on the policy. Resure, Inc. v. Sup. Ct. (Palmer), 42 Cal. App. 4th 156, 166 20 (1996). Alternatively, the insurer may file a cross-complaint against the insured. LA 21 Sound USA, 156 Cal. App. 4th at 1267-68. Either the answer or cross-complaint 22 satisfies the insurer’s responsibility under Cal. Civ. Code § 1691 to provide notice 23 of rescission and to tender repayment of the premiums paid for the policy. LA 24 Sound, 156 Cal. App. 4th at 1267. In this case, Pruco asserted grounds for its 25 rescission as a defense to Plaintiff’s Complaint and in its Counterclaim. 26 3 27 Had Kim told the truth about his smoking history, Pruco might have offered him a smoker’s policy, but with significantly higher premiums. UMF No. 13. 28 9 CASE NO. 2:16-cv-6217 JFW (GJSx) STATEMENT OF DECISION; JUDGMENT 1 IV. CONCLUSION 2 For all the foregoing reasons, Pruco’s Motion for Summary Judgment is 3 GRANTED. Pruco is entitled to judgment in its favor and against Plaintiff on 4 Plaintiff’s entire Complaint. Pruco is also entitled to judgment in its favor and 5 against Plaintiff on Pruco’s Counterclaim. Accordingly, life insurance policy 6 number L9038302, which Pruco issued to the insured Jin Hyung Kim in 2014, with 7 a face value of $120,000, is hereby rescinded. 8 9 10 11 DATED: March 14, 2017 THE HONORABLE JOHN F. WALTER United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 CASE NO. 2:16-cv-6217 JFW (GJSx) STATEMENT OF DECISION; JUDGMENT

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