Peterson v. USAA Life Insurance Company
Filing
100
ORDER GRANTING 74 Defendant's Motion for Summary Judgment by Judge Christine M. Arguello on 10/26/2018. (swest)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 17-cv-01514-CMA-KMT
ERIN PETERSON,
Plaintiff,
v.
USAA LIFE INSURANCE COMPANY,
Defendant.
ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Defendant USAA Life Insurance Company’s
Motion for Summary Judgment. (Doc. # 74.) Plaintiff filed a response (Doc. # 82) on
June 6, 2018 and Defendant filed a reply (Doc. # 86) on June 20, 2018. Having
thoroughly reviewed the underlying briefing, pertinent record, and applicable law, the
Court grants Defendant’s Motion for the following reasons.
I.
BACKGROUND
In 2015, Theodore Bobkowski (“Decedent”) applied for a life insurance policy with
Defendant USAA Life Insurance Company. (Doc. # 74 at 9.) Based on Decedent’s
answers in Defendant’s application, Defendant agreed to issue him a $1 million, 20-year
term life insurance policy under Defendant’s “Preferred Ultra” risk class, which is the
least expensive risk class that Defendant offers. (Id.) The policy became effective on
September 21, 2015. (Id.) Decedent unexpectedly died on October 22, 2016, a little
over a year after obtaining the policy. (Id. at 10.)
Subsequently, Plaintiff, as the named beneficiary, submitted a claim to Defendant
on the policy. (Doc. # 21 at 2.) However, because Decedent died within the policy’s twoyear contestability period, Defendant requested and obtained from Plaintiff a HIPAA
release in order to review Decedent’s medical records. (Doc. # 74 at 10.) Defendant
then analyzed the records to determine whether Decedent’s medical history was
consistent with his responses in Defendant’s application. (Id.)
Defendant discovered that Decedent’s application omitted numerous details of
Decedent’s medical history. (Id.) In particular, Defendant learned for the first time that
Decedent had been diagnosed with Obstructive Sleep Apnea (OSA) in November 2012
during the first of two sleep study diagnostics which Decedent had not disclosed in his
application. (Id. at 3, 10.) Under Defendant’s underwriting guidelines, however, an
applicant is not eligible for the Preferred Ultra risk class if the applicant has been
diagnosed with OSA that has not been surgically resolved. (Id. at 10.)
On January 10, 2017, Defendant denied Plaintiff’s claim and refused to pay
benefits on the grounds that Decedent materially misrepresented his medical history by
failing to disclose his OSA diagnosis. (Id. at 11.) Thereafter, Plaintiff brought this suit in
state court asserting claims against Defendant for breach of contract, bad faith breach
of contract, and violation of the Colorado Consumer Protection Act (“CCPA”). (Doc. # 21
at 2.) Defendant removed the suit to federal court. (Doc. # 1.) In the instant motion,
2
Defendant argues that it is entitled to summary judgment because it was justified in
denying Plaintiff’s claim on Decedent’s life insurance policy and because there is a lack
of evidence to substantiate Plaintiff’s CCPA claim.
II.
A.
ANALYSIS
SUMMARY JUDGMENT STANDARD
Summary judgment is warranted when “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(a). A fact is “material” if it is essential to the proper
disposition of the claim under the relevant substantive law. Wright v. Abbot Labs., Inc.,
259 F.3d 1226, 1231-32 (10th Cir. 2001). A dispute is “genuine” if the evidence is such
that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v.
Muskogee, Okl., 118 F.3d 837, 839 (10th Cir. 1997). When reviewing motions for
summary judgment, a court may not resolve issues of credibility, and must view the
evidence in the light most favorable to the nonmoving party—including all reasonable
inferences from that evidence. Id. However, conclusory statements based merely on
conjecture, speculation, or subjective belief do not constitute competent summary
judgment evidence. Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).
The moving party bears the initial burden of demonstrating an absence of a
genuine dispute of material fact and entitlement to judgment as a matter of law. Id. In
attempting to meet this standard, a movant who does not bear the ultimate burden of
persuasion at trial does not need to disprove the other party’s claims; rather, the movant
need simply point the court to a lack of evidence for the other party on an essential
3
element of that party’s claim. Adler v. Wal-Mart Stores, Inc., 144 F.3d 644, 671 (10th
Cir. 1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).
Once the movant meets its initial burden, the burden then shifts to the nonmoving
party to “set forth specific facts showing that there is a genuine issue for trial.” Anderson
v. Liberty Lobby Inc., 477 U.S. 242, 256 (1986). The nonmoving party may not simply
rest upon its pleadings to satisfy this burden. Id. Rather, the nonmoving party must “set
forth specific facts that would be admissible in evidence from which a rational trier of
fact could find for the nonmoving party.” Adler, 144 F.3d at 671. “To accomplish this, the
facts must be identified by reference to affidavits, deposition transcripts, or specific
exhibits incorporated therein.” Id. Ultimately, the Court’s inquiry on summary judgment
is whether the facts and evidence identified by the parties present “a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one party
must prevail as a matter of law.” Anderson, 477 U.S. at 251-52.
B.
APPLICATION
Plaintiff asserts three claims for relief against Defendant. Specifically, Plaintiff
alleges: Defendant breached the life insurance contract into which Defendant entered
with Decedent; Defendant’s alleged breach of contract was in bad faith; and Defendant
violated the Colorado Consumer Protection Act (“CCPA”) by engaging in deceptive
trade practices. (Doc. # 12 at 3-5.) Defendant, by contrast, argues: Defendant’s denial
of Plaintiff’s claim was proper because Decedent knowingly made material
misrepresentations regarding his health; Defendant’s denial of Plaintiff’s claim was
justified and thus not in bad faith; and Plaintiff’s CCPA claim fails because Plaintiff has
4
not met its burden of producing evidence to substantiate Plaintiff’s allegations. (Doc. #
74 at 3.) The Court will address each of Defendant’s arguments in turn.
1.
Defendant’s Denial of Plaintiff’s Life Insurance Claim
Defendant’s denial of Plaintiff’s life insurance claim was justified because the
Decedent made material misrepresentations about his health in his insurance
application. Although an insurer may not cancel a policy to avoid a pre-cancelation loss,
there are circumstances that allow insurers to “avoid” coverage after-the-fact. See
Hollinger v. Mut. Benefit Life Ins. Co., 560 P.2d 824, 827 (Colo. 1977). In particular, an
insurer’s liability may be avoided when the insured concealed a material fact while
completing an insurance application. Id.; Silver v. Colorado Cas. Ins. Co., 219 P.3d 324,
328 (Colo. App. 2009) cert. denied, No. 09SC309, 2009 WL 3534579 (Colo. Nov. 2,
2009). Specifically, the insurer must prove:
(1) the applicant made a false statement of fact or concealed a fact in his
application for insurance; (2) the applicant knowingly made the false
statement or knowingly concealed the fact; (3) the false statement of fact or
the concealed fact materially affected either the acceptance of the risk or
the hazard assumed by the insurer; (4) the insurer was ignorant of the false
statement of fact or concealment of fact and is not chargeable with
knowledge of the fact; (5) the insurer relied, to its detriment, on the false
statement of fact or concealment of fact in issuing the policy.
Hollinger, 560 P.2d at 827 (emphasis added) (footnote omitted). 1 However, an insurer’s
contractual obligations cannot be avoided if the insured’s misrepresentation resulted
from an ambiguous question on an insurance application. Id. at 824.
The Court notes that Plaintiff argues that “Plaintiff need not discuss the materiality of the
answer to issue to policy [sic] or [Defendant’s] knowledge.” (Doc. # 82 at 13.) Plaintiff also
contends that “the question of whether [Defendant] actually knew or had reason to know about
Decedent’s sleep apnea, is immaterial.” (Id.) However, Plaintiff’s arguments are clearly
1
5
Here, Defendant establishes that it detrimentally relied on material
misrepresentations Decedent knowingly made on his insurance application. However,
Plaintiff fails to establish that Decedent’s misrepresentations were due to an ambiguous
question on Defendant’s insurance application. Therefore, there is no genuine dispute
of fact and Defendant is entitled to summary judgment.
a.
Decedent concealed facts in his insurance application
It is undisputed that Decedent was diagnosed with a medical condition known as
Obstructive Sleep Apnea (“OSA”) in 2012. (Doc. # 74 at 3.) OSA is “a condition whereby
people typically snore, [and] have some pausing or cessation of their breathing at night.”
(Doc. # 74-14 at 25.) It is also undisputed that Decedent sought medical care for his
OSA on multiple occasions. Specifically:
•
Decedent underwent a sleep study in November 2012 which is a diagnostic test
designed to detect disorders such as OSA (Doc. # 74 at 3) (the results of the
study indicated that Decedent had moderate OSA);
•
Decedent treated his OSA with a Continuous Positive Airway Pressure (“CPAP”)
machine, which is a mask placed over the nose and mouth that forces air into the
lungs (id. at 2);
•
Decedent underwent a second sleep study in January 2013 to determine the
amount of pressure from the CPAP machine that was necessary to prevent his
airways from becoming obstructed during sleep (id. at 4);
inapposite with the applicable standard set forth in Hollinger and are, therefore, erroneous.
Hollinger, 560 P.2d at 827.
6
•
Decedent consulted a doctor regarding his sleep studies in February 2013 (id);
and
•
Decedent consulted a second doctor regarding his OSA in October 2013 (id.).
Additionally, it is undisputed that Decedent did not disclose his OSA diagnosis on his life
insurance application. (Id. at 7-8.)
Decedent omitted his OSA diagnosis notwithstanding several relevant sections of
Defendant’s life insurance application. Specifically:
•
The application indicated that completion required “[c]ontact information for all
doctors and facilities” as well as “[m]edical history, including dates of diagnosis,
tests and treatments” (Doc. # 74-3 at 5);
•
The application inquired whether the insured:
o “[had] ever consulted with a health care provider for: asthma, emphysema,
pneumonia or other respiratory system disorder?” (Doc. # 74-13 at 35);
o “within the past five years: had an electrocardiogram, X-ray or any other
diagnostic test or procedure that was not previously disclosed?” (Id.)
(emphasis added); or
o “consulted a health care provider for any reason not previously
disclosed?” (Id.)
Decedent answered the foregoing questions in the negative. (Id.)
Decedent completed the life insurance policy application in 2015. (Doc. # 12 at
2.) Therefore, Decedent was required to disclose his sleep diagnostics because those
tests were conducted within the applicable five-year period. Additionally, Decedent was
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required to disclose his OSA diagnosis because the application explained that sleep
apnea was considered a “respiratory system disorder.” (Doc. # 74-5 at 1.) Finally,
Decedent was required to disclose his OSA related consultations with health care
providers—if for no other reason—because he had not previously disclosed those
consultations in the application. Despite the fact that the terms of the application
required Decedent to disclose his OSA diagnosis and related consultations and
diagnostics, Decedent omitted the necessary information. Thus, by answering the
relevant application questions in the negative, Decedent made false statements of fact
regarding pertinent medical history.
b.
Decedent concealed facts knowingly
In order for an insurer to avoid coverage of a claim, the insured must have
knowingly made a false statement—or knowingly concealed—a material fact in the
insured’s application. Hollinger, 560 P.2 at 827; Silver, 219 P.3d at 328. Importantly, an
insured does not need to intend to deceive the insurer. Hollinger, 560 P.2d at 827
(“where the evidence shows that the applicant has knowingly made false statements
material to the risk undertaken by the insurer, the insurance policy can be avoided
without establishing a separate element of an ‘intent to deceive.’”). However, an
insurer’s contractual obligations cannot be avoided if the insured’s misrepresentation
resulted from “an answer to an insurer’s question that is ambiguous or too general to
evoke a material response.” Id. at 824.
For instance, “a question that calls for the applicant to state whether he has
suffered from a number of enumerated maladies, followed by the general catch-all
8
phrase, ‘or other disease or ailment or surgical operation,’ is overly broad” because it
denies “an applicant the opportunity, as a reasonable person, to determine the scope of
the question.” Id. Questions that may be ambiguous are measured by an objective
standard. Id. Thus, in order to determine whether an applicant made a
misrepresentation knowingly—as opposed to the misrepresentation being the product of
an ambiguous question—courts consider “whether a reasonable person, with the
applicant’s physical or mental characteristics, under all the circumstances, would
understand that the question calls for disclosure of specific information.” West Coast
Life Ins. Co. v. Hoar, 558 F.3d 1151, 1157 (10th Cir. 2009) (quoting Hollinger, 560 P.2d
at 827).
Therefore, the actual or subjective knowledge of the applicant is irrelevant. 2
Hollinger, 560 P.2d at 826. Where an insurance applicant has consulted medical
professionals regarding a particular condition but denies the same on an application, it
is appropriate for courts to find that the misrepresentation was “knowing” as a matter of
law. See id. at 825-26. In Hollinger, for example, the Supreme Court of Colorado found
that a life insurance applicant made a knowing misrepresentation, as a matter of law,
when the applicant responded in the negative to a question asking if he had seen a
The Court notes that Plaintiff’s response to the instant motion argues that it “is a disputed
issue whether and to what extent [Decedent] understood the nature of his condition and whether
he considered it to be a ‘respiratory condition’ within the meaning of the [application] question.”
(Doc. # 82 at 15.) However, Decedent’s subjective interpretation of his condition is irrelevant in
light of the objective standard set forth in Hollinger. Therefore, Plaintiff’s argument that
Decedent’s subjective knowledge creates a genuine dispute of material fact is erroneous.
2
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psychiatrist in the past seven years when the applicant had actually consulted a
psychiatrist on eleven occasions in the year before he purchased the policy. Id.
Here, Decedent knowingly concealed facts about his OSA diagnosis in his life
insurance application. Defendant’s application asked whether applicants “[had] ever
consulted with a health care provider for: asthma, emphysema, pneumonia or other
respiratory system disorder?” (Doc. # 74-13 at 35.) The foregoing question is not, as
Plaintiff asserts, vague, ambiguous, or misleading. (Doc. # 82 at 6.)
The word “respiratory” is defined as “[d]esignating, relating to, or affecting the
organs involved in respiration; of or relating . . . to the process of oxygen transport and
respiration.” Respiratory, adj., OXFORD ENGLISH DICTIONARY, http://www.oed.com/view/Entry/163819?redirectedFrom=respiratory& (last visited Oct. 10, 2018). One of the
primary features of Defendant’s OSA diagnosis was “pausing or cessation of [his]
breathing at night.” (Doc. # 74-14 at 25.) Moreover, OSA is treated with a device that
forces air into the lungs. (Doc. # 74 at 2.) Therefore, it is clear that OSA involves the
process of oxygen transport and respiration. As such, OSA is fairly characterized as a
respiratory disorder because it pertains to a defect in the process of respiration.
Accordingly, a reasonable person in Decedent’s circumstances—a person who
had undergone multiple sleep diagnostics that analyzed their rate of oxygen intake,
consulted with multiple health care professionals about the nature of OSA, and treated
the condition with a machine that facilitated breathing—would understand that a
question inquiring about respiratory disorders calls for disclosure of specific information
related to an OSA diagnosis. (Doc. # 74-14 at 2) (listing oxygen intake levels and
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apnea-hypopnea index under the heading “RESPIRATORY MEASURES” in Decedent’s
2012 sleep diagnostic). Assuming, arguendo, that a reasonable person could find a
question about “respiratory disorders” to be unclear in its scope, Defendant’s application
cures any possible doubt.
The application question regarding respiratory disorders features a hyperlinked
definition of the term “other respiratory system disorder.” (Doc. # 74-5 at 1.) If selected
by an applicant, the definition explicitly characterizes “sleep apnea” as a respiratory
disorder. (Id.) The explanatory link is conspicuously located immediately below the
“other respiratory system disorder” question and it is highlighted with a dotted blue line
for emphasis. (Id.) Moreover, “[t]he law charges a party to a contract . . . with knowledge
of its contents.” West Coast Life Ins. Co. v. Hoar, 505 F. Supp. 2d 734, n.3 (D. Colo.
2007) (citing Barciak v. United of Omaha Life Ins. Co., 777 F. Supp. 839, 843 (D. Colo.
1991) (“[O]ne who signs a contract is presumed to have read and understood each of its
terms.”); O’Brien v. Houston, 262 P. 1020, 1021 (1927) (“[O]ne cannot say he did not
know the contents of a contract he has executed.”)), aff’d, 558 F.3d 1151 (10th Cir.
2009). Therefore, a reasonable person familiar, as Decedent was (Doc. # 74-14 at 205),
with computers would easily resolve any perceived ambiguity in the relevant application
question by simply reading the corresponding explanation.
Thus, as in Hollinger, Decedent consulted with health care providers multiple
times regarding a particular condition but denied the same on his application. Hollinger,
560 P.2d at 825-26. A reasonable person in Decedent’s circumstances would have
known that the application required disclosure of an OSA diagnosis because of the
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nature of the disorder and because of the application’s explicit definition of the term
“other respiratory disorder.” Therefore, Decedent made misrepresentations about his
health history knowingly and his misrepresentations were not the product of an
ambiguous application question.
c.
The facts Decedent concealed materially affected Defendant’s
acceptance of risk
An insurer may avoid coverage only if “the false statement of fact or the
concealed fact materially affected either the acceptance of the risk or the hazard
assumed by the insurer.” Id. An insurer does not need to show that it would not have
issued the policy but for the misrepresentation. West Coast Life, 505 F. Supp. 2d at
750. Rather, the misrepresentation “must be [a]ctually material to the insurer’s risk, as
demonstrated by customary underwriting procedures.” Wade v. Olinger Life Ins. Co.,
560 P.2d 446, 452 (Colo. 1977).
Here, Decedent’s misrepresentations materially affected the risk Defendant
assumed. Based on Decedent’s statement that he did not have any respiratory
disorders, Decedent was found to be eligible for Defendant’s “Preferred Ultra” risk class,
“which is the best (i.e., least expensive) risk class that [Defendant] offers.” (Doc. # 74 at
9.) However, under Defendant’s underwriting guidelines, an applicant is not eligible for
the Preferred Ultra risk class if the applicant has been diagnosed with OSA that has not
been completely surgically resolved. (Doc. # 75 at 3.) Additionally, if an applicant’s “preCPAP sleep study shows that oxygen saturation levels dip below 90 percent at any
point, the applicant is not even eligible for the Preferred Plus risk class (the second best
12
class).” (Doc. ## 74 at 10, 75 at 2.) In both of Decedent’s sleep studies, his oxygen
saturation levels were below 90 percent for nearly an hour. (Doc. # 74-14 at 2, 12.)
If Decedent had disclosed his OSA diagnosis, Defendant “would have sought his
medical records relating to the diagnosis, including the sleep study reports, and thereby
would have discovered . . . Decedent’s oxygen saturation levels . . . .” (Doc. # 74 at 11.)
As a result, Decedent would have been “classified in the Preferred risk class.” (Id.) With
an accurate risk determination, Defendant would not have offered Decedent the
coverage Decedent selected at the price Decedent paid. (Id.) Rather, Decedent’s
“annual premium would have purchased only $512,304.25 in coverage rather than $1
million.” (Id.) Therefore, Defendant’s underwriting procedures show that Decedent’s
misrepresentation materially affected Defendant’s acceptance of risk because Decedent
received coverage that was reserved for individuals who did not have Decedent’s OSA
related oxygen intake concerns.
d.
Defendant was unaware of the concealed facts and is not
chargeable with knowledge of them
The parties do not dispute that Defendant was unaware of Decedent’s OSA
diagnosis until after Decedent’s death. Nevertheless, an insurer may have a duty to
investigate representations that are made in its policy applications, which is to say that
the insurer may be chargeable with knowledge of the concealed facts. Silver, 219 P.3d
at 331. Such a duty arises only if the insurer has sufficient information to put a
reasonably careful insurer on notice of a possible misrepresentation that “would have
caused the insurer to begin an inquiry, which, if carried out with reasonable
thoroughness, would have revealed the truth.” Id.
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Here, Defendant did not have a duty to investigate the representations Decedent
made in his application. Decedent’s responses to the inquiries in the application did not
disclose his OSA diagnosis or any other medical conditions. (Doc. # 74 at 7-8.)
Moreover, although Defendant hired a paramedical technician to conduct an
examination of Decedent, the examination was intended to be a limited one. (Id. at 9.)
Technicians who carried out such examinations were instructed to obtain “proof of
applicant’s identity . . .; applicant’s vitals (including height, weight, blood pressure, and
pulse); applicant’s initials confirming height and weight; whether applicant had a moving
violation, or had driver’s license revoked, in previous five years; applicant’s blood
sample; and applicant’s urine sample.” (Doc. # 74-15 at 42.) None of the foregoing
information revealed that Decedent suffered from OSA, and the examination did not put
Defendant on notice that Decedent had made misrepresentations on his application.
(Doc. # 74 at 9.) Therefore, Defendant was unaware of the facts concealed by
Decedent’s misrepresentations. Further, because Defendant did not have grounds to
reasonably suspect that Decedent’s application contained misrepresentations,
Defendant’s duty to investigate was not triggered and Defendant is not chargeable with
knowledge of Decedent’s omissions.
e.
Defendant detrimentally relied on Decedent’s misrepresentations
An insurer may avoid coverage only if it “relied, to its detriment, on the false
statement of fact or concealment of fact in issuing the policy.” Hollinger, 560 P.2d at
827. Detrimental reliance occurs when one person’s statement, conduct, or silence
induces another to change position detrimentally in reasonable reliance on his words or
14
actions. Cont’l W. Ins. Co. v. Jim’s Hardwood Floor Co., Inc., 12 P.3d 824, 828 (Colo.
App. 2000); West Coast Life Ins. Co. v. Hoar, 505 F. Supp. 2d 734, 754 (D. Colo. 2007)
(quoting 6 LEE R. RUSS & THOMAS E SEGALLA, COUCH ON INSURANCE § 82:13 (3d ed.
1995) (“[The test is w]hether the fact or circumstance represented or misrepresented
operated to induce the insurer to accept the risk, or to accept it at a lower premium.”)
(emphasis added)). Courts have held that if an insured’s response to an application
question induces an insurer to issue a policy at a premium that does not reflect the risk
posed by the insured, it is appropriate to find—as a matter of law—that the insurer relied
on the misrepresentation. See West Coast Life, 505 F. Supp. 2d at 755.
Here, Defendant clearly relied on Decedent’s misrepresentations. Because
Decedent did not disclose his OSA diagnosis, Defendant “agreed to underwrite [his]
policy in the Preferred Ultra risk class, and it also did not seek any medical records that
could have revealed that Decedent’s oxygen saturation levels were below those
required to qualify for the Preferred Plus risk class.” (Doc. # 74 at 17.) As a result,
Defendant agreed to issue twice as much coverage as Decedent was eligible for. (Id.)
Therefore, Defendant relied on Decedent’s misrepresentations because Decedent’s
assertion that he did not have a respiratory disorder induced Defendant to issue a policy
that did not reflect the risk posed by Decedent.
In sum, Defendant has established that it detrimentally relied on material
misrepresentations Decedent knowingly made on his insurance application. Thus,
Defendant has met its initial burden of demonstrating the absence of a genuine dispute
of material fact with respect to its right to avoid coverage on Decedent’s life insurance
15
policy. Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004). Plaintiff, by
contrast, has failed to “set forth specific facts showing that there is a genuine issue for
trial.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 256 (1986). In particular, Plaintiff
has failed to set forth facts rebutting Defendant’s evidence on the Hollinger avoidance
elements. Moreover, Plaintiff has failed to set forth facts showing that Decedent’s
misrepresentations were due to an ambiguous question on Defendant’s insurance
application. Therefore, there is no genuine dispute of fact and Defendant is entitled to
summary judgment with respect to its right to avoid coverage on Decedent’s life
insurance policy.
2.
Whether Defendant Breached the Life Insurance Contract in Bad Faith
Plaintiff alleges that Defendant breached the life insurance agreement into which
Defendant entered with Decedent in bad faith. (Doc. # 12 at 4.) However, if an insured’s
misrepresentations have the consequence of voiding an insurance contract, the insured
cannot maintain a bad faith breach of contract claim. See West Coast Life, 505 F. Supp.
2d at 753. It is “settled law in Colorado that a bad faith claim must fail if, as is the case
here, coverage was properly denied . . . .” MarkWest Hydrocarbon, Inc. v. Liberty Mut.
Ins. Co., 558 F.3d 1184, 1193 (10th Cir. 2009). This Court has found that Decedent’s
knowing misrepresentations of material fact triggered Defendant’s right to avoid the
contract. See supra Section 1. Therefore, because Defendant’s denial of coverage was
proper as a matter of law, there is no genuine dispute of material fact as to whether
Defendant breached its contract with Decedent in bad faith, and summary judgment is
warranted.
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3.
Whether Plaintiff Satisfied its Burden of Production on its CCPA Claim
The CCPA was enacted to regulate commercial activities and practices which,
“because of their nature, may prove injurious, offensive, or dangerous to the public.”
Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc., 62 P.3d 142, 146 (Colo.
2003) (quoting People ex rel. Dunbar v. Gym of America, Inc., 493 P.2d 660, 667 (Colo.
1972)). Thus, the CCPA “deters and punishes businesses which commit deceptive
practices in their dealings with the public by providing prompt, economical, and readily
available remedies against consumer fraud.” Id. (citations omitted). In order to prove a
violation of the CCPA, a plaintiff must show:
(1) that the defendant engaged in an unfair or deceptive trade practice;
(2) that the challenged practice occurred in the course of defendant’s business,
vocation, or occupation;
(3) that it significantly impacts the public as actual or potential consumers of the
defendant’s goods, services, or property;
(4) that the plaintiff suffered injury to a legally protected interest; and
(5) that the challenged practice caused the plaintiff’s injury
Id. at 146-47 (citing Hall v. Walter, 969 P.2d 224, 235 (Colo. 1998)).
To establish a “deceptive trade practice,” a plaintiff must show that a defendant
“knowingly [made] a false representation.” Id. at 147 (quoting Colo. Rev. Stat. § 6-1105(1)(e)). A false representation, in turn, “must either induce a party to act, refrain from
acting, or have the capacity or tendency to attract consumers.” Id. Misrepresentations
are actionable when made “either with knowledge of [their] untruth, or recklessly and
17
willfully made without regard to [the] consequences, and with an intent to mislead and
deceive the plaintiff.” Id. (citation omitted). Importantly, a promise “cannot constitute a
misrepresentation unless the promisor did not intend to honor it at the time it was
made.” Id. at 148 (citing Brody v. Brock, 897 P.2d 769, 776 (Colo. 1995); Ballow v.
PHICO Ins. Co., 875 P.2d 1354,1362 (Colo. 1993)). Alternatively, a plaintiff may show
that a false representation “had the capacity or tendency to deceive, even if it did not.”
Thus, as opposed to a breach of contract claim, “which arises when one contracting
party breaks a promise, a CCPA claim arises when a party knowingly makes a
misrepresentation or makes a false representation that has the capacity to deceive.” Id.
Here, it is difficult to identify exactly what trade practices form the basis of
Plaintiff’s CCPA claim. Plaintiff’s complaint alleges that Defendant:
•
represented that Defendant’s insurance and services are of a particular standard,
quality, or grade, when Defendant knew or should know that they are of another;
•
advertised its insurance and services with the intent to not provide such goods
and services as advertised;
•
engaged in deceptive, misleading, or after-the-fact underwriting practices; and
•
failed to disclose material information concerning its goods and services, which
information was known at the time of an advertisement or sale and such failure to
disclose such information was intended to induce plaintiffs to enter into a
transaction.
(Doc. # 12 at 5). As Defendant notes, “Plaintiff’s complaint simply parrots back the
language of the [CCPA], coupled with a bare assertion that [Defendant] engaged in the
18
enumerated ‘prohibited and/or deceptive trade practices.’” (Doc. # 74 at 19.) Moreover,
Plaintiff’s response to the instant motion does not provide any facts regarding the
challenged practices. See (Doc. # 82).
Plaintiff argues that “[t]he current argument related to the CCPA claim is nothing
more than rehashing of [Defendant’s] prior arguments and adds no new relevant facts
or discussion.” (Id. at 14.) Additionally, Plaintiff argues that Defendant’s “argument is so
lacking in substance as to deny Plaintiff a fair opportunity to respond to the same.” (Id.)
Defendant assumes, as will the Court, that Plaintiff’s “theory for the CCPA claim is that
[Defendant] intentionally uses vague questions in [its] Application in order to later deny
life insurance claims based on the applicants’ incomplete answers to those questions.”
(Doc. # 74 at 19.) Assuming arguendo that Defendant’s trade practices are deceptive
for purposes of the CCPA, Defendant contends that there is no genuine dispute of
material fact with regard to Plaintiff’s CCPA claim because Plaintiff has failed to submit
evidence showing either that Defendant’s challenged practices significantly impact the
public or that the challenged practices caused Plaintiff’s injury. The Court will address
each argument in turn.
a.
Public impact
In order for a plaintiff to prove that a challenged trade practice has a significant
impact on the public as actual or potential consumers of the defendant’s goods,
services, or property, the plaintiff must establish that the wrong is not private in nature.
Rhino, 62 P.3d at 149. When analyzing whether a trade practice has a significant public
impact, courts consider “(1) the number of consumers directly affected by the
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challenged practice, (2) the relative sophistication and bargaining power of the
consumers affected by the challenged practice, and (3) evidence that the challenged
practice has previously impacted other consumers or has the significant potential to do
so in the future.” Id. Where a challenged trade practice affects only a small fraction of an
entity’s consumers, the impact on the public is not “significant” for purposes of the
CCPA. Id. at 150 (concluding practice affecting 3 out of 500 consumers to be
insufficiently significant); Coors v. Sec. Life of Denver Ins. Co., 91 P.3d 393, 399 (Colo.
App. 2003) (concluding “an impact on at most one percent of the policyholders could not
constitute public impact” as a matter of law), rev’d on other grounds, 112 P.3d 59 (Colo.
2005). Rather, evidence that a challenged trade practice has a de minimis impact on an
entity’s consumers indicates that the dispute is private in nature and thus outside the
scope of the CCPA. See Rhino, 62 P.3d at 150.
Here, Plaintiff’s claim is private in nature. Between 2012 and 2017, Defendant
processed more than 17,500 life insurance claims nationwide. (Doc. # 74 at 20.) Of
those claims, Defendant denied a total of 109 contestable claims, “only two of which
were from Colorado, including Plaintiff’s claim . . . .” (Id.) Thus, Defendant denied “sixtenths of 1 percent” of the claims it processed. (Id.) As such, the trade practices Plaintiff
challenges clearly have a de minimis impact on the public and are therefore outside the
scope of the CCPA as a matter of law.
b.
Causation
Under the CCPA, a private plaintiff must prove that the challenged practice
caused the plaintiff’s injury. Rhino, 62 P.3d at 147; Colo. Rev. Stat. § 6-1-113. To prove
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causation, a plaintiff must demonstrate a “causal link” between the “deceptive trade
practices and the injury.” Hall v. Walter, 969 P.2d 224. If a plaintiff cannot show a causal
link between a defendant’s deceptive trade practices and the plaintiff’s injury, the
plaintiff cannot recover damages under the CCPA. Witters v. Daniels Motors, Inc., 524
P.2d 632, 634 (Colo. App. 1974).
Here, Plaintiff has failed to establish a causal link between Defendant’s
challenged practices and Plaintiff’s alleged injury. In Plaintiff’s complaint, Plaintiff
alleges “as a direct and proximate cause of Defendant’s deceptive trade practices,
Plaintiff has been harmed in an amount to be proven at trial.” (Doc. # 12 at 5.) However,
Plaintiff has neither identified nor produced any allegedly deceptive advertisements or
other information that Defendant has issued. (Doc. # 74-14 at 43.) Further, Plaintiff does
not allege that Decedent saw or relied upon any deceptive information before he
completed his life insurance application. As a result, Plaintiff has failed to demonstrate
any causal connection between Defendant’s allegedly deceptive trade practices and
Plaintiff’s alleged damages.
Additionally, Plaintiff alleges that Decedent “allowed a policy of life insurance
benefitting Plaintiff in the amount of $400,000.00 to lapse because of and/or in
anticipation of the issuance of the USAA life insurance policy.” However, Decedent
allowed his prior life insurance policy to lapse in June 2015 (Doc. # 74-15 at 45), yet he
did not submit an application to Defendant until August 2015 (Doc. # 74-13 at 31).
Therefore, because Decedent had not even submitted an application to Defendant
when his prior life insurance lapsed, Defendant could not have relied upon his policy
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with Defendant at the time his prior policy lapsed. Moreover, Plaintiff has not alleged
that Decedent’s decision to allow his former policy to lapse was influenced by any
advertisement or information issued by Defendant. Thus, Plaintiff is not entitled to
damages under the CCPA because Plaintiff has not presented evidence of a causal link
between Defendant’s allegedly deceptive trade practices and Plaintiff’s alleged injury.
In sum, Plaintiff has failed to satisfy the burden of production on Plaintiff’s CCPA
claim. Plaintiff argues that Defendant is not entitled to summary judgment because
Defendant “does not present affirmatively any evidence showing the [CCPA] claim lacks
merit.” (Doc. # 82 at 16.) However, in order to meet its burden as a movant for summary
judgment who does not bear the ultimate burden of persuasion at trial for the CCPA
claim, Defendant does not need to disprove Plaintiff’s claim; rather, Defendant need
simply point the Court to a lack of evidence for Plaintiff on an essential element of
Plaintiff’s claim. Adler v. Wal-Mart Stores, Inc., 144 F.3d 644, 671 (10th Cir. 1998)
(citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). Defendant met its burden by
pointing the Court to a lack of evidence on two essential elements of Plaintiff’s CCPA
claim. Specifically, Defendant noted that Plaintiff has not presented evidence that
Defendant’s challenged trade practices have a significant public impact. Further,
Defendant established that Plaintiff has not presented evidence of a causal link between
Defendant’s allegedly deceptive trade practices and Plaintiff’s injury.
Once Defendant met its initial burden, the burden shifted to Plaintiff to “set forth
specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby
Inc., 477 U.S. 242, 256 (1986). Plaintiff asserts that Defendant’s argument is “nothing
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more than a rehashing of Defendant’s prior motion [to dismiss] regarding the CCPA
claim that has already been overruled by the Court.” (Doc. # 82 at 16.) Therefore,
Plaintiff effectively argues that the allegations in its complaint are sufficient for it to
survive the instant motion for summary judgment. However, a nonmovant may not
simply rest upon its pleadings to satisfy its burden. Anderson, 477 U.S. at 256. Rather,
the nonmoving party must “set forth specific facts that would be admissible in evidence
from which a rational trier of fact could find for the nonmoving party.” Adler, 144 F.3d at
671. Here, Plaintiff failed to meet its burden because it did not offer any specific facts to
substantiate the elements of its CCPA claim that Defendant challenged for lack of
evidence. Therefore, Defendant is entitled to summary judgment.
III.
CONCLUSION
Accordingly, the Court ORDERS that Defendant USAA Life Insurance
Company’s Motion for Summary Judgment is GRANTED.
DATED: October 26, 2018
BY THE COURT:
CHRISTINE M. ARGUELLO
United States District Judge
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