American General Life Insurance Company v. Jude
Filing
111
MEMORANDUM OPINION & ORDER : 1) American General's 86 MOTION for Summary Judgment is GRANTED; 2) The Judes' 87 MOTION for Summary Judgment is DENIED; 3) American General's 79 MOTION for Judgment on the Pleadings is DENIED AS MOOT; 4) The Judes' 84 MOTION to Exclude is DENIED AS MOOT; 5) American General's 88 MOTION to Exclude is DENIED AS MOOT; 6) The Judes' 106 Objections to Magistrate Judge Atkins 's January 24, 2019 Order are OVERRULED AS MOOT; 7) This matter is DISMISSED and shall be STRIKEN from the Court's active docket; and 8) Judgment in favor of American General will be entered contemporaneously herewith. Signed by Judge David L. Bunning on 5/21/19.(JLS)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
AT ASHLAND
CIVIL ACTION NO. 17-90-DLB-EBA
AMERICAN GENERAL LIFE
INSURANCE COMPANY
PLAINTIFF
v.
THE ESTATE OF CHAD JUDE
----------------------
DEFENDANT
MEMORANDUM OPINION
AND ORDER
THE ESTATE OF CHAD JUDE,
and LORI JUDE
COUNTER-PLAINTIFFS
v.
AMERICAN GENERAL LIFE
INSURANCE COMPANY
* *
* *
COUNTER-DEFENDANTS
* *
* *
* *
* *
* *
* *
This case is before the Court on six pending matters—a Motion for Judgment on
the Pleadings (Doc. # 79), cross-Motions for Summary Judgment (Docs. # 86 and 87),
two Motions to Exclude (Docs. # 84 and 88), and Objections to a January 24, 2019 Order
entered by Magistrate Judge Atkins (Doc. # 106). Each matter has been fully briefed and
the Court heard oral argument on the pending matters on May 15, 2019 (Doc. # 110).
Therefore, the matters are ripe for the Court’s review. For the reasons set forth herein,
American General Life Insurance Company’s Motion for Summary Judgment (Doc. # 86)
is granted. All other pending matters are denied as moot.
I.
FACTUAL BACKGROUND
In June of 2014, American General Life Insurance Company (“American
1
General”)—through Matrix Direct, its agency service—reached out to Chad Jude in an
attempt to sell him a life-insurance policy. (Doc. # 15 at 5). Chad Jude purchased a term
life-insurance
policy
with
a
death
benefit
amount
YMD7350711—which was issued on July 12, 2014.
Id.
of
$500,000—Policy
No.
Chad Jude made timely
payments on the policy. Id. In July of 2015, American General—through agent Daniel
Baldwin—reached out to Chad Jude to help him “reevaluat[e] his insurance needs.” Id.
Chad Jude was interested in expanding his insurance coverage and undertook the
process to increase his coverage. Id. at 5-6. This included signing insurance application
forms—which Chad Jude claims were filled out on his behalf by American General’s agent
and not adequately explained to him—and undergoing a medical examination.
Id.
Specifically, Chad Jude signed Part B of the American General application form, the form
that includes questions about a potential insured’s health history, on August 4, 2015.
(Doc. # 1-1 at 10). On September 4, 2015, Chad Jude’s new term life-insurance policy—
this one for $1,500,000—was issued and the half-million-dollar policy was terminated.
(Docs. # 15 at 6 and 86-12 at 1). On September 21, 2015, Jude was directed by American
General agent Sandra Hawkins to sign “The Policy Acceptance and Amendment of
Application Form” (“PAA”), which he did. Id. American General received Chad Jude’s
first premium payment for the new policy on October 2, 2015. (Doc. # 86-6 at 1).
During the application process, Chad Jude informed American General, through
its agents, that he suffered from dysphagia and had been treated for vocal-cord problems
resulting from complications from pneumonia. Id. at 6-7. Chad Jude claims that “as a
result of the complications and symptoms previously disclosed to American General” he
had a brain MRI on August 15, 2015. Id. at 7. The results indicated that Chad Jude had
2
Chiari I Malformation, a non-life-threatening “condition in which the brain tissue extends
into the spinal cord.” Id. Following this diagnosis, on August 20, 2015, Dr. Paul Bryson
of the Cleveland Clinic referred Chad Jude to “neurosurgery.” (Docs. # 90-2 at 1 and 96
at 1). On September 2, 2015, Lori Jude contacted the Cleveland Clinic to cancel Chad’s
scheduled appointment with Dr. Edward Benzel for that day. (Doc. # 96 at 5). She
indicated that Chad had spent the evening of September 1, 2015 in the emergency room
because he had choked on food. Id. Lori reported that “his condition is deteriorating
rapidly with difficult speech, swallowing and decreased upper extremity strength.” Id. The
following day, September 3, 2015, Chad was seen by Dr. Sarel Vorster, a doctor in the
Neurosurgery Department at the Cleveland Clinic. (Docs. # 90-2 at 1-4 and 103 at 3).
Chad Jude had another brain MRI on September 14, 2015. (Doc. # 90-2 at 7-10). The
results, dated September 15, 2015, again indicated that Chad Jude had a Chiari I
Malformation. Id. On September 30, the Judes were told that Dr. Vorster recommended
decompression surgery. Id. at 16. Chad Jude had his pre-surgery physical on October
1, 2015 and was “cleared for surgery pending normal labs.” (Doc. # 90-3). Chad Jude
underwent surgery to repair the malformation on October 4, 2015 and went back to work
in December 2015. (Doc. # 15 at 7). In February 2016, Chad Jude was diagnosed with
Amyotrophic Lateral Sclerosis (ALS). Id.
In 2016, Chad Jude allegedly received additional direct solicitation from American
General. Id. On March 30, 2017, however, American General sent Chad Jude a letter
indicating that it was rescinding Chad Jude’s 1.5-million-dollar policy; included with the
letter was a refund of the $2,738.47 in premiums paid on that policy and a voluntary
rescission agreement. Id.; (Doc. # 86 at 7-8). Following the letter informing Chad Jude
3
of the rescission, Chad Jude claims he continued to receive direct solicitations from
American General about modifying his policy and continued to make premium payments.
(Doc. # 15 at 7-8). He alleges that, despite the policy being rescinded, “some payments
have been accepted and retained.” Id. at 8.
II.
PROCEDURAL HISTORY
This action commenced on August 18, 2017, when American General petitioned
the Court for a declaratory judgment against Defendant Chad Jude. (Doc. # 1 at 1).
Specifically, American General requests that the Court declare the 1.5-million-dollar
policy issued to Chad Jude in September of 2015—Policy No. YMD7405546—to be null
and void “due to the Defendant’s material misrepresentations on the subject policy
application.” Id. American General alleges that Chad Jude did not fully disclose his
medical history—including that he had been diagnosed with Chiari I Malformation after
an August 15, 2015 MRI—and “[h]ad American General been given a complete disclosure
. . . the policy would not have been issued.” Id. at 4.
American General indicates that Part B of the insurance application, which Chad
Jude signed on August 4, 2015 and which included a number of medical questions,
included a note that there would be no insurance contract until three specific conditions
were met. (Doc. # 86 at 4). The third condition for the insurance contract to be valid is
that there was “no change in health of the Proposed Insured(s) that would change the
answers to any question in the application” between the completion of the application and
both the delivery and acceptance of the policy, and the payment of the first full modal
premium. Id. (emphasis added). The insurance policy was issued on September 4, 2015.
(Doc. # 1 at 2). On September 21, 2015, Chad Jude signed the PAA which required him
4
to agree that:
1. There have been no changes since the date of the application in
my health or in any other condition;
2. Neither I nor any other proposed insured has since the date of the
application:
a. Consulted a licensed health care provider or received
medical or surgical advice or treatment; or
b. Acquired any knowledge or belief that any statements
made in the application are now inaccurate or incomplete.
(Doc. # 86 at 5) (emphasis added).
According to American General, because the
conditions required for the insurance policy to form were not satisfied—there were
changes in Chad Jude’s health between August 4, 2015 when he applied for the policy
and October 2, 2015 when he made his first payment1—the company rescinded the
policy. Id. at 1, 5, 7.
Chad Jude answered the Complaint on November 21, 2017. (Doc. # 15 at 1-3).
Additionally, at the same time, Chad Jude and his wife—Lori Jude—(“the Judes”) brought
common-law and statutory counterclaims under Kentucky law against American General.
Id. at 8-13. The Judes allege six claims—breach of contract (Count I); violations of Ky.
Rev. Stat. § 304.12-030—Replacement Life Insurance, Unfair and Deceptive Practices,
and Unfair Claims Settlement Practices (Counts II-IV); violation of Ky. Rev. Stat. §
367.170—Consumer Protection (Count V); and breach of duty to act in good faith (Count
VI). Id. The Judes also request punitive damages. American General responded to the
1
The first premium payment was received by American General on October 2, 2015. (Doc. # 86-6
at 1). American General acknowledged during oral argument, however, that its internal system indicated
the premium was applied to the policy and the policy went into force on October 7, 2015. As explained,
supra, whether the premium payment was received on October 2nd or 7th does not change the Court’s
conclusion. For the sake of clarity, the Court will consider October 2nd, the more restrictive date, to be the
date on which the premium was received.
5
counterclaims on December 6, 2017. (Doc. # 16).
After Chad Jude’s death on December 30, 2017, the Estate of Chad Jude was
substituted as the Defendant and a Counter-Plaintiff in this action.2 (Docs. # 30 and 31).
In August of 2018, American General sent Lori Jude a check for $533,424.21—effectively
reinstating the half-million-dollar life-insurance policy Chad Jude had terminated and
paying out the benefits.3 (Doc. # 86-12). Ten months later, on October 16, 2018,
American General moved for judgment on the pleadings as to the counterclaims by Lori
Jude. (Doc. # 79). Cross-Motions for Summary Judgment were then filed on November
16, 2018. (Docs. # 86 and 87). Also pending are two Motions to Exclude (Docs. # 84
and 88)—one to exclude recordings produced by American General and the other to
exclude the Judes’ expert—as well as Objections to one of Magistrate Judge Atkins’s
orders. (Doc. # 106). All pending matters have been fully briefed (Docs. # 82, 85, 93, 94,
97, 98, 101, 102, 103 and 104) and, following oral argument held on May 15, 2019 before
the undersigned, are now ripe for the Court’s review.
III.
CROSS-MOTIONS FOR SUMMARY JUDGMENT (DOCS. # 86 and 87)
In its Motion for Summary Judgment, American General moves for summary
judgment on its declaratory-judgment claim and all counterclaims filed against it by the
Judes. (Doc. # 86). The Judes filed a cross-Motion for Summary Judgment requesting
the Court grant summary judgment on three of the counterclaims—Count II, Count III,
and Count V—they brought against American General. (Doc. # 87).
2
References to “the Judes” throughout the remainder of this Memorandum Opinion and Order refer
to Lori Jude and the Estate of Chad Jude—the Counter-Plaintiffs in this action.
3
As a result, all that is at issue in this declaratory-judgment action is $1,000,000—the difference
between the 1.5-million-dollar policy and the half-million-dollar policy which was reinstated by American
General.
6
A.
Standard of Review
Summary judgment is granted when there is no genuine issue of material fact, and
the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A material
fact is one “that might affect the outcome of the suit under governing law.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The role of the judge is to review the
evidence and “determine[] whether there is the need for a trial—whether, in other words,
there are any genuine factual issues that properly can be resolved only by a finder of fact
because they may reasonably be resolved in favor of either party.” Id. at 250. If no such
issue of material fact exists, summary judgment may be granted if the moving party is
“entitled to [such] judgment as a matter of law.” Fed. R. Civ. P. 56(a).
The moving party must explain the basis for its motion and reference evidence
which “demonstrate[s] the absence of a genuine issue of material fact.” Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). That burden on the moving party may be “discharged
by ‘showing’ . . . that there is an absence of evidence to support the nonmoving party’s
case.” Id. at 325. Thus, summary judgment is appropriate “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.” Id. at 322. “To prevail,
the non-movant must show sufficient evidence to create a genuine issue of material fact.”
B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 592 (6th Cir. 2001). Sufficient
evidence is more than a “mere scintilla”; there must be enough evidence that a jury could
decide for the non-moving party. Anderson, 477 U.S. at 252. An opponent of summary
judgment “must do more than simply show that there is some metaphysical doubt as to
the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
7
587 (1986). When considering a motion for summary judgment, the Court must view any
evidence in the light most favorable to the non-moving party and draw all reasonable
inferences in that party’s favor. Hamilton Cty. Educ. Ass’n v. Hamilton Cty. Bd. of Educ.,
822 F.3d 831, 835 (6th Cir. 2016).
B.
Choice of Law
A federal court sitting in diversity must apply the substantive law of the state in
which it is sitting. See Hanna v. Plumer, 380 U.S. 460, 465-66 (1965) (explaining Erie
R.R. Co. v. Tompkins, 304 U.S. 64 (1938)). This includes applying the choice-of-law rules
of the state in which the court sits. Phelps v. McClellan, 30 F.3d 658, 661 (6th Cir. 1994).
Thus, in this case, the Court must apply Kentucky’s choice-of-law rules.
Under Kentucky choice-of-law rules “there is a strong preference . . . for applying
Kentucky law.” Wells Fargo Fin. Leasing, Inc. v. Griffin, 970 F. Supp. 2d 700, 707 (W.D.
Ky. 2013) (collecting cases). “[T]he law of the forum . . . should not be displaced without
valid reasons.” Foster v. Leggett, 484 S.W.2d 827, 829 (Ky. 1972). In other words,
Kentucky is “very egocentric or protective concerning choice of law questions.” Paine v.
La Quinta Motor Inns, Inc., 736 S.W.2d 355, 357 (Ky. Ct. App. 1987), overruled on other
grounds by Oliver v. Schultz, 885 S.W.2d 699 (Ky. 1994). In general, “a court must apply
Kentucky’s law when there are not overwhelming interests to the contrary.” Asher v.
Unarco Material Handling, Inc., 737 F.Supp.2d 662, 666 (E.D. Ky. 2010). In Kentucky,
separate choice-of-law analyses exist for claims arising under tort and contract. Wells
Fargo Fin. Leasing, Inc., 970 F.Supp.2d at 707 (citing Saleba v. Schrand, 300 S.W.3d
177, 181 (Ky. 2009)).
8
In contract cases brought in Kentucky, Kentucky law applies if Kentucky is the state
with the “most significant relationship to the transaction and the parties.” Breeding v.
Mass Indem. & Life Ins. Co., 633 S.W.2d 717, 719 (Ky. 1982); see also Saleba, 200
S.W.3d at 181. In determining what state has the most significant relationship, the court
looks to: “the place or places of negotiating and contracting; the place of performance;
the location of the contract’s subject matters; and the domicile, residence, place of
incorporation and place of business of the parties.” State Farm Mut. Auto Ins. Co. v.
Hodgkiss-Warrick, 413 S.W.3d 875, 878-79 (Ky. 2013).
Here, there is no dispute that Kentucky is the state with the most significant
relationship to the transaction and parties. The life-insurance policy was purchased by a
Kentucky resident, and was intended to benefit his family members domiciled in
Kentucky.
(Doc. # 15 at 4-5).
This suit arose from a misrepresentation allegedly
committed by a Kentucky resident presumably in Kentucky. Id. at 4-6; see also (Doc. #
1 at 2-4). Accordingly, the Court will apply Kentucky law.
C.
Existence of Policy
1.
Conditions Precedent Pleading Issue
The Judes argue that American General did not specifically plead its conditionprecedent argument in its Complaint and, therefore, may not rely on it. (Doc. # 87 at 14).
The Judes rely on Federal Rule of Civil Procedure (FRCP) 9(c) to support their argument.
Id. The Judes’ argument, however, is misguided. FRCP 9(c) is not applicable to the
declaratory-judgment action before the Court.
FRCP 9(c) only requires that the satisfaction of conditions precedent be pled
generally and any defenses to conditions precedent be pled specifically.
9
This rule
“applies to performance or occurrence of conditions precedent to liability.” EEOC v.
Griffin Wheel Co., 360 F. Supp. 424, 425 (N.D. Ala. 1973). The rule does not, however,
“impose an obligation on plaintiffs to plead the performance or occurrence of conditions
precedent. Rather, it is the applicable substantive law that determines whether the
performance or occurrence of conditions precedent is an element of the claim” and
whether it must be pled.
5A CHARLES ALAN WRIGHT,
ET AL.,
Federal Practice and
Procedure § 1303 (4th ed. 2018) (emphasis added) (footnotes omitted); see also Kiernan
v. Zurich Co., 150 F.3d 1120, 1124 (9th Cir. 1998) (“Rule 9(c) does not expressly require
that performance of conditions be pled, it merely sets forth the manner in which such
pleadings should be made.”).
Case law indicates that, in the contract realm, FRCP 9(c) is applicable in breachof-contract actions. See, e.g., Bus. Payment Sys., LLC v. Nat’l Processing Co., No. 3:10cv-669, 2012 WL 6020400, at *10 (W.D. Ky. Dec. 3, 2012); Young Women’s Christian
Ass’n of Nat’l Capital Area, Inc. v. All State Ins. Co. of Can., 158 F.R.D. 6, 7-8 (D.D.C.
1994). In those cases, a plaintiff must generally plead “that it performed all contractual
conditions required of it” before bringing suit. Byczek v. Boelter Co., Inc., 264 F. Supp.
2d 720, 723 (N.D. Il. 2003); see also WRIGHT, ET AL., supra, § 1303 (“A condition precedent
is most notably a concept from contract law that refers to an act or event that must exist
or occur before there is a right to performance under a contract. Under the law of
contracts in some states, the performance by the plaintiff of conditions precedent is
identified as an element of a breach of contract claim.” (footnotes omitted)).
The declaratory-judgment action before the Court, however, is not a breach-ofcontract claim. Here, the Court has yet to determine whether a contract was formed at
10
all. See infra Part III.C.3-4. The Court is not yet considering liability under a contract but
must first consider whether there is any contract between the parties. In doing this, the
Court is focusing on conditions precedent to contract formation, rather than litigation of
the contract. See infra Part III.C.3. American General is not pursuing a claim with
elements that must be satisfied in order for relief to be granted; rather, it is merely seeking
a declaration from this Court that a policy is void. (Doc. # 1). The Judes have not cited
any cases indicating that the nonoccurrence of conditions precedent to contract formation
must be pled under Rule 9(c) in a declaratory-judgment action like the one at bar.4 (Docs.
# 87 at 14, 98 at 12, and 102 at 5). Since Rule 9(c) does not apply to the case before the
Court, the Judes’ Rule 9(c) argument lacks merit.
Further, even if FRCP 9(c) did apply to this action, the Court finds that American
General has satisfied the rule’s requirements.
The Sixth Circuit has indicated that
“plead[ing] performance of conditions precedent” in a request for admissions is sufficient
to satisfy the requirements of Rule 9(c). Ginsburg v. Ins. Co. of N. Am., 427 F.2d 1318,
1322 (6th Cir. 1970). By analogy, the Court finds that American General’s supplemental
interrogatory answers, which included a specific denial that the conditions precedent to
policy formation occurred, were also sufficient to satisfy the Rule 9(c) pleading
4
Trinity Carton Co. Inc. v. Falstaff Brewing Corp., 767 F.2d 184 (5th Cir. 1985), is the only case cited
by the Judes that appears to tangentially deal with a contract-formation issue. (Doc. # 87 at 14). Trinity
Carton was a breach-of-contract case in which the Defendant denies that a contract was formed because
a condition precedent to formation was not met. Trinity Carton Co. Inc., 767 F.2d at 187, 189. The court
focused on the need for the Defendant to have specifically and particularly pled in its answer the denial of
a condition precedent. Id. at 189. Trinity Carton is distinguishable from the case at bar. Trinity Carton is
a breach-of-contract action—the Plaintiffs premise the suit on the allegation that the contract exists, and
the Defendant is bringing up contract formation and the failure of a condition precedent as an affirmative
defense. Id. The case here is different—this is a declaratory-judgment action where the Plaintiffs premise
the litigation on the allegation that a contract never existed; the condition-precedent issue is an argument
in support of the claim. Additionally, Trinity Carton is out-of-circuit precedent and is not binding on this
Court.
11
requirement. (Doc. # 94-4 at 1-2).
Additionally, the Sixth Circuit has held that the assertion that a condition precedent
did not occur may be included in a summary-judgment motion, as it is here. Heights
Driving Sch., Inc. v. Top Driver, Inc., 51 F. App’x 932, 939-940 (6th Cir. 2002). In Heights
Driving School, the court “consider[ed] it relevant” that the defendant had notified the
plaintiff that a condition precedent had not been satisfied in a letter sent to the plaintiff the
day the lawsuit was filed. Id. The fact that the conditions precedent were listed in a letter
sent by American General to Chad Jude on March 30, 2017, (Doc. # 87-1 at 2), prior to
the initiation of litigation, suggests that the inclusion of the condition-precedent argument
in American General’s summary-judgment motion constituted sufficient notice to satisfy
the Rule 9(c) requirements. Thus, even if Rule 9(c) did apply, the Court finds that
American General is permitted to proceed with the argument that there was not a valid
insurance policy because all three conditions precedent to contract formation were not
met, despite not having specifically included the conditions-precedent argument in the
Complaint.
This conclusion is further supported by the rationale behind the pleading rules.
“Courts and commentators have traditionally noted that Rule 9 must be read in light of the
basic pleading philosophy set forth in Rule 8.” WRIGHT, ET AL., supra, § 1291 (footnote
omitted). Rule 8 requires that complaints “contain sufficient factual matter, accepted as
true to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility
when the plaintiff pleads factual conduct that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
12
“The function of a complaint is to afford the defendant fair notice of what the
plaintiff’s claim is . . . [it] need not set down in detail all the particularities of a plaintiff’s
claim.” Decorative Panels Int’l, Inc. v. Int’l Ass’n of Machinists and Aerospace Workers
Local Lodge W-260, 996 F. Supp. 2d 559, 568 (E.D. Mich. 2014). In other words, the rule
does not require that a complaint contain every argument a plaintiff plans to put forward
in support of the claims pled. Such a requirement would run contrary to the pleading
requirement—“a short and plain statement of the claim showing that the pleader is entitled
to relief.” Fed. R. Civ. P. 8(a)(2). FRCP 8 in conjunction with Rule 9(c) merely requires
that conditions precedent to a valid claim be pled. It does not require that any mention of
a condition precedent later in litigation must be preceded by a mention of the condition in
the complaint.
Here, American General has pled its claim; it states that Chad Jude included
material misrepresentations in his application and thus the insurance policy should be
declared void. (Doc. # 1). American General, however, is not required to divulge every
argument in support of its claim—including that the conditions precedent to contract
formation were not met—in the Complaint. Additionally, Chad Jude was given notice of
the conditions precedent in the March 30, 2017 letter from American General. (Doc. #
87-1 at 2) (including the condition-precedent language that Chad Jude agreed to in the
initial policy application). Accordingly, the Court finds the pleadings in this case are
sufficient and holds that American General’s argument that the conditions precedent to
contract formation were not met, may be considered.
2.
Valid Conditions Precedent
A condition precedent—a legal term of art—is “[a]n act or event, other than a lapse
13
of time, that must exist or occur before a duty to perform something promised arises.”
Superior Steel, Inc. v. Ascent at Roebling’s Bridge, LLC, 540 S.W.3d 770, 785 (Ky. 2017)
(internal citations omitted). “The failure of a condition precedent to contract formation
invalidates the entire agreement.” Mercury Dev., LLC v. Motel Sleepers, No. 6:11-cv147-CFVT-HAI, 2013 WL 5374184, at *5 (E.D. Ky. Sept. 25, 2013) (citing Clarion Mfg.
Corp. of Am. v. Justice, 971 S.W.2d 288, 289-90 (Ky. 1998)). The Kentucky Supreme
Court is wary of construing language as a condition precedent to formation, unless it is
clear that a condition precedent was intended. Id. (citing Honaker v. Duro Bag Mfg. Co.
851 S.W.2d 481, 482 (Ky. 1993)); see also A.L. Pickens Co. v. Youngstown Sheet and
Tube Co., 650 F.2d 118, 121 (6th Cir. 1981).
Here the language at issue is clear and unambiguous. The insurance application
states that “no insurance will be in effect under this application . . . unless or until” three
conditions are satisfied. (Doc. # 86 at 5). In other words, the life-insurance policy will not
become valid—the contract will not form—unless all three conditions are met. The first
two conditions are obvious conditions precedent under the legal definition. Each are
events—(1) delivery and acceptance of the policy and (2) the full first modal premium
payment—that must occur before the policy goes into effect. Id.; Superior Steel, Inc. 540
S.W.3d at 785. The Judes do not appear to dispute this conclusion. See (Doc. # 87 at
15-16) (arguing only that the third condition is not a condition precedent).
At issue is the third condition, which requires that “there has been no change in
health of the Proposed Insured(s) that would change the answers to any question in the
application before items (1) and (2) in this paragraph have occurred.” (Doc. # 86 at 5).
The Judes claim that this final condition is a warranty, rather than a condition precedent,
14
and any violation of the warranty by a misrepresentation in the insurance application
“render[s] the policy voidable, but not void ab initio.” (Doc. # 87 at 15-16). The Judes’
argument, however, is based completely on cases applying Ohio—rather than
Kentucky—law. Id. (relying on Ohio Nat’l Life Assur. Corp. v. Satterfield, 956 N.E.2d 866
(Ohio Ct. App. 2011), an Ohio Court of Appeals case, and Ramsey v. Penn Mut. Life Ins.
Co., 787 F.3d 813, 822 (6th Cir. 2015), a Sixth Circuit case applying Ohio law). Thus, the
cases they rely on do not guide this Court.
Additionally, and more importantly, the Ohio cases cited by the Judes run contrary
to Kentucky law. First, Ky. Rev. Stat. § 304.14-110, which allows for the rescission of an
insurance policy when certain misrepresentations were made in the application, makes
policies void ab initio.5 Nationwide Mut. Fire Ins. Co. v. Nelson, 912 F.Supp.2d 452, 454
(E.D. Ky. 2012) (Thapar, J.) (“[W]hen a policy is voided under section 304.14-110 it is
retroactively undone, ‘void ab initio’ . . . it is as if there was never a beginning agreement
between the insurer and the insured.”). Policies are not merely voidable when a specific
misrepresentation in the application is made, as the Judes argue. (Doc. # 87 at 15-16).
Thus, the Judes’ argument, based on Ohio law, runs counter to Kentucky law.
Additionally, Kentucky state law prohibits warranties in insurance applications. Ky.
Rev. Stat. § 304.14-110 (“All statements and descriptions in any application for an
insurance policy . . . shall be deemed to be representations and not warranties”). The
Judes seem to skim over this hiccup and claim that the at-issue condition, which they
5
The statute voids policies when an insured makes a material or fraudulent misrepresentation in the
insurance application, or when an insured makes a misrepresentation that, without it, “the insurer would
either not have issued the policy or contract, or would not have issued it at the same premium rate, 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.” Ky. Rev. Stat. § 304.14-110.
15
argue would be a warranty under Ohio law, must be considered a representation in
Kentucky. (Doc. # 87 at 16). They fail, however, to cite any case law for this chain-link
proposition. Id. The Judes have concocted a piecemeal argument, relying on out-ofstate precedent. The Court will not accede to such an argument when there is clear
Kentucky precedent which mandates the opposite conclusion.
See Nelson, 912
F.Supp.2d 454; see also infra.
The only relevant case interpreting and applying Kentucky law to a situation like
this one runs completely contrary to the Judes’ argument. In that case, American General
brought a declaratory-judgment action seeking “a declaration that no policy of insurance
existed between it and [the insured]” because the insured made misrepresentations in the
insurance application. Am. Gen. Life Ins. Co. v. Harshman, No. 12-cv-129-WOB-REW,
2015 WL 5474177, at *1, *3 (E.D. Ky. Sept. 17, 2015). The at-issue language in the
application in Harshman is the same language used in the application forms that Chad
Jude completed. Compare id. at *1, with (Doc. # 86 at 5). Judge Bertelsman interpreted
the exact conditions at issue here and found each of the three requirements to be “an
unambiguous condition precedent to coverage.” Harshman, 2015 WL 5474177, at *6.
Finding this third condition to formation of the insurance policy, which precludes
formation of an insurance policy if an applicant does not disclose certain changes in
health, to be condition precedent to policy formation, is also supported by the policy
behind the very statute that the Judes cite. “[Ky. Rev. Stat.] 304.14-110 reflects a public
policy requiring ‘those who apply for insurance be honest and forthright in their
representations.’” Progressive N. Ins. Co. v. Corder, 15 S.W.3d 381, 384 (Ky. 2000)
(quoting State Farm Mut. Auto. Ins. Co. v. Crouch 706 S.W.2d 203, 207 (Ct. App. Ky.
16
1986)).
As the only relevant precedent from Kentucky finds this language to be a
condition precedent to policy formation, the Court, without further guidance from the
Kentucky Supreme Court, finds this final requirement to be a condition precedent as well.
3.
Policy Did Not Form
The policy did not form because all three conditions precedent to policy formation
were not met. At issue is the third condition—“there has been no change in health of the
Proposed Insured(s) that would change the answers to any question in the application
before” both the delivery and acceptance of the policy and the payment of the first full
modal premium. (Doc. # 86 at 5). Chad Jude signed Part B of the insurance application
acknowledging these conditions precedent on August 4, 2015.6 (Doc. # 1-1 at 10). The
policy then issued on September 4, 2015, (Doc. # 1-3 at 3) and the first payment for the
policy was received on October 2, 2015. (Doc. # 86-6 at 1). Any changes in Chad Jude’s
health between August 4 and October 2, 2015, which would have changed his answers
to any insurance-application questions, would have precluded the third condition
precedent from being met and, thus, precluded formation of the insurance-policy contract.
Here, there is no issue of material fact that between August 4 and October 2, 2015,
there were changes in Chad Jude’s health that would have changed the answers to
questions on the application. Chad Jude’s wife, Lori, admitted that this was the case
during her deposition.7 (Doc. # 86-13 at 89:12-18, 90:17-21, 91:4-8, 95:15-20, 115:1-21,
6
The Judes claimed during oral argument that August 20th or 21st of 2015 is the date on which the
application was deemed submitted because Part A of the Application was re-signed on either August 20th
or 21st at the request of American General. (Doc. # 1-1 at 4). As explained, infra, whether it was signed
on August 4, August 20, or August 21 does not make a difference to the analysis and ultimate conclusion.
7
Lori Jude admitted that there were changes in Chad Jude’s health prior to October 7, 2015 that
would have changed the answers on his insurance application. (Doc. # 86-13 at 89:12-18, 90:17-21, 91:48, 95:15-20, 115:1-21, 116:7-11). October 7th represents the date that the premium was “applied” to the
policy and the policy went into force. See supra Part II. In reviewing the application questions, (Doc. # 117
116:7-11) (admitting that there were changes in Chad Jude’s health prior to October 7,
2015 that would have changed the answers on his insurance application). Specifically,
questions on the Part B application included “[h]as the proposed insured ever been
diagnosed as having, been treated for or consulted a licensed health care provider for . .
. a disorder of the brain or spinal cord or other nervous system abnormality” and “[o]ther
than previously stated, in the past 10 years, has the Proposed Insured: 1) been
hospitalized, consulted a health care provider or had any illness, injury or surgery?” (Doc.
# 1-1 at 8-10). Chad Jude had answered “no” to each question. Id. Considering the
timing of Chad Jude’s diagnosis of Chiari I Malformation, medical appointments, and
MRIs, see supra Part I, there is no doubt that his answers to questions on the application
would have changed due to his changes in health. Specifically, Chad Jude’s answer to
both of the above-referenced questions would have been “yes” on October 2, 2015. Thus,
there is no issue of material fact that the third condition to policy formation was not met. 8
As all three conditions precedent to formation were not met, no insurance policy was
formed. Accordingly, the Court finds that summary judgment on American General’s
declaratory-judgment action is appropriate and holds that the 1.5-million-dollar insurance
policy is null and void.9
1), and the dates of Chad Jude’s medical tests and consultations, see supra Part I, the Court finds that Lori
Jude’s answers would have been the same had she been asked about Chad Jude’s changes in health prior
to October 2, 2015.
8
The Judes claimed during oral argument that the window to be considered is August 20 or 21, 2015
to October 2, 2015. Even if that were the case, Chad Jude still had an MRI and multiple medical
appointments during that time period, which would have changed the answers to questions on his
application. See supra Part I. Using the later date, there is still no issue of material fact that the third
condition precedent was not met.
9
The Judes suggested at oral argument that Chad Jude did not read the application before he signed
it. This is immaterial. “[W]hether [he] read the application or not, [Chad Jude is] held to have actual or
constructive knowledge of its contents. Further, by signing the application [Chad Jude] adopted the
answers as [his] own.” Hornback v. Bankers Life Ins. Co., 176 S.W.3d 699, 704 (Ky. Ct. App. 2005).
18
4.
Material Misrepresentation
If a Kentucky court were to find the final condition, discussed supra, to be a
warranty or representation, rather than a condition precedent, or the condition-precedent
argument invalid because it was not pled in the Complaint, summary judgment would still
be appropriate on American General’s declaratory-judgment claim. Ky. Rev. Stat. §
304.14-110 allows for the revocation of insurance policies in three circumstances—(1) a
fraudulent misrepresentation is included in the application, (2) a misrepresentation is
either material “to the acceptance of the risk, or to the hazard assumed by the insurer,”
or (3) when the insurance company, had the application been truthfully completed, would
not have issued the policy. Here, there is no issue of material fact that Chad Jude
included a material misrepresentation in his application. If the Court finds that there was
a material misrepresentation in the application, then the policy is void ab initio and the
Court treats the policy as if it never formed. Nelson, 912 F. Supp. 2d at 454; see also
Progressive Specialty Ins. Co. v. Rosing, 891 F. Supp. 378, 380 (W.D. Ky. 1995); Crouch,
706 S.W.2d at 207. In other words, “a misrepresentation voids an insurance policy if the
misrepresentation is ‘material’ to the acceptance of the risk.” Continental Cas. Co. v. Law
Offices of Melbourne Mills, Jr., PLLC, 676 F.3d 534, 538 (6th Cir. 2012).
The Court finds that Chad Jude’s misrepresentations in his insurance application
were material because they impacted the risk of insuring Chad Jude. Exactly what
evidences a material misrepresentation for purposes of Ky. Rev. Stat. § 304.14-110(2) is
not completely clear. “[A] misrepresentation is material if ‘the insurer, acting reasonably
and naturally in accordance with the usual practice of . . . insurance companies under
similar circumstances, would not have accepted the application if the substantial truth had
19
been stated therein.’” Id. at 539 (quoting Mills v. Reserve Life Ins. Co., 335 S.W.2d 955,
958 (Ky. 1960)). Thus, the Sixth Circuit has found that “many of the reasons that support
a determination of ‘materiality’ under [Ky. Rev. Stat.] § 304.14-110(2) also support a
holding that [a] misrepresentation satisfied section (3) of the statute as well.” Id.; see also
MacKenzie v. Prudential Ins. Co. of Am., 411 F.2d 781, 782 (6th Cir. 1969) (quoting
Northwestern Mut. Life Ins. Co. v. Yoe’s Ex’r, 141 S.W.2d 554 (1940)) (“the standard by
which materiality is to be determined is the action which insurance companies generally
would have taken on the application, when acting in accordance with their usual practice
and usage, if the truth had been told”). The same court, however, approvingly noted that
a Western District of Kentucky court found that “a misrepresentation was material solely
on the basis of commonsense assumptions regarding what would have an impact on the
decision making process of a reasonable insurance company . . . documents or employee
testimony were not necessary to support this determination.” Continental Cas. Co., 676
F.3d at 540 (emphasis added).
The Judes admit that “failing to disclose a change in health is regarded as a
material misrepresentation under Kentucky law.” (Doc. # 102 at 6) (citing MacKenzie,
411 F.2d at 783 (finding that a failure to “divulge his high blood pressure reading must be
regarded as a material misrepresentation sufficient to void the policy”)). The Court finds
that the Judes’ statement of the law lacks the nuance set forth in the Mackenzie case.
411 F.2d at 783. While that court did find that it was a material misrepresentation to fail
to tell the insurance company about high blood pressure, that court’s reasoning appears
to be based on the fact that one’s high blood pressure would be taken into account by an
20
insurance company in considering risk and determining whether to insure the applicant.
Id. at 782.
The Court, however, considering the plain language of the statute and Sixth Circuit
precedent, tends to agree with this general, commonsense understanding of material
misrepresentation. Any change in the health of a potential insured impacts the risk to the
insurance company of insuring that person; thus, any change in health of the insured fits
within a plain reading of Ky. Rev. Stat. § 304.14-110(2) as a change in health is “material
. . . to the acceptance of the risk.” More specific to the misrepresentation at issue here,
Judge Bertelsman previously found he could take judicial notice of the fact that failing to
disclose ALS, another neurological disorder, is a material misrepresentation.
See
Harshman, 2015 WL 5474177, at *6.
The Judes argue, however, that Chad Jude’s health did not change, rather, his
diagnosis merely changed, and therefore the misrepresentations made by Chad Jude
were not material. (Docs. # 87 at 16-17 and 98 at 6-7). The Judes fail to cite any
precedent for their proposition and the Court finds their argument to be unpersuasive.
They argue that a diagnosis of Chiari I Malformation was not a change in Chad Jude’s
health. The Judes claim, however, that “if prior to the delivery of the policy and payment
of the first premium, Chad Jude contracted cancer . . . then it could be said that his ‘health’
had changed.’” (Doc. # 87 at 17). The Court fails to find a meaningful distinction between
a cancer diagnosis and a diagnosis of Chiari I Malformation. Cancer is a disease that
can cause a variety of symptoms, which may be consistent with other ailments. For
example, a headache can be indicative of stress or a brain tumor. Headache Causes,
MAYO
CLINIC,
https://www.mayoclinic.org/symptoms/headache/basics/causes/sym-
21
20050800. (last visited May 8, 2019). Similarly, a stomachache may indicate acid reflux
or stomach, pancreatic, or bowel cancer.
Abdominal
Pain,
MEDICAL
NEWS
Jennifer Huizen, 15 Possible Causes of
TODAY
(Nov.
15,
2018),
https://www.medicalnewstoday.com/ articles/318286.php (last visited May 8, 2019).
Here, the symptoms Chad Jude experienced—initially diagnosed as a respiratory
condition—are also indicative of Chiari I Malformation. (Doc. # 87 at 17). The fact that
symptoms may be initially attributed to one ailment, does not preclude the Court from
finding a change in health when a final, accurate diagnosis is made. The Judes do not
appear to suggest that there is no change in health if a patient, previously diagnosed with
acid reflux, received an updated diagnosis of cancer.
Additionally, cancer can be present in one’s body before a formal diagnosis of the
disease is made; it does not magically appear when a doctor makes a diagnosis. One
could make the same argument about cancer that the Judes do about Chiari I
Malformation—that someone who is diagnosed with cancer had no change in his or her
health condition, but merely a change in diagnosis, because the cancer existed in the
body before the diagnosis was made. The Judes admit, however, that a cancer diagnosis
is indicative of a change in health. (Doc. # 87 at 17). As there is no material distinction
between either diagnosis, the Court finds the Judes’ argument to be unpersuasive.
Chad Jude indicated in his August 4, 2015 insurance application that he had never
been diagnosed with, treated for, or consulted a health care provider about “a disorder of
the brain or spinal cord.” (Doc. # 1-1 at 8). He also represented that, in the last ten years,
he had never “consulted a health care provider or had any illness, injury or surgery” other
than what had previously been disclosed. Id. at 9. Chad Jude then signed the PAA on
22
September 21, 2015 indicating that he had no changes in his health since filling out the
application, and that he had not consulted a health-care provider or received medical
treatment. (Doc. # 1-2). Chad Jude failed to indicate, however, that he had been
diagnosed with Chiari I Malformation on August 15, 2015. (Doc. # 90-1). Thus, Chad
Jude misrepresented his health condition when he signed the PAA on September 21,
2015, (Doc. # 1-2), by failing to disclose a change in health—his diagnosis of Chiari I
Malformation. MacKenzie, 411 F.2d at 783. Accordingly, the insurance policy was void
ab initio because Chad Jude included a material misrepresentation in his application.10
10
At oral argument, and in their response brief, the Judes argued that, even if Chad Jude did include
a material misrepresentation in his application, American General can still be liable for rescinding the policy
in bad faith. (Doc. # 98 at 16). This argument is premised on Estate of Riddle ex rel. Riddle v. Southern
Farm Bureau Life Insurance Co., 421 F.3d 400, 407-08 (6th Cir. 2005). Riddle, however, is distinguishable.
“Riddle involved a conditional receipt of an insurance application . . . [which] requires a good faith
determination of the applicant’s insurability, regardless of whether the applicant was actually insurable.”
Jones v. Monumental Life Ins. Co., 502 F. Supp. 2d 601, 605 (E.D. Ky. 2007). In Riddle, there was a
contract of insurance subject to the insurer’s determination that the proposed insured was “a risk insurable
by the Company under its rules, limits, and standards for the plan and amount applied for”; the court found
that the determination had to be made in good faith. Estate of Riddle, 421 F.3d at 406-07. Thus, the
reasoning of Riddle does not apply because there was no conditional receipt in this case, nor was a policy
ever formed, as discussed supra.
This case is further distinguished from Riddle because of the absence of evidence of bad faith.
“To survive a motion for summary judgment, a plaintiff in a bad faith action must come forward with
evidence, sufficient to defeat a directed verdict at trial, which reveals some act of conscious wrongdoing on
the part of the insurer.” Id. at 609 (quoting Jarvis v. Monumental Life Ins. Co., No. Civ.A. 404CV140M,
2005 WL 3132339, at *4 (W.D. Ky. Nov. 21, 2005). In Riddle there was significant evidence of bad faith.
For example, two underwriters cited rheumatoid arthritis as a reason to deny coverage despite a blood test
indicating the proposed insured did not have the ailment, and all three underwriters noted a vague reference
to alcohol abuse in a 1996 letter as a problem despite no mention of that issue in the proposed insured’s
medical records. Estate of Riddle, 421 F.3d at 408.
Here, the Judes have put forth no record evidence to suggest wrongdoing on the part of American
General. The Judes point to the Swiss Re document, a risk table used by the American General
underwriters which the Judes sought to have excluded, as the smoking gun indicating American General
acted in bad faith when it rescinded the policy after Chad Jude had been diagnosed with ALS. Their
argument appears to rest on the fact that the Swiss Re table related to a diagnosis of Syringomyelia, and
Arnold Chiari Malformation appears on the chart as a sub-diagnosis. (Doc. # 90-5). Specifically, the Judes
speculated during oral argument that the underwriter, in bad faith and knowing nothing about either
neurological disorder, overextended the Swiss Re table to rescind the policy due to Chad Jude’s Chiari I
Malformation. The Judes claim, however, that rescission on this ground was pretext for rescinding the
insurance policy because Chad Jude had been diagnosed with ALS. The Judes put forth no record
evidence of this; when asked at oral argument what evidence there was of bad faith, counsel for the Judes
indicated that the Swiss Re document and the date of Chad Jude’s ALS diagnosis was the only evidence
23
Even if failing to disclose this change in health is not considered a material
misrepresentation under Ky. Rev. Stat. § 304.14-110(2), Chad Jude’s policy is still void
under Ky. Rev. Stat. § 304.14-110(3) because American General would have postponed
issuance of the policy had it been aware of Chad’s new health problems.11
The
underwriter at American General, Laura Stout, testified that issuance of the policy would
have been postponed had the application been filled out truthfully. (Doc. # 70-1 at 26:326:20). Under Kentucky law, testimony of an underwriter alone is sufficient to support a
finding that a policy would not have been issued or would have been issued differently,
had the applicant been truthful. See Continental Cas. Co., 676 F.3d at 540 (finding the
argument that “testimony of the insurance company’s own employee is not sufficient for
a finding of materiality” to be incorrect); Conner v. Shelter Mut. Ins. Co., 779 F.2d 335,
339 (6th Cir. 1985) (affirming a district court’s conclusion that relied on underwriter
testimony to hold that the company “would have refused insurance to an applicant”).
While the Judes suggested at oral argument that there is a genuine issue of
material fact as to whether the policy would have been issued, they do not put forth any
record evidence to suggest that American General would have issued the policy had the
application been truthful. The Judes merely speculate that the policy may have been
issued had the application been truthfully completed and American General acted in good
they had. The Judes merely speculate that the insurer acted in bad faith. Speculation, however, is not
sufficient to defeat summary judgment. Bradley v. Wal-Mart Stores East, LP, 587 F. App’x 863, 866 (6th
Cir. 2014).
11
American General indicated at oral arguments that postponing issuance of a policy is sufficient to
satisfy Ky. Rev. Stat. § 304.14-110(3). The company, through counsel, failed to present case law in support
of that proposition. The Court, in reviewing the statute, however, agrees that postponing a decision on
whether to issue a policy is on par with not issuing the policy, not issuing “it at the same premium rate,” not
issuing it “in as large an amount,” or not having “provided coverage with respect to the hazard resulting in
the loss.” Ky. Rev. Stat. § 304.14-110(3).
24
faith.
“A properly supported motion for summary judgment will not be defeated by
conclusory allegations, speculation and unsubstantiated assertions.” Bradley, 587 F.
App’x at 866. Thus, the Court finds that there is no genuine issue of material fact as to
whether American General would not have issued the policy had the application been
completed truthfully.
As discussed supra, “[w]here the policy would not have issued without the false
statement, the statute voids the policy at its inception—as if the policy had never existed.”
Nelson 912 F. Supp. 2d 452, 454; see also Rosing, 891 F. Supp. at 380 (finding the
insurance policy to be void at inception because of material misrepresentation).
Accordingly, as there is no issue of material fact that the misrepresentation was material,
the policy would be void ab initio and must be treated as if it never existed.
D.
Replacement Statute (Count II)
In response to the declaratory-judgment action, the Judes asserted a number of
counterclaims regarding American General’s rescission of the 1.5-million-dollar policy.
(Doc. # 15).
American General moved for summary judgment on each of these
counterclaims. (Doc. # 86 at 20-26). First, the Judes argue that American General
violated the Kentucky Insurance Code—specifically Ky. Rev. Stat. § 304.12-030—by
rescinding the entire 1.5-million-dollar policy. (Docs. # 87 at 17-23 and 98 at 21-23).
Kentucky law requires that replacing insurers agree in writing with an insured that a “new
life insurance policy . . . issued by the replacing insurer will not be contestable by it in the
event of such insured’s death to any greater extent than the existing life insurance policy
. . . would have been contestable by the existing insurer had such replacement not taken
place.” Ky. Rev. Stat. § 304.12-030. The purpose of the law “is to prevent an insured
25
from inadvertently, or upon being persuaded by an insurance agent, replacing a policy
that is no longer contestable with a policy that is contestable.” Harshman, 2015 WL
5474177, at *7.
The Judes claim that American General violated this statute when it rescinded the
entire 1.5-million-dollar replacement policy, despite the fact that Chad Jude’s half-milliondollar replaced policy, which he purchased in 2014, was incontestable. (Doc. # 98 at 2123). The Judes suggested at oral argument that the replacement policy could only have
been rescinded to the tune of $1,000,000.
As Judge Bertelsman noted, there appears to be “no Kentucky authority on the
interpretation of this statute.” Harshman, 2015 WL 5474177, at *7. As the Court reads
the statute, however, the replacement rules are not implicated in the case at bar. The
Court has already found that the 1.5-million-dollar policy never went into effect. See supra
Part III.C.3-4. In other words, there was never a valid replacement policy, which would
trigger application of the replacement statute. As there was no “new life insurance policy”
to be contested (or have contestability limited), the Court finds that the replacement
statute does not apply. Thus, summary judgment will be granted for American General
on this claim.
Additionally, even if the replacement statute was violated by American General’s
actions, the Court finds that the issue is moot. Upon a plain reading of the statute, and
guided by Judge Bertelsman’s interpretation, the purpose of this statute is to ensure that
the beneficiaries of an insured receive, at a minimum, those benefits owed under an
incontestable policy, even if a larger replacement policy is contested. Applying that rule
here, the law stands to ensure that the beneficiaries of Chad Jude receive benefits from
26
the half-million-dollar policy. (Doc. # 102 at 9). In August of 2018, American General
sent Lori Jude a check for $533,424.21. (Doc. # 86-12). That sum represented the halfmillion-dollar policy plus interest and less the premiums that would have been paid on the
half-million-dollar policy had it stayed in effect. Id. As the beneficiaries of Chad Jude
received the benefit protected by this statute, the Court finds the issue of violation of the
replacement statute to also be moot.
E.
Other Statutory and Common-Law Claims
Under
either
approach—the
condition
precedent
or
the
material
misrepresentation—the Court concludes that the policy was void ab initio and treats the
policy as if it never existed. As a result, all of the Judes’ other claims fail as each requires
a valid contract.
1.
Breach of Contract (Count I)
The Judes bring a common-law breach-of-contract claim against American
General arguing that “American General anticipatorily repudiated the [1.5-million-dollar
life-insurance] contract by attempting to rescind same prior to the death of Chad Jude.”
(Doc. # 15 at 8). American General moves for summary judgment on this claim. The
Judes’ argument fails as a matter of law. As discussed supra, there was never a valid
contract between American General and Chad Jude forming the at-issue, 1.5-milliondollar policy. The conditions precedent to contract formation were not met, and thus there
was never an insurance-policy contract in existence. The first element of a breach-ofcontract action in Kentucky is “the existence of a valid contract.” Myers v. AgriLogic Ins.
Servs., LLC, 694 F. App’x 373, 376 (6th Cir. 2017). As there was no valid contract, a
breach-of-contract action cannot lie, and summary judgment is appropriate for American
27
General.
Even if the conditions precedent had been met and the insurance contract formed,
Chad Jude made a material misrepresentation on his insurance application which voided
the policy ab initio—as if the contract had never existed. Nelson, 912 F. Supp. 2d at 454.
“Under Kentucky law, a party may not predicate a cause of action upon a void contract”;
so there can be no breach-of-contract action brought on a contract that was void ab initio.
Ellis v. Arrowood Indem. Co., No. 7:12-cv-140-ART, 2014 WL 2818458, at *3 (E.D. Ky.
June 23, 2014) (citing Smith v. Agnew, 122 S.W. 231, 231 (Ky. 1909)). Accordingly,
American General’s summary-judgment motion on the Judes’ breach-of-contract claim is
granted.
2.
Unfair, Deceptive Practices (Count III)
The Judes also argue that American General violated the statutory prohibition on
“unfair and deceptive practices by insurance companies”—Ky. Rev. Stat. § 304.12-010.
(Doc. # 15 at 9-10). The Judes argue that any failure to follow insurance regulations is a
violation of Ky. Rev. Stat. § 304.12-010. (Doc. # 87 at 23). They specifically claim that
American General violated 806 KAR 12:080 Section 5(e)—the requirement that a
replacing insurer must “[a]llow credit for the period of time that has elapsed under the
replaced policy’s or contract’s incontestability and suicide period up to the face amount
of the existing policy or contract.” 806 KAR 12:080.
Like the replacement statute itself, the regulations do not apply to the case at bar.
Section 5 of the regulations requires that a “replacement [be] involved in the transaction.”
806 KAR 12:080. In this case, however, there was no replacement policy. See supra
Part III.C.3-4. Accordingly, the insurance regulations were not violated, and summary
28
judgment for American General is appropriate on the unfair-and-deceptive-practices
claim.
Therefore, American General’s summary-judgment motion on this claim is
granted.
3.
Statutory and Common-Law Bad Faith (Counts IV, V, VI)
The Judes bring three claims—two statutory and one common-law—for bad faith.
First, the Judes claim that American General violated each statutory requirement of the
Kentucky Unfair Claims and Settlement Practices Act (UCSPA)— Ky. Rev. Stat. § 304.12230—by acting in bad faith. The Judes claim that these violations occurred and are
ongoing. (Doc. # 15 at 11-12). The USCPA “imposes what is generally known as the
duty of good faith and fair dealing owed by an insurer to an insured . . . it proscribes a list
of particular acts and practices.” Knotts v. Zurich Ins., 197 S.W.3d 512, 515 (Ky. 2006).
“A cause of action for a violation of the USCPA may be maintained only where there is
proof of bad faith of an outrageous nature. It must be sufficient for a jury to conclude that
the insurer’s intentional misconduct emanated from an evil motive or a reckless
indifference to the rights of others.” Hamilton Mut. Ins. Co. of Cincinnati v. Buttery, 220
S.W.3d 287, 292 (Ky. Ct. App. 2007).
The Judes also claim that American General “engaged in unfair misleading or
deceptive acts or practices” in violation of Kentucky’s Consumer Protection Act, Ky. Rev.
Stat. § 367.170. (Doc. # 15 at 12). Specifically, the Judes argue that if the Unfair and
Deceptive Practices statute—Ky. Rev. Stat. § 304.12-010—is violated (Count III), then
the Consumer Protection Act, which prohibits unfair, misleading and deceptive practices
in trade and commerce, is also violated. (Doc. # 98 at 20-21). A violation of the Consumer
Protection Act also gives rise to a statutory bad-faith claim.
29
Harshman, 2015 WL
5474177, at *8.
Finally, the Judes brought a common-law claim that American General breached
its duty to act in good faith. (Doc. # 15 at 12). They claim that American General breached
this duty by failing to “fully explain the application process and forms to Chad Jude,” “not
properly training, monitoring and supervising its agents during solicitation and application
process,” and “failing to advise Chad Jude, upon his inquiry, of what benefit amount is
contestable and for how long that contestability lasts under the replacement policy.” Id.
at 12-13.
The common-law and statutory bad-faith claims all require the same elements to
be proven. Harshman, 2015 WL 5474177, at *8. The Judes must show “(1) that the
insurer was obligated to pay the claim under the terms of the policy, (2) that the insurer
lacked a reasonable basis in law or fact for denying the claim, and (3) that the insurer
knew there was no reasonable basis for denying the claim.” Id. (citing Davidson v. Am.
Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000)). “Because an element of each bad faith
claim is American General’s obligation to pay on the policy and there was no valid contract
of insurance between it and [Chad Jude], America General did not have an obligation to
pay.”
Id. Therefore, the Court must grant American General’s summary-judgment
motion on the Judes’ three bad-faith claims.
4.
Punitive Damages (Count VII)
The Judes additionally brought a claim for punitive damages. American General
moved for summary judgment on this claim as well, though puts forth no argument in
support of its Motion. (Doc. # 86). Despite this, American General is entitled to summary
judgment on this claim as pled. “A claim for punitive damages is not a separate cause of
30
action, but a remedy potentially available for another cause of action.” Grubbs v. Thermo
Fisher Sci., No. 2:13-cv-183-DLB-CJS, 2014 WL 1653761, at *3 (E.D. Ky. Apr. 23, 2014)
(quoting Dalton v. Animas Corp., 913 F.Supp.2d 370, 378 (W.D. Ky. 2012)). As the Judes
have not stated a valid claim, summary judgment is appropriate. Additionally, “[t]here is
no recovery and no bad faith, therefore obviously the insured cannot recover punitive
damages.” Harshman, 2015 WL 5474177, at *8.
For the reasons set forth herein, American General’s Motion for Summary
Judgment is granted, and the Judes’ Motion for Summary Judgment is denied.
IV.
OTHER PENDING MATTERS
By granting summary judgment for American General and subsequently
dismissing this action from the Court’s active docket, the Court need not address the
arguments raised in the Motion for Judgment on the Pleadings as to whether Lori Jude is
a proper party to this litigation. (Doc. # 79). This issue has no impact on the Court’s
analysis of the summary-judgment motions. Further, the remaining matters before the
Court—two motions to Exclude (Docs. # 84 and 88) and Objections to Magistrate Judge
Atkins’s January 24, 2019 Order (Doc. # 106)—are also moot. In resolving the summary
judgment motions, the Court did not rely on the evidence at issue in the Motions to
Exclude (Docs. # 84 and 88) nor the Motion for Sanctions and its accompanying
Objections. (Docs. # 73 and 106). Thus, the Court need not rule on the other remaining
Motions or Objections to Magistrate Judge Atkins’s Order. Therefore, those Motions and
Objections are denied/overruled as moot.
31
V.
CONCLUSION
Accordingly, for the reasons set forth herein, IT IS HEREBY ORDERED that:
(1)
American General’s Motion for Summary Judgment (Doc. # 86) is
GRANTED;
(2)
The Judes’ Motion for Summary Judgment (Doc. # 87) is DENIED;
(3)
American General’s Motion for Judgment on the Pleadings (Doc. # 79) is
DENIED AS MOOT;
(4)
The Judes’ Motion to Exclude (Doc. # 84) is DENIED AS MOOT;
(5)
American General’s Motion to Exclude (Doc. # 88) is DENIED AS MOOT;
(6)
The Judes’ Objections to Magistrate Judge Atkins’s January 24, 2019 Order
(Doc. # 106) are OVERRULED AS MOOT;
(7)
This matter is DISMISSED and shall be STRICKEN from the Court’s active
docket; and
(8)
A
Judgment
in
favor
of
contemporaneously herewith.
This 21st day of May, 2019.
32
American
General
will
be
entered
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