North Wind Fabrication, Inc. v. Pruco Life Insurance Company

Filing 90

ORDER granting in part and denying in part 52 Motion for Summary Judgment Signed by District Judge Louis Guirola, Jr on 10/12/10 (Guirola, Louis)

N o r t h Wind Fabrication, Inc. v. Pruco Life Insurance Company

D o c . 90

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF MISSISSIPPI SOUTHERN DIVISION N O R T H WIND FABRICATION, INC. v. P R U C O LIFE INSURANCE COMPANY § § § § § § P L A IN T IF F C iv i l Action No. 1:09cv682-LG-RHW

D E FE N DA N T

M E M O R A N D U M OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT B E F O R E THE COURT is the Motion for Summary Judgment [52] filed by P r u c o Life Insurance Company. Pruco asserts that the life insurance policy it issued t o Dwight E. Braxton is void ab initio due to material misrepresentations made in the p o lic y application. In the alternative, Pruco argues that it is entitled to partial

s u m m a r y judgment as to the beneficiary's claim of bad faith, because it had an arguable a n d legitimate reason for denying the claim. The plaintiff and beneficiary, North Wind F a b r ic a t io n , Inc., has filed a response in opposition to the Motion, and Pruco has filed a reply. Upon reviewing the submissions of the parties and the applicable law, the C o u r t finds that the Motion should be granted as to North Wind's bad faith claim and d e n i e d in all other respects. F ACTS O n January 24, 2007, Dwight E. Braxton completed an application for a Pruco $ 5 0 0 ,0 0 0 term life insurance policy. (Ex. 5 to Def.'s Mot.) On the application, he denied e v e r being diagnosed with or treated for chest pain, high blood pressure, or any disorder o f the heart or blood vessels. (Id.) It is undisputed that he continued to deny that he

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h a d been treated for these ailments on multiple occasions throughout the application p r o c e s s , including during a medical exam required by Pruco and a telephonic interview. (E x . 5-8 to Def.'s Mot.) Braxton was placed in the Preferred Best Premium Class based o n Pruco's underwriting guidelines, which resulted in a premium of $1205 per year. ( E x . 9 to Def.'s Mot. at 22, 23, 49-52; Ex. 10 to Def.'s Mot.) North Wind Fabrication, a c o m p a n y partially owned by Braxton, was the owner and beneficiary of the policy. On November 14, 2007, Braxton died of acute myocardial infarction as a c o n s e q u e n c e of coronary artery disease during a heart catheterization performed by Dr. B a s s a m Baroudi at Memorial Hospital. (Ex. 3 to Def.'s Mot.) Because Braxton's death o c c u r r e d less than two years after the policy was issued, North Wind's claim for benefits u n d e r the policy was considered a contestable claim by Pruco. (Ex. 2 to Def.'s Mot. at 8 , 16). Therefore, Pruco obtained Braxton's medical records, including those depicting h i s treatment by Dr. Baroudi, and learned that Braxton had been referred to Dr. B a r o u d i in 2004 for a consult and stress test due to a family history of heart disease as w e ll as complaints of occasional shortness of breath, chest pain, and an elevated lipid p a n e l revealing high LDL cholesterol. (Ex. 14 to Def.'s Mot.; Ex. 16 to Def.'s Mot. at 11, 5 1 ) . Braxton's first visit to Dr. Baroudi occurred on May 13, 2004, and Dr. Baroudi's im p r e s s io n s were: (1) chest pain suggestive of angina, (2) hypercholesterolemia, and (3) b o r d e r lin e hypertension. (Ex. 14 to Def.'s Mot.; Ex. 16 to Def.'s Mot. at 13). Dr. Baroudi p r e s c r ib e d lipitor for the high cholesterol, the beta blocker Toprol for the high blood p r e s s u r e , and ecotrin, which is an aspirin and platelet inhibitor that is recommended fo r patients with high blood pressure. (Ex. 14 to Def.'s Mot.; Ex. 16 to Def.'s Mot. at 16-

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1 8 ). Dr. Baroudi also performed a stress test and an echocardiogram. Braxton

e x e r c i s e d well during the stress test. The echocardiogram study revealed the presence o f either scarring in the inferior wall, which could indicate a past heart attack, or d ia p h r a g m a t i c attenuation, which merely means the diaphragm is pushed up to where it covers part of the heart. (Ex. 14 to Def.'s Mot.; Ex. 16 to Def.'s Mot. at 21-25). On J u n e 25, 2004, Dr. Baroudi met with Braxton to discuss the test results and devise a c o u rs e of treatment. (Ex. 14 to Def.'s Mot.; Ex. 16 to Def.'s Mot. at 30). When he a r r iv e d for the appointment, Braxton reported that he felt well with no complaints, and h a d not had any more chest pain or shortness of breath. (Ex. 14 to Def.'s Mot.) Dr. B a r o u d i testified at his deposition in this case that he explained to Braxton that tests a r e not one hundred percent accurate and further evaluation would be needed if the c h e s t pain continued. (Ex. 16 to Def.'s Mot. at 31-32). He opined that the only test that g iv e s a true and complete answer regarding the condition of the heart is a c a t h e t e r i z a t i o n . (Id.) Dr. Baroudi's medical record from this visit states: I have discussed the results of the stress test with Mr. Braxton and e x p la in e d to him the possibility of coronary artery disease especially in v o lv in g the inferior wall. On the other hand, patient had a very good e x e r c is e capacity and exercised for 11 minutes which gives him a good p ro gn o sis. We discussed treatment options ­ cardiac catheterization versus medical t h e r a p y . Patient elected medical therapy. We will maximize lipid m a n a g e m e n t , continue to control his BP, keep him on beta-blocker and an a s p i r in , and I will see him back in 3 months. At 6 months to a year, a fo llo w up stress test to assess the coronaries would be of help. Meanwhile if patient develops any chest pain or any symptoms of angina then cardiac c a t h e t e r i z a t i o n would be strongly recommended.

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(Ex. 14 to Def.'s Mot.) Dr. Baroudi listed his impressions as: "(1) HTN [hypertension]­ b o r d e r l i n e , well controlled. (2) Hyperlipidemia. On Lipitor. (3) Angina ­ stable, non [ s i c ] more angina." (Ex. 14 to Def.'s Mot.) Pruco utilizes a debit and credit system in order to classify insureds at a p a r t ic u la r rating, which in turn determines the amount of premium charged for the p o l ic y . (Ex. 20 to Def.'s Mot. at 49-50). Debits are assessed as a result of risk factors t h a t increase the chances that an insured's health history will contribute to his of her d e a t h . (Id.) Pruco employees determined that the reference to angina in Dr. Baroudi's m e d ic a l records concerning Braxton would have resulted in a debit of 100 under Pruco's u n d e r w r it in g guidelines if Braxton had answered the questions in the application c o r r e c t ly . (Ex. 9 to Def.'s Mot. at 71; Ex. 21 to Def.'s Mot.) A debit of 100 would have r e s u lt e d in a Class C premium classification for Braxton's policy and a higher premium. (E x . 9 to Def.'s Mot. at 85). Pruco claims that the Class C premium for Braxton would h a v e been $4720.00. (Ex. A to Def.'s Reply at 1). As a result, Pruco rescinded the policy a n d denied North Wind's claim for benefits under the policy. North Wind filed the present lawsuit against Pruco, alleging breach of contract, b r e a c h of the covenant of good faith and fair dealing, and tortious breach of contract. I t seeks contractual damages, extra-contractual damages, and punitive damages. DISCUSSION A n y party to a civil action may move for summary judgment upon a claim, c o u n t e r c la im , or cross-claim as to which there is no genuine issue of material fact and

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u p o n which the moving party is entitled to prevail as a matter of law. Fed. R. Civ. P. 5 6 . A party seeking summary judgment bears the initial burden of identifying those p o r t io n s of the pleadings and discovery on file, together with any affidavits, which it b e l ie v e s demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. C a t r e t t , 477 U.S. 317, 325 (1986). Once the movant carries its burden, the burden shifts t o the non-movant to show that summary judgment should not be granted. Celotex C o r p ., 477 U.S. at 324-25. The non-moving party may not rest upon mere allegations o r denials in its pleadings but must set forth specific facts showing the existence of a g e n u i n e issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256-57 (1986). " U n d e r Mississippi law, if an applicant for insurance is found to have made a m is s t a t e m e n t of material fact in the application, the insurer that issued a policy based o n the false application is entitled to void or rescind the policy." Carroll v. Metropolitan I n s u r a n c e & Annuity Co., 166 F.3d 802, 805 (5th Cir. 1999). In order to establish that a material misrepresentation was made, an insurer must prove by clear and convincing e v id e n c e that (1) the application contained false, incomplete, or misleading answers, a n d (2) "the false, incomplete, or misleading answers must be material to the risk in s u r e d against or contemplated by the policy." Carroll, 166 F.3d at 805. The insurer is not required to prove that the misrepresentation was intentional, and even m i s r e p r e s e n t a t i o n s caused by negligence or mistake can result in rescission. Id.

A misrepresentation in an insurance application is material if knowledge o f the true facts would have influenced a prudent insurer in determining w h e t h e r to accept the risk. Stated differently, a fact is material if it might h a v e led a prudent insurer to decline the risk, accept the risk, accept the

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r is k only for an increased premium, or otherwise refuse to issue the exact p o l ic y requested by the applicant. Id. North Wind disagrees with the Fifth Circuit's determination in Carroll that a m is r e p r e s e n t a t io n that would have led to an increased premium is material. However, t h e Carroll decision sets forth the Fifth Circuit's interpretation of Mississippi law r e g a r d in g material misrepresentations, and this Court is bound to follow Fifth Circuit precedent. Furthermore, the Court notes that the Mississippi state courts have

r e p e a t e d ly held that a misrepresentation that affects either the insurer's acceptance of t h e risk or the hazard assumed by the insurer is material. See, e.g., Hancock v. Mid A m e r . Ins. Servs., Inc., 836 So. 2d 762, 765 (¶12) (Miss. 2003). A misrepresentation c o n c e r n in g the existence of serious health problems would potentially affect the hazard a s s u m e d by the insurer even if the insurer would have merely issued a policy with a h i g h e r premium had it known of the condition. North Wind next argues that the disclosure of Braxton's chest pain and related t e s t in g would not have resulted in an increased premium under Pruco's underwriting g u id e lin e s . The guidelines provide that a diagnosis of "angina pectoris"that is based on c la s s ic a l symptoms would result in a debit of 100. (Ex. 21 to Def.'s Mot.) However, the s y m p t o m of chest pain is sometimes rated differently from angina. (Id.) "Atypical" c h e s t pain is, according to the guidelines, not clearly heart-related pain, but it causes t h e underwriter more concern. (Id.) This concern may be caused by chest pain that o c c u r s in a "high risk setting," such as a strong family history of heart disease,

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h y p e r t e n s i o n , or abnormal lipids. (Id.) The guidelines provide that cases classified as s u s p ic io u s should be rated under the angina pectoris schedule with 100 debits assessed, b u t a credit of 0 to 100 may be assessed based on the severity of the risk factors where s t r e s s tests, echocardiograms, and other studies of the heart have normal results. (Id.) N o r t h Wind argues that Braxton's negative stress test and the results of the e c h o c a r d io g r a m should have resulted in credits being applied, particularly since B r a x to n 's cardiologist, Dr. Baroudi, testified in a deposition that, in retrospect, he w o u ld not have considered Braxton's 2004 diagnosis to be angina. (Ex. 16 to Def.'s Mot. a t 40). He would have classified it as chest pain that was stable. (Id.) He also stated t h a t he did not make a definitive diagnosis of angina when he saw Braxton in 2004, and h e explained that "angina" can have different meanings to different people. (Id. at 15, 5 3 -5 4 ). He noted that angina pain is pain that could be related to the heart, but it is n o t a definitive diagnosis of heart disease. (Id. at 15). North Wind also argues that the 2 0 0 4 diagnoses of "CP [chest pain]- suggestive of angina" and "angina­ stable, non [sic] m o r e angina" were insufficient to justify 100 debits under the angina scale. (Ex. 15 to D e f .'s Mot.) The Court finds that a fact question exists regarding whether Braxton had a n g in a or chest pain of an undetermined origin in 2004. If Braxton merely had chest p a in , he could have been entitled to credits under the underwriting guidelines. The C o u r t cannot determine the number of credits that would have been given if the d ia g n o s is was chest pain from the record before it. Thus, Pruco has not demonstrated t h a t the misrepresentation was material by clear and convincing evidence. Carroll,

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1 6 6 F.3d at 805. For example, if 100 debits and 100 credits should have been applied, n o change in premium would have resulted. As a result, the Court must deny summary ju d g m e n t and allow a jury to make these determinations. Pruco also seeks partial summary judgment regarding North Wind's claim for b r e a c h of the covenant of good faith and fair dealing, i.e. its claim for punitive damages. T h e issue of whether an insured should recover punitive damages for an insurer's bad fa i t h should not be submitted to a jury unless the trial court determines that there are ju r y issues with regard to whether: (1) the insurer lacked an arguable or legitimate b a s is for denying the claim, and (2) the insurer committed a wilful or malicious wrong, o r acted with gross and reckless disregard for the insured's rights. United Am. Ins. Co. v . Merrill, 978 So. 2d 613, 634 (¶104) (Miss. 2007). An "arguable reason" is defined as " n o t h in g more than an expression indicating the act or acts of the alleged tortfeasor do n o t rise to [the] heightened level of an independent tort." Caldwell v. Alfa Ins. Co., 686 S o . 2d 1092, 1096 (Miss. 1996) (quoting Universal Life Ins. Co. v. Veasley, 610 So. 2d 2 9 0 , 293 (Miss. 1992)). "Where an insurance carrier denies or delays payment of a valid c la im , punitive damages will not lie if the carrier has a reasonable cause for such denial o r delay." Merrill, 978 So. 2d at 634 (¶106). "[W]here the parties dispute the existence a n d legitimacy of the carrier's reason for delay or denial, these issues are ones of m a t e r ia l fact, and the plaintiff is entitled to have a jury pass upon his claim for punitive d a m a g e s if reasonable minds could differ as to the legitimacy of the carrier's reason." I d . The Court finds that Pruco had an arguable basis for denying North Wind's claim. T h e medical records reference "angina" on multiple occasions, and thus, Pruco had an

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a r g u a b le basis for rating Braxton's policy under the angina scale in the underwriting g u id e l in e s . Furthermore, there is no evidence of gross or reckless disregard or malice o n the part of Pruco. Finally, the Court notes that Pruco did not seek partial summary judgment r e g a r d in g North Wind's tortious breach of contract claim, but only argued that it would b e entitled to summary judgment as to that claim if the Court found that there was no b r e a c h of contract as a matter of law. The Court has found that a genuine issue of m a t e r ia l fact exists regarding the breach of contract claim, and Pruco has not asserted o t h e r grounds for granting summary judgment regarding the tortious breach of contract c la im . Therefore, the breach of contract claim and tortious breach of contract claim r e m a in pending. I T IS THEREFORE ORDERED AND ADJUDGED that the Motion for S u m m a r y Judgment [52] filed by Pruco Life Insurance Company is GRANTED as to N o r t h Wind's bad faith claim, and is DENIED in all other respects. S O ORDERED AND ADJUDGED this the 12 th d a y of October, 2010.

s/

Louis Guirola, Jr.

LO U IS GUIROLA, JR. U N IT E D STATES DISTRICT JUDGE

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