Williams v. Farmers New World Life Insurance Company
Filing
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DECISION AND ORDER signed by Magistrate Judge William E Duffin on 5/22/2018 DENYING 9 Plaintiff's Motion for Judgment on the Pleadings. (cc: all counsel) (lz)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
JOYCE M. WILLIAMS,
Plaintiff,
v.
Case No. 18-CV-354
FARMERS NEW WORLD LIFE INSURANCE COMPANY,
Defendant.
DECISION AND ORDER
Background
Tajah M. Williams took out a life insurance policy with Farmers New World Life
Insurance Company (Farmers) on October 27, 2016. She died two months later, on
December 26, 2016. (ECF No. 1-1, ¶¶ 2-3.) Joyce M. Williams, Tajah’s mother, was the
beneficiary of that policy. She gave notice of Tajah’s death to Farmers. (ECF No. 1-1,
¶ 4.)
Farmers denied coverage for the benefits under the policy after obtaining
medical records from an emergency room visit three months before Tajah took out the
policy which stated that Tajah’s “social history is significant for frequent marijuana use
(daily).” Farmers contends it would not have issued the policy had that fact been
disclosed. (ECF No. 1-1, ¶¶ 8, 11, 18.)
Joyce Williams filed an action in state court on December 18, 2017, alleging bad
faith on the part of Farmers and seeking recovery under the policy. (ECF No. 1-1.)
Farmers removed the action to this court based on the diversity of the parties. (ECF No.
1.) It answered the complaint on March 14, 2018. (ECF No. 4.) Among other things,
Farmers alleged rescission as an affirmative defense, citing Wis. Stat. § 631.11.
Ms. Williams has moved for partial judgment on the pleadings. (ECF No. 9.) She
“seeks a determination that Defendant’s Policy No. 002383592 issued on the life of Tajah
M. Williams is valid and thus calls for full payment of the $150,000 benefit of that policy
to beneficiary and Plaintiff Joyce M. Williams, plus Wis. Stat. § 628.46 interest.” (ECF
No. 10 at 1.) She contends that Farmers “conceded in its Answer that it entered into a
life insurance policy on the life of Tajah Williams, premiums for which were paid in full
and that the policy was in full force and effect as of the date of Tajah’s death on
December 26, 2016.” (ECF No. 10 at 2-3.) She argues that Farmers did not plead its
rescission affirmative defense (with its misrepresentation requirement) with the
specificity required by Wis. Stat. § 802.03(2), which procedural rule she says applies
rather than Rule 9 of the Federal Rules of Civil Procedure. (ECF No. 10 at 6-9.) She also
argues that Farmers failed to adequately plead its rescission affirmative defense
because, under Wisconsin law, an insurer must satisfy each element of the statute by
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clear and convincing evidence. (ECF No. 10 at 10 (discussing Pum v. Wis. Physicians Serv.
Ins. Corp., 2007 WI App 10, 298 Wis. 2d 497, 727 N.W.2d 346)). Moreover, she argues
Farmers could not prove the affirmative defense because it is based on medical records
Farmers obtained after Tajah’s death, a practice prohibited by the regulations of the
Wisconsin Insurance Commissioner. (ECF No. 10 at 11-12.)
In response, Farmers argues that a federal court sitting in diversity applies
federal, not state, procedural rules, including federal pleading requirements. (ECF No.
11 at 2.) Thus, the fact that Wisconsin state law has heightened pleading requirements
does not have any applicability here. It argues that its Answer, including its affirmative
defenses, sufficiently pleads facts to support its rescission defense—specifically, that the
insured misrepresented her health on her insurance policy application regarding her
use of marijuana and that such misrepresentation was material to Farmers’s decision to
issue the policy. (ECF No. 11 at 9-10.)
Applicable Law
Procedurally, Williams’s motion is more properly regarded, at least in part, as a
motion to strike an affirmative defense under Rule 12(f). Although presented as a
motion for judgment on the pleadings under Rule 12(c), judgment in Williams’s favor
would be appropriate only if the court first struck Farmers’s rescission affirmative
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defense. 1 And, of course, affirmative defenses “are pleadings, and as such, leave to
amend is freely granted as justice requires.” Heller Fin., Inc. v. Midwhey Powder Co., 883
F.2d 1286, 1294 (7th Cir. 1989) (citing Fed. R. Civ. P. 15(a)). Thus, even if presently
deficient, Farmers ordinarily would be afforded the opportunity to amend (if
amendment could cure any defect) before judgment in the plaintiff’s favor would be
appropriate. Thus, the court turns to the question of whether it is appropriate to strike
Farmers’s rescission affirmative defense.
Courts have applied a three-part inquiry to assess the sufficiency of an
affirmative defense:
(1) the matter must be properly pleaded as an affirmative defense; (2) the
matter must be adequately pleaded under the requirements of Federal
Rules of Civil Procedure 8 and 9; and (3) the matter must withstand a Rule
12(b)(6) challenge -- in other words, if it is impossible for defendants to
prove a set of facts in support of the affirmative defense that would defeat
the complaint, the matter must be stricken as legally insufficient.
Sayad v. Dura Pharm., Inc., 200 F.R.D. 419, 421 (N.D. Ill. 2001) (quoting Renalds v. S.R.G.
Restaurant Group, 119 F. Supp. 2d 800, 802 (N.D. Ill. 2000); citing Heller Fin., Inc. v.
Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989)). “[M]otions to strike are
strongly disfavored and rarely granted.” Check v. ShopKo Stores Operating Co. LLC, No.
17-C-1755, 2018 U.S. Dist. LEXIS 79856, at *2 (E.D. Wis. May 11, 2018) (citing Williams v.
Farmers separately alleges other related affirmative defenses, including two iterations of
“Misrepresentation,” “Policy Terms Preclude Coverage,” and “Unclean Hands,” (ECF No. 4 at 8-9), all of
which, it appears, Williams would have to successfully strike in order to be entitled to judgment on the
pleadings. For present purposes the court considers only the affirmative defense of rescission.
1
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Jader Fuel Co., Inc., 944 F.2d 1388, 1400 (7th Cir. 1991)). If the affirmative defense is
properly struck, the court would then consider whether Williams is entitled to
judgment in her favor.
The court reviews a motion under Rule 12(c) by employing the same standard
applicable to a motion to dismiss under Rule 12(b)(6). Buchanan-Moore v. Cty. of
Milwaukee, 570 F.3d 824, 827 (7th Cir. 2009). Consequently, the court considers the facts
in the light most favorable to the non-movant. Id. Judgment in Williams’s favor would
be appropriate only if it were doubtless that Farmers could not prevail. Id.
Analysis
To be entitled under the statute to rescind an insurance policy, the
insurance company must prove: (1) that (a) a misrepresentation was made
and (b) the person making it knew, or should have known, that it was
false; and (2) either (a)(i) the insurer relied on the misrepresentation, and
(ii) that misrepresentation was material, or (iii) it was made with intent to
deceive; or (b) the misrepresented fact contributed to the loss.
Pum, 2007 WI App 10, ¶9.
The court does not find that Farmers has “pled itself out of court.” First,
rescission is a proper defense under the facts alleged and, therefore, it is properly
pleaded as an affirmative defense.
Second, the court disagrees with Williams’s suggestion that Farmers must
present clear and convincing evidence in its answer to support its rescission affirmative
defense. Williams’s reliance upon Pum is misplaced. Pum was before the court on the
defendant’s motion for summary judgment and thus outlines what a defendant must
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prove to establish rescission, not what it must plead. However, because rescission
depends upon misrepresentation, and misrepresentation is “[a] species of fraud,” Bellon
v. Ripon Coll., 2005 WI App 29, ¶6, 278 Wis. 2d 790, 693 N.W.2d 330, the court accepts for
present purposes that the affirmative defense of rescission must be pled with the
particularity demanded under Fed. R. Civ. P. 9(b). 2 Having said that, the court finds
that in answering Williams’s complaint Farmers alleged the defense with adequate
particularity. Farmers’s Answer informs Williams that it contends the policy was
rescinded because, according to July 16, 2016 emergency room records, Tajah reported
daily marijuana use, a detail which, had it been disclosed, would have resulted in the
policy not having been issued. (ECF No. 4, ¶¶ 3, 8, 11.) This satisfies any requirement of
particularity.
Third, based on the details contained within the Answer, the court finds it is
plausible that Farmers could prevail on its affirmative defense of rescission, thereby
surviving scrutiny under Rule 12(b)(6). See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(discussing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Of course, whether
Farmers can muster evidence sufficient to actually sustain its burden regarding
rescission is a question for summary judgment or trial. See Check v. ShopKo Stores
Operating Co. LLC, No. 17-C-1755, 2018 U.S. Dist. LEXIS 79856, at *2 (E.D. Wis. May 11,
As stated above, Williams argues that the Wisconsin pleading standard set forth in Wis. Stat. § 802.03(2)
applies, but she then notes that it and the federal standard in Rule 9(b) are essentially the same. (ECF No.
10 at 5-6.) Thus, it is unclear for what purpose she makes this argument.
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2018) (“Rule 12(f) was not established to dispute the merits of an affirmative defense,
rather [the plaintiff] will have the opportunity to dispute the merits of [the defendant’s]
defenses through dispositive motions or at trial.”) (citing Strohbehn v. Access Group Inc.,
292 F. Supp. 3d 819, 822 (E.D. Wis. 2017).
Williams also argues that the affirmative defense is legally improper because
Farmers unlawfully relied upon information acquired after it issued the policy.
Williams points to regulations of the Wisconsin Commissioner of Insurance which state:
(5) UNDERWRITING.
(a) An insurer shall make provision for adequate underwriting personnel
and procedures so as to process without undue delay each application for
insurance received by it.
(b) An insurer shall give due consideration to all statements in each
application for insurance submitted to it and shall duly evaluate the
proposed insured person before issuing coverage for such person.
(c) An insurer which issues coverage for a person shall not use the
statements, information or material set out in subds. 1., 2. and 3. to void
the coverage on the basis of misrepresentation in the application, or deny
a claim on the basis of a pre-existing condition defense, unless the insurer
has:
1. Resolved patently conflicting or incomplete statements in the
application for the coverage;
2. Duly considered information furnished to it:
a. In connection with the processing of such application, or
b. In connection with individual coverage on the person
previously issued by it and currently in force, or
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3. Duly considered the material which it would have obtained
through reasonable inquiry following due consideration of the
statements or information.
Wis. Admin. Code § Ins 3.28.
As summarized by the Wisconsin Court of Appeals, this provision “limits an
insurance company’s ability to void coverage on the basis of misrepresentation if it has
not duly considered material which it would have obtained through reasonable inquiry
based upon the information in the application.” Pum, 2007 WI App 10, ¶18. But whether
Farmers complied with this provision, including whether it “it would have obtained
[the relevant emergency room records] through reasonable inquiry following due
consideration of the statements or information,” is a factual question not appropriate for
resolution at this preliminary stage. See id.
Finally, in reply Williams raises a new argument—the affirmative defense of
rescission is not properly asserted against her as a beneficiary but should be asserted as
a claim against the insured’s estate. (ECF No. 12 at 6.) But an argument raised for the
first time in reply is not properly before the court. Nationwide Ins. Co. v. Cent. Laborers’
Pension Fund, 704 F.3d 522, 527 (7th Cir. 2013). Therefore, the court does not consider
this issue further.
In sum, the court finds Farmers properly pleaded rescission as an affirmative
defense consistent with the requirements of Rules 8 and 9 and sufficient to withstand
challenge under Rule 12(b)(6).
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IT IS THEREFORE ORDERED that Joyce M. Williams’ motion for judgment on
the pleadings (ECF No. 9) is denied.
Dated at Milwaukee, Wisconsin this 22nd day of May, 2018.
_________________________
WILLIAM E. DUFFIN
U.S. Magistrate Judge
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