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March 2013

Gordon & Rees Multi-Office Team Wins Summary Judgment in Policy Rescission Suit

Gordon & Rees partner Margie Lariviere of San Francisco assisted Chicago partner Ryan Brown and his team to prepare a motion for summary judgment, which the federal court granted on March 15.

Lariviere, whose practice focuses on life and disability matters, wrote in the motion that RiverSource Life Insurance Co. was entitled to rescind a $250,000 life insurance policy based on the applicant's material misrepresentation in an amendment to the insurance application. After completing his initial application and undergoing a medical exam, the applicant was seen by a doctor, underwent a CT scan and was diagnosed with acute pancreatitis. However, he signed an amendment to the application attesting that there had been no change in his health since the medical exam. RiverSource Life issued the policy based on those representations.

The applicant died from pancreatic cancer within the two-year contestability period. The company learned of the applicant's pancreatic condition for the first time during its routine investigation. RiverSource Life returned the premium and rescinded the policy. It filed RiverSource Life Ins. Co. v. Amy Plumbing, Heating & Cooling Inc., a declaratory relief action, asking the U.S. District Court for the Northern District of Illinois to find that it properly rescinded the policy.

It its motion for summary judgment, RiverSource Life submitted evidence from a senior underwriter that the omitted information was material to the underwriting risk. The beneficiary/defendant opposed the motion on grounds that the applicant did not understand the seriousness of the condition and his health had not materially changed at the time he signed the amendment. The beneficiary further argued that the amendment language was ambiguous and should be interpreted against RiverSource Life.

Judge Ronald A. Guzman found it undisputed that the applicant had been treated and diagnosed with pancreatitis during the time in question. The applicant was required to disclose all he knew about his medical condition and it was up to the insurance company to determine the materiality of that information. The court disagreed with the beneficiary's argument that the phrase "there has been no change in my health" was ambiguous, finding the plain and ordinary meaning of the word "health" is "the general condition of the body." Citing Garde ex rel. Garde v. Country Life Ins. Col, 498 N.E.2d 302, 308 (Ill. App. Ct. 1986), the court further held, "The materiality of a misrepresentation may be established by the underwriter's testimony or testimony of the insurer's employees."

In RiverSource Life, it was undisputed that the applicant's health had changed during the relevant time period. The underwriter's testimony established the materiality of the applicant's misrepresentation. In its March 15 order, the court granted summary judgment upholding rescission of the life insurance policy.

Ryan T. Brown