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December 2017

Gordon & Rees Los Angeles Team Wins Summary Judgment in Life Insurance Breach of Contract and Bad Faith Case

Los Angeles partner Asim Desai and senior counsel Margaret Drugan recently won summary judgment in a life insurance breach of contract and bad faith case for a life insurance client of Gordon & Rees.  The life insurance policy at issue had been reinstated after a 20-month lapse due to non-payment of premium. In order to reinstate the policy the insured completed a reinstatement application that denied the existence of any health issues and/or medical tests undergone or recommended. The insurer reinstated the policy based on the insured’s responses included in the reinstatement application which indicated no change in the insured’s health.

Unbeknownst to the insurer at the time of reinstatement was the fact that in the weeks immediately prior to submitting the reinstatement application, the insured had several emergency room visits, had undergone medical tests and a hospitalization for what was eventually diagnosed as multiple myeloma. The insured died within the two year contestability period following reinstatement, and in the course of examining the claim for benefits the insurer became aware that the insured had misrepresented the status of his health in the reinstatement application questions, and accordingly the insurer rescinded the policy based on the insured’s misrepresentations. 

The policy’s beneficiaries sued for breach of contract and bad faith. The plaintiffs filed and lost a summary judgment motion that they brought on the theory that the two year contestability period had already expired by the time the policy’s insured died because the insured had paid more than two years of premium following reinstatement when the back premium owed on the policy, which had to be paid as a condition of reinstatement, was included in the calculation. In denying the plaintiffs’ summary judgment, the court found the plaintiffs’ argument lacking in legal authority and contrary to the policy’s terms.

Subsequently, the court granted the insurer’s summary judgment finding that the insured had made misrepresentations in the reinstatement application questions about his health and that those misrepresentations were material to the insurer in evaluating the policy for reinstatement and therefore, the insurer was justified in rescinding the policy. The plaintiffs also sued the life insurer’s parent corporation for negligence under the theory that the parent corporation was vicariously liable for the acts of the life insurer and for the acts of the insurance brokers involved with procuring and the reinstatement of the policy. The court found that the undisputed facts supported a finding that the parent corporation owed no duty to the plaintiffs and that is was not vicariously liable for the acts of others.

Asim K. Desai
Margaret M. Drugan



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