PHL Variable Insurance v. Sheldon Hathaway Family Insurance Trust Ex Rel. Hathaway , 819 F.3d 1283 ( 2016 )

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS April 22, 2016
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
PHL VARIABLE INSURANCE
COMPANY,
Plaintiff - Appellee,
v. Nos. 15-4028 & 15-4029
THE SHELDON HATHAWAY FAMILY
INSURANCE TRUST, by and through its
trustee, DAVID HATHAWAY,
Defendant - Appellant,
and
WINDSOR SECURITIES, LLC,
Intervenor Defendant - Appellant.
_________________________________
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:10-CV-00067-RJS)
_________________________________
Alexander Dushku, Kirton McConkie, Salt Lake City, Utah (R. Willis Orton, R. Shawn
Gunnarson, and Shawn T. Richards, Kirton McConkie, Salt Lake City, Utah, and David
W. Scofield, Peters Scofield, Sandy, Utah, with him on the briefs), for Appellants.
David T. McDowell, Edison, McDowell & Hetherington, LLP, Houston, Texas (Thomas
F. A. Hetherington, Jessica L. Wilson, and Andrew R. Kasner, Edison, McDowell &
Hetherington, LLP, Houston, Texas, on the brief), for Appellee.
_________________________________
Before MATHESON, BALDOCK, and MORITZ, Circuit Judges.
_________________________________
MORITZ, Circuit Judge.
_________________________________
Sheldon Hathaway became embroiled in a stranger-originated-life-insurance
(STOLI) scheme at the behest of his neighbor, Jay Sullivan. A STOLI scheme
typically works something like this: An elderly individual authorizes a speculator to
take out a policy on his or her life. The speculator pays the policy premiums and then
profits from its investment—either by collecting the policy payout when the insured
dies, or by selling the policy to another speculator before that happens. See Sciarretta
v. Lincoln Nat’l Life Ins. Co., 778 F.3d 1205, 1208 (11th Cir. 2015) (describing
“purest form” of STOLI scheme).
Here, Intervenor Defendant-Appellant Windsor Securities, LLC (Windsor)
took a more roundabout approach to “gambling on the lives of the elderly,” see id.: it
loaned Defendant-Appellant the Sheldon Hathaway Family Trust (the Trust)
$200,000 to finance the initial premium on a life insurance policy (the policy) for
Hathaway. Windsor, it turns out, “has made a handful” of these premium-financing
loans to insurance trusts in the past. Aplt. Br. 11. In exchange, Windsor “receives a
moderate return on [its] investment” if a trust repays the loan. Id. Alternatively,
Windsor “foreclose[s] on the life insurance policy that was pledged as collateral”
when a trust fails to do so. Id. at 11-12. That’s what happened here.
But before Windsor could profit from its investment—either by selling the
policy or by capitalizing on Hathaway’s death—Plaintiff-Appellee PHL Variable
2
Insurance Company (PHL) sought to rescind the policy based on alleged
misrepresentations in Hathaway’s insurance application (the application). The district
court ultimately granted PHL’s motion for summary judgment on its rescission claim.
And it allowed PHL to retain the premiums Windsor already paid.
On appeal, Windsor and the Trust (collectively, the defendants) argue the
district court erred in granting PHL’s motion for summary judgment because there is
at least a genuine dispute of material fact as to whether PHL waived its right to
rescind the policy. Alternatively, they argue the district court erred in granting
summary judgment because, at a minimum, a genuine dispute of material fact exists
as to (1) whether the application contained a misrepresentation; and (2) whether PHL
relied on that misrepresentation in issuing the policy. Finally, even assuming
summary judgment was appropriate, they argue the district court lacked authority to
allow PHL to retain the paid premiums.
We conclude no genuine dispute of material fact exists as to whether PHL
waived its right to rescind the policy. Nor is there any genuine dispute of material
fact as to whether the application contained a misrepresentation or whether PHL
relied on that misrepresentation in issuing the policy. Finally, we hold the district
court had authority to allow PHL to retain the paid premiums. Accordingly, we
affirm.
3
BACKGROUND
Over the course of two or three years, Jay Sullivan approached his neighbor
Sheldon Hathaway on several different occasions and spoke with him about
purchasing life insurance from Sullivan. Sullivan assured Hathaway that an outside
investor would finance the policy at no cost to Hathaway, and that Hathaway would
receive $300,000 when the initial investor sold the policy after two years.
To assist Hathaway in completing the insurance application, Sullivan told
Hathaway that he believed Hathaway’s net worth was approximately $4,000,000.
Hathaway knew that figure was inflated, but nevertheless acquiesced to his
neighbor’s calculations. The final signed version of the application listed Hathaway’s
net worth as $6,250,000.
Through a series of intermediaries, including Gabriel Giordano and Crump
Life Insurance Services, Inc. (Crump), the application eventually reached PHL. PHL
then sought confirmation of Hathaway’s net worth from Infolink, a third-party
service that verified the calculations in the application, ostensibly based on a
conversation with Hathaway. Later, PHL would learn Infolink never contacted
Hathaway.
In the meantime, Sullivan assisted the Trustee—Hathaway’s son, David—in
obtaining the initial $200,000 premium payment from a San Diego law firm that
Windsor later reimbursed, and PHL issued the policy to Hathaway on January 31,
2008. But later that year, PHL became suspicious of Giordano and began an internal
investigation into the policies he originated. As a result of that investigation, PHL
4
sent Hathaway a letter on May 5, 2009, requesting additional information about
certain representations in the application and warning that failure to provide that
information might lead to rescission of the policy. When Hathaway didn’t respond,
PHL filed suit to rescind the policy on January 28, 2010. The district court granted
summary judgment in favor of PHL, and authorized it to keep the premiums. Windsor
appealed.
DISCUSSION
We review the district court’s decision to grant summary judgment de novo,
applying the same legal standard as the district court and viewing the evidence in the
light most favorable to the non-moving party. Zisumbo v. Ogden Reg’l Med. Ctr., 801
F.3d 1185, 1196 (10th Cir. 2015). “Summary judgment is appropriate when ‘there is
no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.’” Id. (quoting Fed. R. Civ. P. 56(a)).
I. Waiver
The defendants first argue the district court erred in granting PHL summary
judgment on its rescission claim because PHL waived its right to rescind the policy.
In support of this assertion, the defendants offer four separate—albeit related—
waiver theories.
A. Statutory Waiver
First, the defendants argue PHL waived its right to rescind by failing to timely
notify Hathaway that PHL had acquired knowledge of facts that would allow it to
5
rescind the policy. See Utah Code Ann. § 31A-21-105(5)1 (noting that if an “insurer
acquires knowledge of sufficient facts to constitute a general defense to all claims
under [a] policy, the defense is only available if the insurer notifies the insured
within 60 days after acquiring the knowledge of its intention to defend against a
claim if one should arise”). According to the defendants, PHL acquired the requisite
knowledge no later than December 31, 2008. By then, the defendants assert, “PHL
knew that the [a]pplication contained inaccuracies that could support ‘a general
defense to all claims under the policy.’” Aplt. Br. 26 (quoting § 31A-21-105(5)).
Thus, they conclude, in order to satisfy § 31A-21-105(5)’s 60-day notice
requirement, PHL had to notify Hathaway no later than March 1, 2009, of its
“intention to defend against a claim if one should arise.” Id. (quoting § 31A-21-
105(5)). And by failing to do so, the defendants argue, PHL waived its right to
rescind the policy.
PHL disagrees. It maintains that failure to comply with § 31A-21-105(5)’s 60-
day notice requirement only precludes an insurer from asserting a defense to an
insured’s claim, not from rescinding a policy under which a claim never actually
arises. See § 31A-21-105(5) (stating defense is unavailable if insurer fails to comply
with notice requirement, and explaining that insurer only “acquire[s] knowledge” for
purposes of waiver provision if that knowledge “was disclosed . . . in connection with
communications or investigations associated with the insurance policy under which
the subject claim arises” (emphasis added)). Here, PHL points out, (1) no claim ever
1
The parties agree that Utah law controls in this diversity action.
6
arose under the policy, and (2) PHL never asserted a defense to that non-existent
claim. Accordingly, PHL insists, § 31A-21-105(5)’s 60-day notice requirement
doesn’t apply to PHL’s efforts to rescind the policy.
We need not resolve this dispute. Even assuming § 31A-21-105(5) applies to
an insurer’s attempts to rescind a policy, the defendants’ argument that the statute
required PHL to provide notice by March 1, 2009, is viable only if they presented
evidence from which a reasonable jury could conclude that PHL “acquire[d]
knowledge of sufficient facts to constitute a general defense to all claims” by
December 31, 2008. Id. For the reasons discussed below, we conclude the defendants
fail to demonstrate a genuine dispute on this point.
First, the defendants point out that PHL admitted it “learned of the
misrepresentations [in the application] during an investigation.”2 Aplt. Sealed App.
vol. 7, at 444. The defendants’ opening brief then directs us to pages 207-08 of the
sealed appendix.3 While those two pages of the record contain eight pages of
2
Via the order issued on June 30, 2015, questions related to the permanent
sealing of the appendix were referred to this panel, and our order dated April 11,
2016, addresses those issues. To the extent we quote from the portions of the
appendix that our April 11, 2016 order allows to remain under seal, we have
determined the quoted material is not sensitive.
3
The defendants’ original opening brief actually cited pages 209-10 of the
sealed appendix. But at oral argument, counsel for the defendants informed us that
the brief contained several citation errors. And after oral argument, the defendants
moved for permission to file a corrected opening brief, asserting that “[v]irtually all”
of the citation errors in the original opening brief “consist[ed] of a two-page
discrepancy between the citation in the brief” and the correct citation. Mot. to File
Corrected Br. at 2. While we disagree with counsel’s assertion that “[v]irtually all” of
the citation errors amount to 2-page discrepancies, id., we nevertheless granted the
7
deposition testimony, the defendants point us to only one other specific statement
that appears there: PHL’s “investigation culminated with regard to [its] law
department in December of 2008.” Aplt. Br. 26 (quoting Aplt. Sealed App. vol. 4, at
207). Although the defendants don’t explicitly state as much, they seem to suggest
these two statements, taken together, establish that PHL “learned of the
misrepresentations” in the application sometime “in December of 2008.” Aplt. Sealed
App. vol. 4, at 207; Aplt. Sealed App. vol. 7, at 444. And although “no precise date
appears in the record,” they reason, that means PHL acquired the requisite facts no
later than December 31, 2008. Aplt. Br. 26.
But even viewed in the light most favorable to the defendants, the second of
these two statements establishes only that PHL’s “investigation culminated with
regard to [its] law department” no later than December 31, 2008. Aplt. Sealed App.
vol. 4, at 207 (emphasis added). It doesn’t establish that PHL’s entire investigation
culminated no later than that date. And even though we assume that PHL learned of
the misrepresentations at some point during its investigation, the fact that PHL’s law
department culminated its portion of the investigation by December 31, 2008, doesn’t
establish that PHL learned of the misrepresentations by that date; the defendants fail
to identify any specific evidence that suggests the culmination of the law
department’s investigation marked the end of PHL’s entire investigation. Thus, we
conclude the only two specific statements that the defendants identify are insufficient
defendants’ motion. Accordingly, all of our citations to “Aplt. Br.” refer to the
corrected brief filed on February 5, 2016.
8
to create a genuine dispute as to whether PHL “learned of the misrepresentations” by
December 31, 2008. Aplt. Sealed App. vol. 7, at 244.
B. Course-of-Conduct Waiver
The defendants’ next two waiver arguments suffer from the same defect. First,
the defendants argue PHL waived its right to rescind the policy by continuing to
accept premium payments after it learned the application contained inaccuracies. See
Cont’l Ins. Co. v. Kingston, 114 P.3d 1158, 1162 (Utah Ct. App. 2005) (“[A]n insurer
waives the right to rescind an insurance policy when that insurer has knowledge of
facts that would give it the right to rescind the policy” but nevertheless “treats the
policy as valid, such as by earning and collecting premiums.”). Second, the
defendants assert that PHL waived its right to rescind by failing to promptly seek
rescission after it learned the application contained inaccuracies. See Farrington v.
Granite State Fire Ins. Co. of Portsmouth, 232 P.2d 754, 758 (Utah 1951) (stating in
dicta that “[o]ne who claims a right of rescission must act with reasonable
promptness” after obtaining knowledge that would give it a right to rescind). But to
support these arguments, the defendants again rely solely on their assertion that PHL
knew about the inaccuracies in the application no later than December 31, 2008. And
for the reasons discussed above, we conclude the defendants fail to demonstrate there
is a genuine dispute with respect to that issue.
C. Agency Waiver
Finally, the defendants insist that we must impute knowledge of the
inaccuracies contained in the application to PHL because, according to the
9
defendants, at least one of PHL’s own agents was responsible for inserting the
inaccuracies into the application in the first place. The district court rejected this
argument, concluding that neither Crump nor Giordano were PHL’s “agents” for
imputation purposes. The defendants assert the district court committed a legal error
in reaching this conclusion. We disagree.
First, we decline to address the defendants’ argument that Crump and
Giordano are PHL’s agents as a matter of law under Utah Code Ann. § 31A-1-
301(92). Defendants didn’t advance this argument below. Nor do they argue for plain
error review on appeal. That “marks the end of the road” for their § 31A-1-301(92)
argument. See Richison v. Ernest Grp., Inc., 634 F.3d 1123, 1131 (10th Cir. 2011).
Instead, we focus on the defendants’ common-law agency argument, and ask
only whether the defendants identify any evidence from which a reasonable jury
could conclude Crump and Giordano (1) had actual or apparent authority to act on
PHL’s behalf and (2) were subject to PHL’s control. See Gildea v. Guardian Title
Co. of Utah, 970 P.2d 1265, 1269 (Utah 1998) (“To be an agent, a person must be
authorized by another to ‘act on his behalf and subject to his control.’” (quoting
Restatement (Second) of Agency § 1 (1958))); Zions First Nat’l Bank v. Clark Clinic
Corp., 762 P.2d 1090, 1094 (Utah 1988) (explaining authority to act on entity’s
behalf may be actual or apparent).
Again, we find the defendants’ briefing on this point to be wholly insufficient.
The defendants nakedly assert that “[w]hether the tangle of overlapping contractual,
financial, and working relationships between PHL, Crump, and Giordano created
10
actual or apparent agency is a question of fact that requires examination of ‘all the
facts and circumstances in the case.’” Aplt. Br. 35 (quoting Vina v. Jefferson Ins. Co.
of N.Y., 761 P.2d 581, 585 (Utah Ct. App. 1988)). But the defendants don’t identify
any particular facts or circumstances that might demonstrate the existence of an
agency relationship, let alone provide citations to the record where that evidence
appears. See Fed. R. App. P. 28(a)(8)(A) (requiring argument section of appellant’s
brief to contain “appellant’s contentions and the reasons for them, with citations to
the authorities and parts of the record on which the appellant relies”). We decline to
“scour the record” for such evidence on the defendants’ behalf. See Bombard v. Fort
Wayne Newspapers, Inc., 92 F.3d 560, 562 (7th Cir. 1996).
Because the defendants fail to point to any specific evidence that would allow
a reasonable jury to conclude PHL waived its right to rescind the policy, we decline
to reverse on this basis or on any of the waiver theories.
II. Rescission
Even assuming the district court correctly rejected their waiver arguments, the
defendants insist the district court erred in granting PHL’s motion for summary
judgment on its rescission claim. Under Utah Code Ann. § 31A-21-105(2), an insurer
may rescind a policy only if it “relie[d] on a material misrepresentation made by the
applicant.” Derbidge v. Mut. Protective Ins. Co., 963 P.2d 788, 791 (Utah Ct. App.
11
1998). Here, the defendants argue, there is a dispute as to (1) whether the application
contained a misrepresentation; and (2) if so, whether PHL relied on it.4
A. Misrepresentation
For purposes of § 31A-21-105(2), “[a] misrepresentation occurs if the
applicant knows or should have known about a misstatement in the application and
still presents it to the insurer.” ClearOne Commc’ns, Inc. v. Nat’l Union Fire Ins. Co.
of Pittsburgh, 494 F.3d 1238, 1247-48 (10th Cir. 2007). Here, the parties agree the
application contains a material misstatement about Hathaway’s net worth. But the
defendants argue the district court erred in concluding Hathaway5 knew or should
have known about it.
In concluding Hathaway knew or should have known about the misstatement,
the district court relied on Hathaway’s deposition testimony. In his deposition,
Hathaway was asked whether he responded, “I’m not worth $4 million,” when
Sullivan suggested that Hathaway’s net worth was $4 million. Aplt. Sealed App. vol.
5, at 273. Hathaway replied, “That’s what I asked. I says, [Sullivan], what are you
talking about? And [Sullivan] says, Well, he says, according to – according to all the
4
The defendants insist that PHL must prove each element of its rescission
claim by clear and convincing evidence. We need not evaluate this argument. For the
reasons discussed below, we conclude that even assuming that evidentiary standard
applies, PHL has satisfied it.
5
PHL argues that even if Hathaway didn’t know about the misstatement, his
son—the Trustee—knew or should have known about it when he signed the
application. The defendants respond that the Trustee’s knowledge is irrelevant. What
matters, they insist, is the applicant’s knowledge. We need not resolve this dispute.
Even assuming the defendants are correct, the district court accurately concluded that
the uncontroverted evidence showed Hathaway himself should have known the
application contained a misstatement.
12
neighbors and the way the property’s going out here, if it was sold and put into lots,
you’d – you’d be worth that much money.” Id. Hathaway was then asked, “You
didn’t believe that, did you?” He responded, “No, I didn’t, but I – I’m – well, what do
you do when you got your friend trying to talk you into something that you – you
need, some life insurance?” Id.
This exchange notwithstanding, the defendants argue the evidence suggests the
application didn’t contain any information about Hathaway’s net worth when
Hathaway signed it. Thus, they insist, “there is no evidence [Hathaway] even knew
about the existence of any statements in the [a]pplication, true or false,” about his net
worth. Aplt. Br. 44.
But even assuming Hathaway didn’t know the application misstated his net
worth because it was blank when he signed it, there can be no doubt that he should
have known. The defendants argue that because Hathaway objected when Sullivan
suggested he was worth $4 million, Hathaway “had no reason to suspect that
Sullivan . . . would insert [an inflated figure in the application] anyway.” Aplt. Br.
46. But while Hathaway initially questioned Sullivan’s calculations, the defendants
point to no evidence suggesting Hathaway continued to protest after Sullivan
explained his basis for them. Instead, Hathaway testified that he still didn’t believe
he was worth that much, “but . . . well, what do you do when you got your friend
trying to talk you into something that you – you need, some life insurance?” Aplt.
Sealed App. vol. 5, at 273 (emphasis added). This testimony establishes Hathaway
acquiesced to Sullivan’s calculations, despite knowing of their inaccuracy. Thus,
13
even viewing the facts in the light most favorable to the defendants, Hathaway should
have known the application contained a misstatement about his net worth.
B. Reliance
The district court found PHL relied on this misrepresentation because, if the
application had accurately characterized Hathaway’s net worth, PHL wouldn’t have
issued a $4 million policy. The defendants’ objection to this ruling is two-fold. First,
the defendants insist that PHL actually relied on Infolink’s report verifying the
misrepresentation, not on the misrepresentation itself. Defendants seem to suggest
that if PHL didn’t rely solely on the misrepresentation, then PHL cannot satisfy the
elements of § 31A-21-105(2). Because Windsor provides no argument or authority to
support this suggestion, we decline to consider it. See Fed. R. App. P. 28(a)(8)(A);
Bronson v. Swensen, 500 F.3d 1099, 1104 (10th Cir. 2007) (explaining we routinely
decline to consider inadequately briefed arguments).
Second, even assuming PHL relied on the misrepresentation, the defendants
argue that such reliance was unreasonable because (1) PHL chose to make an
independent inquiry into Hathaway’s net worth, and (2) a reasonable inquiry would
have uncovered Hathaway’s misrepresentation, but (3) PHL didn’t discover the
misrepresentation because its independent inquiry was “cursory.” See Hardy v.
Prudential Ins. Co. of Am., 763 P.2d 761, 770 (Utah 1988) (explaining that such a
showing precludes insurer from escaping liability on policy despite insured’s material
misrepresentations). According to the defendants, “PHL chose to conduct an
independent inquiry through Infolink that was so ‘cursory’ it failed even to ask
14
Hathaway about the details of his [p]olicy. Had it done so, there is every reason to
believe . . . that Hathaway would have answered truthfully about all the
misstatements.” Aplt. Br. 54.6
At the outset, we reject the defendants’ assertion that “PHL chose to conduct
an independent inquiry” that didn’t even bother to ask Hathaway if the statements in
the application were true. Id. (emphasis added). This accusation suggests PHL
affirmatively directed Infolink to avoid contacting Hathaway, or, at the very least,
that PHL knew or should have known that Infolink didn’t actually contact Hathaway.
But the defendants fail to point to any evidence in the record that might support this
accusation. Instead, the evidence suggests only that PHL obtained an Inspection
Report from Infolink, and that the Inspection Report indicated Infolink spoke with
Hathaway, who verified the information contained in the application. Because the
defendants provide neither argument nor authority to support their suggestion that it
was unreasonable for PHL to accept the contents of the Inspection Report as true, we
decline to address that possibility. See Fed. R. App. P. 28(a)(8)(A); Bronson, 500
F.3d at 1104.
Alternatively, even assuming PHL acted reasonably in accepting Infolink’s
representation that it spoke with Hathaway to verify the information in the
application, the defendants argue that a reasonable jury could nevertheless conclude
6
Although the Inspection Report reflects that Infolink verified the information
in the application by speaking with Hathaway, Hathaway denied that Infolink ever
contacted him. Because we view the evidence in the light most favorable to the
defendants, see Zisumbo, 801 F.3d at 1196, we assume Infolink never contacted
Hathaway.
15
that merely asking Hathaway to verify the information in the application amounted to
a cursory investigation. But again, the defendants cite no authority to support this
assertion. And, as PHL points out, this court has suggested otherwise. See ClearOne
Commc’ns, Inc., 494 F.3d at 1250 (applying Hardy and concluding that insurer
conducted reasonable inquiry into insured’s financial statements by (1) sending
follow-up questions to insured via email; and (2) verifying information with
insured’s own CFO). Accordingly, we conclude no reasonable jury could find PHL’s
investigation so cursory as to preclude reliance under Hardy.
The defendants make two other reliance arguments that warrant little
consideration. First, they suggest PHL didn’t act reasonably in relying on the
misrepresentation because its own agents—Crump and Giordano—were allegedly
aware of and responsible for it. But for the reasons discussed above, we decline to
impute Crump’s and Giordano’s alleged knowledge to PHL. Second, the defendants
argue that “the district court’s reliance ruling is deficient” because the district court
didn’t analyze any of the other alleged misstatements contained in the application.
Aplt. Br. 54. But because the district court found that the misstatement about
Hathaway’s net worth satisfied all the elements of PHL’s rescission claim, there was
no reason for the court to address any of the remaining misstatements in the
application.
III. Premiums
Finally, even assuming PHL was entitled to summary judgment on its
rescission claim, the defendants argue the district court erred in allowing PHL to
16
retain the premiums paid. Critically, the defendants don’t suggest the district court
had discretion to allow PHL to keep the premiums, but somehow abused that
discretion in doing so. Instead, they argue only that the district court lacked authority,
as a matter of law, to authorize retention. Accordingly, we exercise de novo review
over the defendants’ limited legal argument. See Vladimirov v. Lynch, 805 F.3d 955,
960 (10th Cir. 2015) (explaining that we review legal questions de novo).
Utah hasn’t addressed whether an insurer who rescinds a policy based on an
insured’s misrepresentations must return any paid premiums. Here, the district court
allowed PHL to keep the premiums in order to return it to the position it was in
before it issued the policy—i.e., before it paid commissions to Crump and Giordano
that exceeded those premiums. See Anderson v. Doms, 75 P.3d 925, 928 (Utah Ct.
App. 2003) (“The goal of rescission is to restore the status quo that existed prior to
the parties’ agreement. The status quo rule . . . ‘is equitable, and requires practicality
in adjusting the rights of the parties.’” (alteration in original) (quoting Ong Int’l
(U.S.A.) Inc. v. 11th Ave. Corp., 850 P.2d 447, 457 (Utah 1993))).
In arguing this was error, the defendants rely solely on United States Fidelity
& Guarantee Co. v. United States Sports Specialty Ass’n, 270 P.3d 464 (Utah 2012),
for the proposition that “an insurer’s right to recover reimbursement from an insured
may only arise, if at all, under the written terms of their insurance policy.” Id. at 470.
Here, the defendants argue, the policy stated PHL would return any premiums if it
17
rescinded the policy.7 Thus, the defendants insist, Windsor—as the party who
financed the premiums in the first place—is entitled to their return.
But as the district court noted, United States Fidelity is distinguishable
because the result there turned on the contractual “risk relationship of the insurer and
the insured.” 270 P.3d at 471 (emphasis added). Here, allowing PHL to retain the
premiums—rather than allowing Windsor to recover them—won’t alter that risk
relationship because Windsor isn’t the insured. Because the concerns that gave rise to
the court’s decision in United States Fidelity aren’t present here, the defendants’
reliance on that case is misplaced.
Instead, in resolving this legal issue, we find dispositive the Utah Supreme
Court’s general pronouncements that (1) the goal of rescission is to restore the status
quo; and (2) a trial court has wide discretion in achieving that goal. See Ong Int’l
(U.S.A.) Inc., 850 P.2d at 457 (emphasizing that in attempting to restore status quo
for purposes of rescission action, trial court “has discretion to fashion an adequate
and reasonable remedy so that an aggrieved party is adequately compensated for its
loss, so long as that remedy is not duplicative”). Accordingly, we reject the
defendants’ argument that, as a matter of law, the district court lacked authority to
allow PHL to retain the premiums. And because the defendants don’t argue the
district court otherwise abused its discretion, we affirm its order.
7
The policy states, “If we contest the validity of all or a portion of the face
amount provided under this policy, the amount we pay with respect to the contested
amount will be limited to the higher of a return of any paid premium required by us
for the contested face amount or the sum of any Monthly Deductions made under this
policy for the contested face amount.” Aplt. Sealed App. vol. 4, at 239.
18
CONCLUSION
We affirm the district court’s order granting PHL’s motion for summary
judgment, as well as its order allowing PHL to retain the paid premiums.
19