Manuel v. Equitable Life Assur ( 1997 )


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  • UNPUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    DEBORAH MANUEL, formerly known
    as Deborah Stiltner, formerly known
    as Deborah Sutphin,
    Plaintiff-Appellant,
    No. 96-1987
    v.
    EQUITABLE LIFE ASSURANCE SOCIETY
    OF THE UNITED STATES,
    Defendant-Appellee.
    Appeal from the United States District Court
    for the Eastern District of Virginia, at Norfolk.
    Henry C. Morgan, Jr., District Judge.
    (CA-95-1022-2)
    Argued: October 29, 1997
    Decided: December 31, 1997
    Before WILKINSON, Chief Judge, and RUSSELL and
    MICHAEL, Circuit Judges.
    _________________________________________________________________
    Affirmed by unpublished per curiam opinion.
    _________________________________________________________________
    COUNSEL
    ARGUED: Alfred Bernard, III, TRAPANI, BERNARD & LLOYD,
    Norfolk, Virginia, for Appellant. Kenneth Hincks Lambert, Jr., WIL-
    LIAMS, KELLY & GREER, P.C., Norfolk, Virginia, for Appellee.
    ON BRIEF: Philip R. Trapani, Jr., TRAPANI, BERNARD &
    LLOYD, P.C., Norfolk, Virginia, for Appellant.
    Unpublished opinions are not binding precedent in this circuit. See
    Local Rule 36(c).
    _________________________________________________________________
    OPINION
    PER CURIAM:
    Deborah Manuel ("Manuel"), formerly known as Deborah Stiltner,
    sued the Equitable Life Assurance Society of the United States (the
    "Equitable"), for breach of contract under Virginia law claiming that
    the Equitable failed to honor the terms of the life insurance policy it
    had issued on the life of Manuel's deceased husband, Michael R.
    Stiltner ("Stiltner").1 Following a bench trial, the district court ruled
    in favor of the Equitable. We affirm.
    I.
    In March 1989, the Equitable issued policy # 89,020,241 insuring
    the life of Stiltner in the amount of $100,000 (the"1989 policy"). In
    April 1990, following Stiltner's application for a $50,000 increase in
    coverage, the Equitable issued policy # 90,028,224 insuring his life in
    the amount of $150,000 (the "1990 policy"). One year later, following
    Stiltner's application for another $50,000 increase in coverage, the
    Equitable issued policy # 91,024,332 insuring Stiltner's life for
    $200,000 (the "1991 policy"). Each policy named Manuel as the ben-
    eficiary and all three applications for life insurance coverage were
    attached to the 1991 policy.
    On September 19, 1991, Stiltner died of a gunshot wound. Four
    days later, Manuel made a claim for the entire $200,000. On March
    13, 1992, the Equitable notified Manuel that it decided to (1) pay her
    $100,000 plus interest on the 1989 policy; (2) rescind the 1990 and
    1991 policy increases because Stiltner had made material misrepre-
    sentations in his applications for those increases in coverage;2 and (3)
    _________________________________________________________________
    1 Manuel filed this action in Norfolk Circuit Court. The Equitable
    timely removed the case to the United States District Court for the East-
    ern District of Virginia.
    2 Although Stiltner asserted in his original and subsequent applications
    for coverage that he had neither used any controlled substance in the last
    2
    return to her the premiums, which Stiltner had paid on the 1990 and
    1991 policies.
    In January 1993, the Equitable paid Manuel $105,282.19, repre-
    senting $100,000 in principal and interest. When the Equitable mailed
    Manuel the check for the premiums on the two "rescinded" policies,
    she refused to accept the payments and returned the checks to the
    Equitable. Manuel sued the Equitable for the remaining $100,000 plus
    interest under the 1991 policy, asserting that the three life insurance
    policies constituted one unseverable policy--the 1991 policy, and that
    the Equitable had waived its right to contest the 1990 and 1991
    increases for coverage because it had started paying her under the
    terms of the 1991 policy. Following a bench trial, the district court
    found that the 1991 insurance policy was severable. Additionally, the
    district court found that the Equitable involuntarily paid Manuel the
    $105,282.19 sum because it was legally obligated to do so under the
    terms of the 1989 insurance contract pursuant to Virginia Code
    §§ 38.2-3107 & 38.2-3305.3 The district court further noted that the
    compelled payment did not constitute a waiver by the Equitable of its
    right to contest the validity of Stiltner's 1990 and 1991 applications
    for increased insurance coverage. Finally, the district court found that
    Stiltner made material misrepresentations in his 1990 and 1991 appli-
    cations for life insurance, and that such material misrepresentations
    released the Equitable from its obligation to pay under those policies.
    This appeal followed.
    II.
    When the Equitable issued the 1991 policy, the original application
    for life insurance and the 1990 and 1991 applications for increases in
    _________________________________________________________________
    ten years, nor received counseling or treatment for the use of alcohol or
    drugs, the Equitable discovered overwhelming evidence that he had used
    controlled substances and received counseling and treatment for sub-
    stance abuse.
    3 VA. CODE ANN. §§ 38.2-3107 & 38.2-3305 (Michie 1994) (incon-
    testablitiy provisions barring insurance companies from contesting the
    validity of an insurance contract after the policy has been in force during
    the lifetime of the insured for two years from its date of issuance).
    3
    coverage were attached to the document. The applications evidenced
    the three risks, which the Equitable separately underwrote, over a
    period of three years, to reach the face value of the 1991 insurance
    contract.4
    Under Virginia Code §§ 38.2-3107 & 33.2-3305, Virginia's legisla-
    ture provides the insurer with a two-year window following the issu-
    ance of a life insurance contract within which it may contest the
    contract's validity by reason of material misrepresentations upon the
    corresponding application.5 The Code sections benefit both the
    insured and their beneficiaries, because they provide the insurance
    companies with sufficient time in which to discover misrepresenta-
    tions made in the applications for coverage and it prevents insurers
    from receiving premiums while harboring a policy defense to be
    raised only if and when called upon to pay under the policy.6
    In the instant case, the 1991 policy contained an"INCONTEST-
    ABILITY" paragraph, which stated that, "[The Equitable has] the
    right to contest the validity of this policy based on material misstate-
    ments made in the application for this policy." Thus, when Stiltner
    died as a result of a homicide within two years of the issuance of the
    policy, the Equitable, pursuant to Virginia's incontestability statute,
    exercised its right to investigate and contest the validity of Stiltner's
    application for the increase in coverage. The Equitable's investigation
    revealed that Stiltner made material misrepresentations in his applica-
    tion for an increase in coverage. Such material misrepresentations
    voided the 1991 contract to the extent that the 1991 policy increased
    the 1990 policy by $50,000.
    With the 1991 obligation for an increase in coverage voided, the
    Equitable considered that its 1989 and 1990 obligations, represented
    by the attached applications, may still be binding. Review of the 1990
    application for an increase in coverage, revealed, however, that Stilt-
    _________________________________________________________________
    4 The face value on the 1991 policy derived from the Equitable's obli-
    gation to pay: $100,000 in 1989, $50,000 in 1990 and $50,000 in 1991.
    5 VA. CODE ANN. §§ 38.2-3107 & 38.2-3305 (Michie 1994).
    6 Harrison v. Provident Relief Ass'n, 
    126 S.E. 696
    , 701 (Va. 1925)(case
    extolling the public policies behind the predecessor to the current incon-
    testability statutes).
    4
    ner had made material representations therein. Said misrepresenta-
    tions voided the 1990 obligation to the extent that the 1990 policy
    increased the original 1989 policy by $50,000.
    With the 1990 obligation voided, the 1989 obligation remained.
    Pursuant to the incontestability statute, the 1989 policy could not be
    challenged because it had been in force for more than two years dur-
    ing Stiltner's lifetime from it date of issuance. Therefore, despite the
    fact that Stiltner had also made material misrepresentations in his
    original application for insurance, the Equitable could not contest the
    1989 application. Accordingly, the Equitable paid Manuel
    $105,282.19 under the terms of the 1989 policy.
    The public policies behind Virginia's incontestability statute sup-
    port severing the 1991 contract into three separate obligations whose
    respective contestability periods ran from their issue dates. To prevent
    the Equitable from contesting the applications would amount to a
    windfall to the applicant and beneficiary, and deprive the Equitable
    of a valid defense under the law. Accordingly, we hold that the Equi-
    table, having acknowledged its obligation under the 1989 policy, is
    not required to pay Manuel the face value of the 1991 contract.
    III.
    Having carefully reviewed the record, briefs, and contentions of the
    parties at oral argument, we hold Manuel's remaining issues to be
    without merit. Accordingly, we affirm the judgment and order of the
    district court.
    AFFIRMED
    5
    

Document Info

Docket Number: 96-1987

Filed Date: 12/31/1997

Precedential Status: Non-Precedential

Modified Date: 10/30/2014