The Estate of Michae v. Armed Forces Benefi ( 1998 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________
97-50256
__________________________
THE ESTATE OF MICHAEL W. HICKS, DECEASED
and CATHERINE HICKS
Plaintiffs-Appellees,
versus
ARMED FORCES BENEFIT ASSOCIATION, a/k/a
ARMED FORCES RELIEF AND BENEFIT ASSOCIATION,
and JOHN HANCOCK MUTUAL LIFE INSURANCE CO.,
Defendants-Appellants.
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
(EP-96-CV-305)
_______________________________________________________________
April 7, 1998
Before DAVIS, JONES, and DENNIS, Circuit Judges:
PER CURIAM:*
Appellants Armed Forces Benefit Association and John
Hancock Mutual Life Insurance Co. appeal from a district court
judgment granting appellees Catherine Hicks and the estate of
Michael Hicks the proceeds of a life insurance policy. For the
following reasons, we AFFIRM.
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
A. BACKGROUND
On June 12, 1990, Michael Hicks and his wife Catherine
Hicks applied for a $50,000 insurance policy on Michael’s life.
The policy was provided by the Armed Forces Benefit Association and
underwritten by the John Hancock Mutual Life Insurance Company.
Although this policy did not require the insured to undergo a
medical examination, Michael and Catherine were required to sign an
application in which they certified that Michael “had no incidence
of drug or alcohol abuse, nor ever consulted, been treated by a
physician or hospitalized for any injury, illness, or medical
condition.” Even though Michael had a history of drug abuse,
Michael and Catherine signed the application, and, on June 25,
1990, the policy was approved.
In September of the same year, Michael was hospitalized
and diagnosed HIV positive. In June 1992, Michael died of
complications arising from AIDS.
After the appellants refused to pay the death benefits
under the insurance policy, Catherine Hicks and the Estate of
Michael Hicks filed suit in state court. The appellants removed
the case to federal court under diversity jurisdiction and denied
liability. The appellants raised the affirmative defense of
misrepresentation and sought to have the policy rescinded based
upon false statements contained in the application for insurance.
Following a bench trial, the district court found that
Michael had a history of drug and alcohol abuse and was
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hospitalized on various occasions for substance abuse treatment.
The district court also found that Michael and Catherine made
material misrepresentations when they signed the life insurance
application. Nevertheless, the district court held that “any
misrepresentation made by the Plaintiffs in securing the issuance
of the policy were as a result of carelessness in completing the
application and were not made with the intent to deceive or
defraud.” The district court concluded that the false statements
Michael and Catherine had made concerning Michael’s drug and
medical history did not authorize the appellees to rescind the life
insurance policy. This appeal followed.
B. DISCUSSION
Under Texas law, an insurer must plead and prove five
elements to rescind a policy because of the misrepresentation of an
insured: (1) the making of the representation; (2) the falsity of
the representation; (3) reliance thereon by the insurer; (4) the
intent to deceive on the part of the insured in making same; and
(5) the materiality of the representation. See Union Bankers Ins.
Co. v. Shelton, 889 S.W.2d 278, 282 (Tex. 1994); Mayes v.
Massachusetts Mut. Life Ins. Co., 608 S.W.2d 612, 616 (Tex. 1980).
Texas law is unique in that “an insured’s intent to deceive must be
shown in order for an insurance company to successfully raise a
defense of misrepresentation on the basis of a false statement made
by the insured on the application for any type of insurance.”
Shelton, 889 S.W.2d at 282; see also Parsaie v. United Olympic Life
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Ins. Co., 29 F.3d 219, 220 (5th Cir. 1994) (Davis, J.) (“[A]n
insurer may rescind a policy based on the insured’s
misrepresentations only if the insurer can prove the insured’s
intent to deceive.”). Thus, “it is incumbent upon the insurer to
prove that the insured made some material representation ‘willfully
and with design to deceive or defraud,’ as an element of the
defense.” Soto v. Southern Life & Health Ins. Co., 776 S.W.2d 752,
756 (Tex. App.--Corpus Christi 1989, no writ) (citing Allen v.
American Nat’l Ins. Co., 380 S.W.2d 604, 607-08 (Tex. 1974); Haney
v. Minnesota Mutual Life Ins. Co., 505 S.W.2d 325, 328 (Tex. Civ.
App.--Houston [14th Dist.] 1974, writ ref’d n.r.e.).
In this case, the district court found -- and we agree --
that the appellants have failed to establish the intent to deceive.
Michael and Catherine agreed to meet and discuss purchasing life
insurance from the appellants after they had received an
unsolicited phone call from William Schilling, a sales agent for
the Armed Forces Benefit Association. The soliciting materials
stated that no medical examination would be required for the policy
to be approved provided the applicant did not have a health
problem. The Hicks’s decided to purchase $50,000 in coverage for
$4.00 per month, even though it was Catherine’s understanding that
they could purchase additional $50,000 increments in coverage for
$4.00 per increment per month. Michael orally answered questions
posed by the sales agent, who completed the application. Michael
then signed the policy to confirm his answers. He never read the
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application. Appellees understood the agent’s question concerning
hospitalization to mean physical sicknesses, injuries, illnesses,
or diseases. They did not comprehend that the sanitarium-type drug
treatment Michael had received constituted hospitalization, nor did
they perceive Michael to be sick, ill, or diseased at the time of
the application. They considered drug treatment to be counseling
rather than medical treatment. Finally, Michael Hicks had
regularly carried life insurance through various employers in
earlier years. He was without life insurance in June 1990 because
he was currently unemployed. There is no indication that he was
motivated to purchase life insurance by any perception that his
life was in danger.
Although their conduct might be deemed incautious, or
even negligent, it does not demand a finding that Michael and
Catherine acted with the willful intention to deceive the insured.
In particular, their perception that they might have purchased more
insurance for nominal additional monthly charges -- even if
incorrect -- is not disproved by the brochure they were given and
supports a finding of no intent to deceive. “In short, false
statements which are made negligently, carelessly or by mistake are
not sufficient to avoid a life insurance policy where the defense
is based upon the insured’s misrepresentation of a material fact.”
Soto, 776 S.W.2d at 756; see also Parsaie, 29 F.3d at 221
(rejecting argument that under Texas law “a misrepresentation need
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not be intentional so long as it induces the insurer to issue the
policy”).
Appellants argue that “[i]n cases such as this, in which
the falsity and materiality of the insured’s representations are
admitted, the requisite intent [to deceive] is established by proof
of circumstances that render the insured’s denial of intent
implausible.” Because Michael revealed that he had a history of
drug abuse when he was admitted to the hospital in September 1990,
the appellants contend that his conduct could hardly be described
as careless. Meanwhile, they charge that Catherine either knew of
her husband’s drug abuse or intentionally chose to remain ignorant.
Even if appellants are correct that Michael’s and
Catherine’s conduct was more than simply careless, this does not
prove an intent to deceive. At most, appellants have established
that Michael and Catherine knowingly made false statements on the
application for health insurance. But as Texas courts have
repeatedly held, the fact that the insurance company proved the
insured knowingly misrepresented his health condition is
insufficient to establish an intent to deceive as a matter of law.
See, e.g., Garcia v. John Hancock Variable Life Ins. Co., 859
S.W.2d 427, 432-33 (Tex. App.--San Antonio 1993, writ denied).
Although on the basis of this evidence a factfinder might have
found an intent to deceive, we hold that the appellants have failed
to prove clear error or to satisfy their burden of proof to
establish an intent to deceive as a matter of law. See id. at 433;
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see also Flowers v. United Ins. Co. of Am., 807 S.W.2d 783, 786
(Tex. App.--Houston [14th Dist.] 1991, no writ); Estate of Diggs v.
Enterprise Life Ins. Co., 646 S.W.2d 573, 575-76 (Tex. App.--
Houston [1st Dist.] 1982), reh’g denied, 657 S.W.2d 813 (1983, writ
ref’d n.r.e.).
For the foregoing reasons, we AFFIRM.
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