State Life Ins Co v. O'Brien ( 1997 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 95-60556
Summary Calendar
THE STATE LIFE INSURANCE COMPANY,
Plaintiff-Appellee,
versus
FRANK A. O’BRIEN,
Defendant-Appellant.
Appeal from the United States District Court
For the Southern District of Mississippi
(3:94-CV-196)
January 28, 1997
Before POLITZ, Chief Judge, GARWOOD and STEWART, Circuit Judges.
POLITZ, Chief Judge:*
Frank A. O’Brien appeals a declaratory judgment voiding a disability income
insurance policy. We affirm.
Background
*
Pursuant to Local Rule 47.5, the court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in Local Rule
47.5.4.
O’Brien applied for a disability income insurance policy with State Life on
May 2, 1992. The application was submitted through Homer Parker, an
independent agent not affiliated with State Life. O’Brien admitted that he had a
disability income policy with Woodmen of the World Life Insurance Company and
that he had applied for life insurance. He did not inform State Life that he had also
applied for disability coverage from Life USA. Both O’Brien and Parker signed
the application warranting that all statements contained therein were true and
correct.
State Life retained Systematic Business Services, Inc. to perform a follow-up
telephone interview with O’Brien. In this interview, O’Brien stated that he was
going to cancel his Woodmen of the World policy and replace it with the State Life
policy and that he had not applied for and had no intention of applying for other
disability coverage. Based upon the information in O’Brien’s application and the
follow-up interview State Life issued O’Brien a policy providing $2250 in monthly
disability income benefits.
O’Brien made a claim on the State Life Policy on April 26, 1993, alleging
disability resulting from a fall at the Walmart store in Natchez, Mississippi. The
claim form required that O’Brien name all hospital and disability insurance in
effect. O’Brien did not reveal that he had disability coverage from policies issued
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by Life USA and Business Men’s Assurance Company, nor that he had actually
increased his coverage under the Woodmen of the World policy from $1800 to
$3700 per month. As a result of these combined policies O’Brien enjoyed total
disability income benefits in the amount of $10,450 per month, an amount greatly
exceeding his prior income and concomitant insurability.
When State Life discovered the actual amount of disability coverage O’Brien
had in force it brought this action, seeking a declaration that O’Brien’s failure to
disclose his additional coverage rendered its policy null and void. After a bench
trial the district court entered judgment in favor of State Life. The district court
found that State Life had proven that O’Brien, with the assistance of Parker and
another insurance agent, had perpetrated a fraudulent scheme to overinsure himself
significantly. In addition, the district court found that because Parker had acted in
collusion with O’Brien, the insurance company was not bound by the agent’s
knowledge of O’Brien’s other policies and therefore not estopped from denying
coverage. O’Brien timely appeals.
Analysis
On appeal O’Brien challenges the legal and factual correctness of the district
court’s decision that Parker’s knowledge may not be imputed to State Life. We
review the district court’s factual findings for clear error and its conclusions of law
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de novo.1 Because the Mississippi Supreme Court has not specifically decided
whether an insurer is bound by the knowledge of a selling agent where that
knowledge is intentionally withheld out of fraudulent motive, the district court
made an “Erie guess” as to what legal rule the Mississippi Supreme Court would
fashion in this case.
The general rule in Mississippi is that an insurer is bound by the knowledge
of its selling agent.2 In Preferred Life Assurance Society v. Thompson,3 however,
the Mississippi Supreme Court held that when the insurer’s agent, in collusion with
the insured, knowingly provides the insurer with false information, this general rule
does not apply. The district court, while conceding factual distinctions between
Preferred Life and the case at bar, nonetheless held that the Mississippi Supreme
Court would rule that, given the collusive relationship between Parker and O’Brien,
State Life is not bound by Parker’s knowledge. Considering the relevant
Mississippi jurisprudence, and in particular those cases cited in brief, we perceive
no error in the district court’s ruling.
O’Brien also challenges the district court’s finding that Parker and O’Brien
1
Palma v. Verex Assurance, Inc., 79 F.3d 1453 (5th Cir. 1996).
2
Andrew Jackson Life Ins. Co. v. Williams, 566 So.2d 1172 (Miss. 1990).
3
155 So. 188 (Miss. 1934).
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acted in concert to defraud State Life. The record reveals that Parker, who
contacted State Life on behalf of O’Brien, had neither before nor since written a
policy with State Life. Parker was the procuring agent for both the State Life and
Life USA policies, yet he mentioned to neither company the existence of the other
policy. Parker, in separate conversations with representatives of Life USA,
repeated certain misrepresentations made by O’Brien during his follow-up
interview with State Life. Parker testified that he knew O’Brien was overinsuring
himself and that if the true extent of O’Brien’s disability coverage was admitted
State Life would not write his policy. Given this record, we can only conclude that
the district court’s factual findings were not clearly erroneous.
AFFIRMED.
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