Old Line Life Ins v. Garcia ( 2005 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 05a0237p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
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Plaintiff-Appellee, -
OLD LINE LIFE INSURANCE COMPANY OF AMERICA,
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No. 04-1481
v.
,
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DAVID K. GARCIA, -
Defendant-Appellant. -
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Appeal from the United States District Court
for the Eastern District of Michigan at Flint.
No. 02-40239—Paul V. Gadola, District Judge.
Argued: March 9, 2005
Decided and Filed: June 2, 2005
Before: MOORE and SUTTON, Circuit Judges, CARMAN, Judge.*
_________________
COUNSEL
ARGUED: John P. Nicolucci, FOSTER, SWIFT, COLLINS & SMITH, Lansing, Michigan, for
Appellant. K. Scott Hamilton, DICKINSON, WRIGHT, PLLC, Detroit, Michigan, for Appellee.
ON BRIEF: John P. Nicolucci, Stephen O. Schultz, FOSTER, SWIFT, COLLINS & SMITH,
Lansing, Michigan, for Appellant. K. Scott Hamilton, DICKINSON, WRIGHT, PLLC, Detroit,
Michigan, for Appellee.
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OPINION
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CARMAN, Judge. Defendant/Appellant, David Garcia (“Garcia”), appeals from the Opinion
and Order Granting Summary Judgment for Plaintiff entered by the United States District Court for
the Eastern District of Michigan, Southern Division. The District Court voided and rescinded a life
insurance policy between Garcia’s mother (“the insured”) and Plaintiff/Appellee Old Line Life
Insurance Company of America (“Old Line”). In addition, the judgment ordered that Garcia’s
counterclaim for coverage under the policy be dismissed with prejudice. Garcia filed a timely
appeal. For the reasons set forth herein, Garcia’s appeal is granted and the case remanded to the
District Court for entry of judgment in Garcia’s favor.
*
The Honorable Gregory W. Carman, United States Court of International Trade, sitting by designation.
1
No. 04-1481 Old Line Life Ins. v. Garcia Page 2
BACKGROUND
On January 12, 2001, Patricia Garcia, Garcia’s mother and the insured, applied for a $2
million life insurance policy from Old Line. (J.A. at 198.) The insured filed the application for
insurance four days before her sixty-ninth birthday. (J.A. at 198-202.) The insured named Garcia
as the sole beneficiary of the policy. (J.A. at 200.)
At the time of the application, the insured had three existing life insurance policies that
totaled $2 million. (J.A. at 200.) The existing policies were term policies with end dates between
2003 and 2009. (J.A. at 93-94.) The Old Line application for insurance requested a “yes” or “no”
as to whether the policy applied for was “replacement.” (J.A. at 200.) The application defined
“replacement” as “that the insurance being applied for may replace, change, or use any monetary
value of any existing or pending life insurance policy or annuity. If replacement may be involved,
complete and submit replacement-related forms.” (J.A. at 200 (emphasis added).) The application
does not state that existing coverage must be replaced in order to acquire a policy from Old Line.
The insured also completed and submitted Old Line’s Notice Regarding Replacement
(“Replacement Notice”). (J.A. at 305.) The Replacement Notice is required “in all cases where a
replacement is involved or suspected by the distributor.” (J.A. at 309 (emphasis added).) The
Replacement Notice states, “[t]he life insurance I intend to purchase from the insurer named above
may replace or alter existing life insurance.” (J.A. at 305 (emphasis added).) The form provides
lines for the applicant to list the policies that “may be replaced.” (J.A. at 305 (emphasis added).)
The Replacement Notice neither requires the applicant to replace existing policies nor makes
securing a policy from Old Line contingent upon cancellation of existing insurance.
Old Line reviewed the application (J.A. at 229), had the insured undergo a medical
examination (J.A. at 223-27, 229), and had an independent, third party company (“SBSI”) interview
her (J.A. at 229). During the interview, SBSI apparently asked the insured whether the Old Line
policy would replace existing insurance; to which, the insured apparently responded, “yes.” (J.A.
at 108.)
The insured’s agent, John Dobben (“Dobben”), who was also an authorized agent of Old
Line, had his wife, Joan, complete the application on the insured’s behalf. (J.A. at 204.) Dobben
acknowledged that the three existing policies had been identified as “replacement” on the
application because they “would have been replaced at the end – when they reached the end of the
ten year period of time.” (J.A. at 94.) The plan with regard to the existing policies was also
consistent with Old Line’s guidelines on replacement, which contemplated the lapse1 of an existing
policy as an acceptable means of replacement. (J.A. at 210, 308.) The Garcias also were aware of
Dobben’s plan to allow the existing policies to lapse. (J.A. at 95.) According to Dobben, Old Line
never indicated to the Garcias that the existing policies had to be canceled before Old Line would
issue or upon issuance of the Old Line policy. (J.A. at 207.)
Dobben also indicated that a number of other factors might impact whether existing policies
were replaced:
There are possibilities that those things were going to be replaced and that’s why we
fill out the replacement forms, but that would apply to whether you were going to
borrow money out of an existing cash value or change dividends or reduce coverage
or do any number of things you’re going to fill in that replacement part of the
policies.
1
An insurance policy lapses when the policy holder fails to pay a premium and the coverage is canceled or
terminated. (J.A. at 210.)
No. 04-1481 Old Line Life Ins. v. Garcia Page 3
(J.A. at 205.) To Dobben, whether an existing policy is replaced would depend on the “product”
that the insurance company issues. (J.A. at 441.)
On April 5, 2001, Old Line approved the insured’s application. (J.A. at 230.) On the same
day, Old Line sent the insured a letter (“notification letter”) notifying her that the application had
been approved and that a policy was forthcoming. (J.A. at 236.) The letter did not specify that the
Old Line policy was contingent upon the insured replacing her existing coverage. The notification
letter also did not state that Old Line was issuing the policy in reliance upon the insured’s
representation that she may replace the existing policies.
Old Line issued the insured a $2 million ten-year term life policy with an effective date of
April 10, 2001. (J.A. at 234, 239.) The policy does not contain a requirement that the insured
replace her existing life insurance for the Old Line coverage to be effective. Coverage went into
force upon the insured’s payment of the first premium, which was approximately May 16, 2001.
(J.A. at 151.)
In May 2001, the insured was diagnosed with lung cancer. (J.A. at 216.) The insured died
from lung cancer on January 24, 2002. (J.A. at 154.)
On February 5, 2002, Garcia filed a claim for benefits with Old Line. (J.A. at 259.) Old
Line conducted an extensive investigation because the insured’s death occurred within the two-year
contestability period contained in the policy. (J.A. at 265-66.) In May 2003, Old Line still had not
made a determination as to whether the claim was payable (J.A. at 266) and has never denied the
claim for life insurance benefits.
John Rugel (“Rugel”), Director of Underwriting for Old Line, reviewed the insured’s file
after the investigation concerning coverage began. Rugel stated during his deposition in preparation
for this case that nothing on the insured’s application appeared to have been answered incorrectly
or incompletely. (J.A. at 271.) Further, Rugel admitted that the Old Line application does not
require replacement but states that existing policies “may” be replaced. (J.A. at 277.) Rugel stated
that the “box marked on the application under replacement had been marked yes for each policy
since at the end of the initial term each of the policies would have been replaced.” (J.A. at 272
(emphasis added).) In Rugel’s review of Garcia’s claim, he found no indication that Old Line
informed the insured or her insurance agent that the existing policies must be cancelled or replaced
within a certain period to preserve coverage under the Old Line Policy. (J.A. at 277.) Rugel also
stated that he was not aware of any Old Line requirement that an existing policy that is being
replaced by an Old Line policy must be “cancelled as opposed to lapsing or coming to the end” of
its term. (J.A. at 278.)2
Old Line’s own Customer Service and Compliance Manual for Producers and Employees
(“Old Line Manual”) has a section entitled “Replacement Guidelines.” (J.A. at 307.) The Old Line
Manual defines “replacement” as follows:
Subject to any more restrictive state law requirements, the Company defines a
replacement to be any transaction in which new life insurance or a new annuity is to
be purchased, and it is known or should be known to the proposing distributor that
by reason of such transaction, an existing life insurance policy or annuity contract
has been or is to be:
1. Lapsed, forfeited, surrendered, or otherwise terminated. . . .
2
After a short break and consultation with Old Line’s attorney, Rugel stated that replacement “normally” occurs
within thirty to sixty days from the date the new policy is issued. (J.A. at 278.)
No. 04-1481 Old Line Life Ins. v. Garcia Page 4
(J.A. at 307-08.) Old Line’s Manual states that “as a general rule replacement is not in a client’s
best interest.” (J.A. at 308.) Additionally, Old Line’s Manual is silent with regard to a period within
which replacement must or should occur.
PROCEDURAL HISTORY
On June 27, 2002, Old Line filed a complaint in the U.S. District Court for the Eastern
District of Michigan seeking declaratory judgment and rescission of the insured’s policy. In
response, Garcia filed a cross-claim for breach of contract seeking to force Old Line to honor the
insurance policy it issued to the insured and pay Garcia’s claim. (J.A. at 52.) Old Line and Garcia
then filed cross-motions for summary judgment. (J.A. at 60, 168.)
In its motion, Old Line claimed that the insured misrepresented that the Old Line policy
would replace her existing policies. (J.A. at 61-62.) Further, the misrepresentation – as viewed by
Old Line – was material to Old Line’s decision to issue the insured policy. (Id.) Old Line also
argued that the insured’s failure to cancel the existing policies constituted a failure of a condition
of the insurance contract and was grounds for rescinding the policy. (J.A. at 62.)
In his motion for summary judgment, Garcia submitted that Old Line’s allegations were
without merit as there was no misrepresentation concerning replacing the existing policies. (J.A.
at 169.) In his supporting brief, Garcia noted that the application and Replacement Notice use the
permissive term “may” – rather than an obligatory term such as “must” or “shall” – when referring
to replacement. (J.A. at 187.) In addition, Garcia moved for summary judgment on his counter-
claim for breach of contract for Old Line’s failure to honor the terms of its insurance policy. (J.A.
at 170.)
The District Court granted Old Line’s motion and declared the insured’s policy void and
rescinded. (J.A. at 509-10.) The District Court ruled that the insured materially misrepresented that
she would replace her existing policies with the Old Line policy and stated that Old Line would not
have issued3its policy had it known that the insured would not terminate the existing policies. (J.A.
at 506-07.)
On appeal, Garcia argues that the District Court erred in failing to grant his motion for
summary judgment. (Final Br. of Appellant at 16.) Garcia asserts that there are no genuine issues
of material fact concerning the issue of replacement or satisfaction of a condition subsequent. (Id.
at 16, 20.) Garcia claims that because there was no misrepresentation of any material fact, Old
Line’s motion for summary judgment was wrongly decided by the District Court. (Id. at 20.)
Further, Garcia believes that the District Court erred in not granting summary judgment to Garcia
on his breach of contract claim. (Id.) In the alternative, Garcia argues that if the court finds there
are genuine issues of material fact, they must be heard by a trier of fact. (Id. at 22.)
STANDARD OF REVIEW
This Court reviews de novo a district court’s decision to grant or deny a motion for summary
judgment. Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506 (6th Cir. 2003). In so doing, the
appellate court uses the same legal standard as the district court. Id. Summary judgment is proper
when the “pleadings, depositions, answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). The trial court should
3
Old Line claimed that the insured would have been considered over-insured at $4 million (the existing $2
million from three term policies plus Old Line’s $2 million policy) in life insurance coverage. Old Line argued that it,
therefore, would not have issued its policy for additional, rather than replacement coverage. (J.A. at 158-60.)
No. 04-1481 Old Line Life Ins. v. Garcia Page 5
consider a “material fact” in dispute “genuine” if a reasonable jury could return a verdict in favor
of the nonmoving party. Tech Dry, 336 F.3d at 506. We consider all factual evidence and draw all
reasonable inferences in the light most favorable to the nonmoving party. Id. The moving party
bears the burden of proving that no genuine issue of material fact exists and that it is entitled to
judgment as a matter of law. R.S.W.W., Inc. v. City of Keego Harbor, 397 F.3d 427, 433 (6th Cir.
2005). When reviewing cross-motions for summary judgment, this Court must assess each motion
on its own merits. Tech Dry, 336 F.3d at 506.
DISCUSSION
On review, the parties presented the following questions to this Court: 1) Did the insured
misrepresent that she would replace her existing policies; and 2) Was the Old Line policy clear and
unambiguous? We answer the first question in4 the negative and the second in the affirmative.
Michigan law controls our decision in this case.
For the reasons that follow, this Court holds that the District Court erred in granting
summary judgment to Old Line. In applying Michigan law with regard to the definition of
“misrepresentation,” this Court holds that, to be the basis for rescission, the representation – alleged
to be a misrepresentation – must relate to a past or present fact but not to a future promise. See
Mich. Comp. Laws § 500.2218(2). The insured’s possible replacement of the existing policies was
prospective, and the language discussing replacement was wholly permissive. Therefore, the
insured’s representations could not have been the basis of a misrepresentation claim. In addition,
it is clear that the insured’s representations concerning replacement were accurate and did not
misrepresent her intentions. Further, Old Line’s documents were clear and unambiguous. Old Line
neither required replacement of the existing policies with the Old Line Policy nor was the Old Line
policy conditioned upon replacement. Based on this holding, replacement was discretionary and
failure to do so, even after acknowledging the possibility that it might occur, was not a
misrepresentation. Because there are no genuine issues of material fact in dispute and contrary to
the District Court ruling, Garcia is entitled to judgment on his cross-claim for breach of contract.
I. There Was No Misrepresentation as to Replacement.
Michigan law permits rescission of an insurance policy when the insured makes a material
misrepresentation in the application for insurance. Lake States Ins. Co. v. Wilson, 231 Mich. App.
327, 331 (1998), appeal denied, 460 Mich. 871 (1999). A misrepresentation is material if the insurer
would have charged a higher premium or not accepted the risk had it known the true facts. See Oade
v. Jackson Nat’l Life Ins. Co. of Mich., 465 Mich. 244, 254 (2001).
A. The insured’s statements concerning replacement were not misrepresentations
because they related to a future promise rather than a past or present fact.
On the application for insurance, the insured checked the “replacement” box “yes” and
submitted the Replacement Notification. She also indicated during a telephone interview that the
existing policies would be replaced.5 On the application, Old Line defined “replacement” as “that
4
The District Court applied Michigan law in this diversity case. On appeal, neither party has disputed the
District Court’s choice of law.
5
A summary report of the SBSI interview indicates that the insured was asked, “Will this insurance replace any
insurance in force?” The insured apparently answered, “Yes.” (J.A. at 108.) This summary does not indicate that the
insured stated or implied that the existing policies had already been replaced or were in the process of being terminated.
Further, this Court is reluctant to rely upon a summary of an out-of-court statement by a deceased person taken by a third
party in finding that a misrepresentation occurred.
No. 04-1481 Old Line Life Ins. v. Garcia Page 6
the insurance being applied for may replace, change, or use any monetary value of any existing or
pending life insurance policy or annuity.” (J.A. at 200 (emphasis added).) The Replacement
Notification similarly identifies the policies that “may be replaced as a result of the transaction.”
(J.A. at 305 (emphasis added).) Old Line did not define “replacement” as an event that had already
occurred or would occur concurrent with the application 6or some other defined event. The
documents both refer to a possible future replacement event.
Under Michigan law, the insured’s representations concerning a future promise of a possible
replacement cannot be considered misrepresentations. Michigan statute defines a “representation”
in an insurance context as “a statement as to past or present fact . . . .” Mich. Comp. Laws
§ 500.2218(2) (emphasis added); see also Forge & NMF, Inc. v. Smith, 458 Mich. 198, 212 (1998)
(citations omitted) (“A promise regarding the future cannot form the basis of a misrepresentation
claim.”); cf. Oade, 465 Mich. at 246 (holding that where the applicant had “an explicit, contractual
continuing duty to ensure that the answers in his insurance application remained true until the
effective date of the policy” the applicant’s “failure to supplement his medical history rendered his
original answers false, making them ‘misrepresentations’ within the meaning of MCL
500.2218(2)”). Any representation the insured made concerning the replacement of her existing
policies was related to a future act: possibly replacing the existing policies at some (unspecified)
future date. Consequently, those representations cannot be the basis of a misrepresentation claim
or rescission of the Old Line policy. It was reversible error for the District Court to so find.
B. The insured’s representations concerning replacing the existing policies were
accurate, not misstatements of her intentions.
Old Line argues that because the insured indicated in the application, Replacement
Notification, and telephone interview that the Old Line policy was a replacement, her later failure
to replace the existing policies was a misrepresentation sufficient to rescind the policy. The District
Court accepted Old Line’s position. However, both Old Line and the District Court failed to
recognize that no document provided to the insured required replacement and she was never put on
notice that replacement was a condition for the policy to be effective.
Nonetheless, had the insured not passed away a few months after the Old Line policy went
into effect, the record indicates that the existing policies eventually would have been replaced in a
manner consistent with Old Line’s definition if the term. The Old Line Manual defines
“replacement” as follows:
Subject to any more restrictive state law requirements, the Company defines a
replacement to be any transaction in which new life insurance or a new annuity is to
be purchased, and it is known or should be known to the proposing distributor that
by reason of such transaction, an existing life insurance policy or annuity contract
has been or is to be:
1. Lapsed, forfeited, surrendered, or otherwise terminated. . . .
(J.A. at 307-08 (emphasis added).) The Old Line Manual does not place a time restriction on the
period in which the lapse must occur. The agent Dobben testified that the existing policies would
have been allowed to lapse at the end of their terms, which is wholly consistent with the Old Line
Manual definition of replacement.
Old Line’s own Director of Underwriting (Rugel) stated that the insured’s application had
been answered correctly and completely. He also conceded that the insured marked the replacement
6
See, infra, Section IIB, for further discussion of the interpretation of “may” in this context.
No. 04-1481 Old Line Life Ins. v. Garcia Page 7
box on the application because the existing policies would be replaced at the ends of their terms.
Further, Rugel admitted that Old Line did not require replacement. Although Old Line did not
require replacement or specify when such should occur, Rugel offered that replacement “normally”
occurs within thirty to sixty days from the date the new policy is issued. Nevertheless, normal
practice is not tantamount to a requirement or a contractual or contingent obligation.
That Old Line did not limit the time within which the replacement by lapsing must occur –
or for that matter specify that it must occur at all – is the result of its own choices in drafting. To
the extent that Old Line relied upon the insured’s representations that she “may replace” her existing
policies, it did so at its own risk. Any inducement Old Line suffered in issuing the policy to the
insured was wholly a result of its chosen language by not explicitly requiring replacement of the
existing policies and specifying a date certain for doing so.
This Court finds that the insured’s statements concerning replacement were consistent with
Old Line’s own definitions of the term and were not misrepresentations. It was reversible error for
the District Court so to find.
II. Old Line’s Policy Was Clear and Unambiguous.
“Policies of insurance are much the same as other contracts; they are matters of agreement
by the parties and the job of the courts is to determine what that agreement was and enforce it
accordingly.” Murphy v. Seed-Roberts Agency, Inc., 79 Mich. App. 1, 7 (1977) (citation omitted).
The purpose of insurance is to insure against a loss. Thus, “courts should not construe a policy to
defeat coverage unless the language [of the policy] requires it.” W. Cas. & Sur. Group v. Coloma
Township, 140 Mich. App. 516, 522 (1985). If the provisions of a policy are clear and unambiguous,
the court applies the terms in their “plain, ordinary, and popular sense.” Clevenger v. Allstate Ins.
Co., 443 Mich. 646, 654 (1993) (citation omitted). An unambiguous contract is not open to
construction and must be enforced as written. Cochran v. Ernst & Young, 758 F. Supp. 1548, 1554
(E.D. Mich. 1991).
However, if an insurance policy provision is ambiguous, a reviewing court construes it
against the drafting insurer and in favor of the insured. Mich. Mut. Ins. Co. v. Dowell, 204 Mich.
App. 81, 87 (1994), appeal denied, 447 Mich. 971 (1994). Thus, the insurance company has an
obligation to clearly express any limitations in its policy. Ford Motor Credit Co. v. Aetna Cas. &
Sur. Co., 717 F.2d 959, 961 (6th Cir. 1983) (emphasis added). An appellate court will construe any
ambiguity “liberally in favor of the insured and strictly against the insurer.” Id. (emphasis in
original). In addition, Michigan has a long history of liberally construing questions and answers in
an application for insurance in favor of the insured. Brown v. The Metro. Life Ins. Co., 65 Mich.
306, 313 (1887); see also New York Life Ins. Co. v. Modzelewski, 267 Mich. 293, 296 (1934);
Northwestern Nat’l Life Ins. Co. v. Nalbant, 119 F.2d 725, 728 (6th Cir. 1941) (interpreting
Michigan law).
Whether ambiguity exists in the terms of a contract is a question of law for the court to
decide. Equitable Life Assurance Soc’y of the U.S. v. Poe, 143 F.3d 1013, 1016 (6th Cir. 1998).
“A contract is ambiguous when its terms are reasonably and fairly susceptible to multiple
understandings and meanings.” Id. (citing Parameter Driven Software, Inc. v. Mass. Bay Ins. Co.,
25 F.3d 332, 336 (6th Cir. 1994)). Disagreement amongst the parties as to the meaning of a contract
term does not necessarily create ambiguity as a matter of law. Steinmetz Elec. Contractors Ass’n
v. Local Union No. 58 Int’l Bhd. of Elec. Workers, AFL-CIO, 517 F. Supp. 428, 432 (E.D. Mich.
1981). To determine whether an ambiguity exists, the court must read the insurance policy as a
whole. See Murphy, 79 Mich. App. at 8.
No. 04-1481 Old Line Life Ins. v. Garcia Page 8
A. Old Line’s policy was clear and unambiguous.
The policy for insurance – the contract in dispute – is silent with regard to replacement. It
is not ambiguous; it simply does not address replacement at all. Because the policy is unambiguous,
it is not necessary to supplement it or review extraneous sources. Cochran, 758 F. Supp. at 1554.
Similarly, the subjective understandings of the parties are irrelevant when reviewing unambiguous
contracts. Steinmetz, 517 F. Supp. at 432. Because this Court finds that the policy is plain and
unambiguous, it is subject to review based on its terms’ common, ordinary, and popular meanings.
As we have already determined that the insured did not misrepresent that she would replace her
existing policies, the fundamental issue is whether – as Old Line asserts – the policy was contingent
upon the insured replacing her existing policies. We find that it was not. This Court cannot read
into the policy an obligation that does not exist. The District Court should not have done so either.
B. Even if the policy were ambiguous, replacement was not required.
Were this Court to find the policy ambiguous and consider extraneous evidence (i.e., the
application, Replacement Notification, and notification letter), we would reach the same result:
replacement was not required. The notification letter, like the policy, is silent with regard to
replacement. Replacement is mentioned only in the application and Replacement Notification. In
both documents the term “replacement” is defined by Old Line and includes the permissive word
“may.” (J.A. at 200, 305.) The application defined “replacement” as “that the insurance being
applied for may replace, change, or use any monetary value of any existing or pending life insurance
policy or annuity. If replacement may be involved, complete and submit replacement-related
forms.” (J.A. at 200 (emphasis added).) The Replacement Notice states “the life insurance I intend
to purchase from the insurer named above may replace or alter existing life insurance.” (J.A. at 305
(emphasis added).)
“May” is defined as “hav[ing] permission to” or “hav[ing] the liberty to” do something.
Webster’s New Collegiate Dictionary 704 (G. & C. Merriam Co. 1981). The term “may” also
“indicate[s] a certain measure of likelihood or possibility.” The American Heritage Dictionary of
the English Language 1112 (3d ed., Houghton Mifflin Co., 1996). In addition, the Oxford English
Dictionary includes among the many definitions of “may” that in relation to the future “may =
‘perhaps will.’” IX The Oxford English Dictionary 501 (2d ed., J. A. Simpson & E. S. C. Weiner
eds., Clarendon Press 1989).
This Court notes that dictionaries also define the term “may” as meaning “must” when used
in statutes, deeds, or contracts. See Webster’s New Collegiate Dictionary 704; Webster’s Third New
International Dictionary of the English Language (Unabridged) 1396 (Merriam-Webster Inc. 1993).
Webster’s New Collegiate Dictionary qualifies this obligatory definition of “may” to circumstances
“where the sense, purpose, or policy requires this interpretation.” Webster’s New Collegiate
Dictionary 704. Old Line limited its discussion of replacement to the application and Replacement
Notification.7 We find neither a reason to expand the context in which “may” may mean “must” nor
a “sense, purpose, or policy” that require this interpretation under the facts of this case. The
language in Old Line’s documents is clear and unambiguous: replacement is permitted and perhaps
will occur in the future but is not required.
Even if the language in Old Line’s documents were ambiguous, the conclusion would be the
same. Old Line drafted the application, Replacement Notice, and policy, including the definition
of the term “replacement.” As such, the terms must be construed strictly against the insurer and in
7
The Court notes that Old Line also defined “replacement” in its Manual. There is no indication that the insured
received a copy of the Old Line Manual. Even if she had, as noted previously, her actions were consistent with the
definition of “replacement” found in the Manual.
No. 04-1481 Old Line Life Ins. v. Garcia Page 9
favor of the insured. Any doubt, then, as to the meaning of Old Line’s use of “may” and
“replacement” in its terms would favor Garcia. As indicated above, this Court finds that “may” is
permissive rather than obligatory. This alternative analysis does not change that.
Old Line had an obligation to clearly express any limitations in its policy; it did not do so.
Consequently, the insured was not obligated to replace her existing insurance, and her failure to do
so neither violated the terms of her agreement with Old Line nor resulted in a misrepresentation.
The District Court erred in deciding otherwise. Because the terms of the policy are clear and
unambiguous and provide coverage upon the insured’s death, Old Line is required to honor the
policy. No genuine issues of material fact remain. Accordingly, Garcia’s cross-claim for breach
of contract is granted.
CONCLUSION
Because the Old Line documents were clear and unambiguous and did not require
replacement of the existing policies and because the failure of the insured to replace was not a
misrepresentation, rescission of the Old Line policy by the District Court was reversible error.
Because there are no genuine issues of material fact in dispute, judgment should be entered in favor
of Garcia on his breach of contract counter-claim. This case is REVERSED with direction to the
District Court to enter judgment consistent with this opinion.