Habibollah Tabatabai v. West Coast Life Insurance Comp ( 2011 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-1170
H ABIBOLLAH T ABATABAI,
Plaintiff-Appellant,
v.
W EST C OAST L IFE INSURANCE C OMPANY,
Defendant-Appellee,
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 2:08-cv-00227-JPS—J.P. Stadtmueller, Judge.
A RGUED S EPTEMBER 12, 2011—D ECIDED D ECEMBER 16, 2011
Before B AUER, R OVNER and W ILLIAMS, Circuit Judges.
B AUER, Circuit Judge. The plaintiff-appellant, Habibollah
Tabatabai (“Tabatabai”) sued defendant-appellee West
Coast Life Insurance Co. (“West Coast Life”) for breach
of contract and for a violation of West Coast Life’s
implied duty of good faith and fair dealing. West Coast
Life moved for summary judgment and the district court
granted the motion on December 21, 2010. This appeal
followed. We affirm.
2 No. 11-1170
I. BACKGROUND
On June 17, 2006, Tabatabai’s wife, Firouzeh Keshmiri
(“Ms. Keshmiri”), completed an application for a $500,000
life insurance policy with the assistance of Darrell Alvine
(“Alvine”), a neighbor and licensed insurance intermedi-
ary. The application required Ms. Keshmiri to choose a
specific rate classification for which she wished to apply.
The options included “Super Preferred,” “Preferred,”
“Standard,” “Rated,” and “Other.” Ms. Keshmiri opted for
the “Super Preferred” classification and delivered the
application, together with an initial payment in the amount
of $100, to Alvine. In addition to the $100 payment,
Ms. Keshmiri signed a conditional receipt agreement
(“CRA”) with West Coast Life. “[A CRA] is a device
used by the life insurance industry through which an
applicant is immediately insured upon payment of the
initial premium at the time of application and upon
satisfaction of various conditions precedent to coverage.”
Tabatabai v. West Coast Life Ins. Co., No. 08-cv-227, 2010
U.S. Dist. LEXIS 135507, at *13 (E.D. Wis. Dec. 21, 2010).
West Coast Life’s CRA stated in part:
CONDITIONS UNDER WHICH INSURANCE MAY
BECOME EFFECTIVE PRIOR TO POLICY DELIVERY
Unless each and every condition below has been
fulfilled exactly, no insurance will become effective
prior to policy delivery to the Owner:
(A) on the Effective Date the Proposed Insured(s) is
(are) insurable exactly as applied for under the Com-
pany’s printed underwriting rules for the plan,
amount and premium rate class applied for;
No. 11-1170 3
...
(C) the Proposed Insured(s) has/have completed all
examinations and/or tests requested by the Company;
...
TERMINATION AND REFUND OF PREMIUM
There shall be no insurance coverage under this
Agreement and this Agreement shall be void if:
...
(B) if the application to which this Agreement was
attached is not approved as applied for by the Com-
pany within ninety business days from its date.
On June 28, 2006, Ms. Keshmiri met with a paramedical
examiner and submitted blood and urine specimens
for lab testing. Once available, the lab results were
promptly sent to Ms. Keshmiri. Among the various tests
conducted, one indicated that her cholesterol level of 229
was outside the usual clinical range of 140-199.1 In addi-
tion, Ms. Keshmiri’s urine sample raised concern due to
a high number of red blood cells and was considered, at
best, inconclusive. By July 6, 2006, West Coast Life
had ordered its insurance broker, The O’Brien Financial
1
The record indicates there were other blood tests with results
exceeding the usual clinical range for a “Super Preferred”
applicant. However, Ms. Keshmiri’s cholesterol test was
focused on in the summary judgment and oral argument
phases of litigation because of its significant impact on her
potential insurability.
4 No. 11-1170
Group, Inc.2 , to obtain Ms. Keshmiri’s medical records
from her physician and to request a second urine
specimen from Ms. Keshmiri. The request for the second
urine specimen occurred sometime in July or August of
2006, though the exact date remains unclear.
On July 22, 2006, Ms. Keshmiri was hospitalized and
diagnosed with a brain tumor and two days later she
underwent surgery for its removal. The next day, July 23,
2006, Alvine alerted O’Brien Financial that Ms. Keshmiri
was expecting O’Brien Financial to call to arrange for a
second urine test.
Finally, On August 9, 2006, West Coast Life declared
Ms. Keshmiri uninsurable based on her brain surgery.
A little over a year later, Ms. Keshmiri died. It is
Tabatabai’s position that the request for the second
urine specimen was communicated to Ms. Keshmiri in
a untimely and ineffective fashion; that but for West
Coast Life’s delay, Ms. Keshmiri would have qualified
for coverage prior to her brain tumor diagnosis.3
2
The O’Brien Financial Group, Inc., a general broker agent of
West Coast Life, was one of the original defendants named
in the complaint by Tabatabai. However, Tabatabai voluntarily
dismissed his claims against The O’Brien Financial Group
rendering West Coast Life the sole defendant.
3
At some point between Ms. Keshmiri’s hospitalization and her
denial of an insurance policy, a second urine sample was
obtained and tests indicated it contained higher-than-normal
levels of bacteria, the cause of which (whether due to illness
or improper obtainment) remains unresolved.
No. 11-1170 5
On January 29, 2008, Tabatabai filed a complaint in
the Milwaukee County Circuit Court naming West Coast
Life and The O’Brien Financial Group as defendants.
Pursuant to 28 U.S.C. § 1332, West Coast Life removed
the action to the United States District Court for the
Eastern District of Wisconsin. After voluntarily dis-
missing the claim against The O’Brien Financial Group,
Tabatabai filed an amended complaint against West
Coast Life asserting four causes of action: (1) breach of
contract; (2) estoppel; (3) bad faith; and (4) negligence.
West Coast Life filed a motion for summary judgment.
In responding to the motion, Tabatabai chose to pursue
the breach of contract claim, and breach of the implied
duty of good faith and fair dealing. On December 21,
2010 the district court granted West Coast Life’s motion
for summary judgment and Tabatabai timely appealed.
II. DISCUSSION
The grant of summary judgment included a finding
that no genuine issue of material fact on which Tabatabai
could prevail. We review the grant of summary judgment
de novo and construe all facts in favor of the non-moving
party. Kimmel v. Western Reserve Life Assur. Co., 627 F.3d
607, 608 (7th Cir. 2010). Tabatabai argues that the district
court erred (1) when it determined that Tabatabai was
required to provide evidence of intentional or purposeful
misconduct in order to invoke the doctrine of prevention,
and (2) when it determined that West Coast Life did
not owe an implied duty of good faith and fair dealing.
6 No. 11-1170
A. The Doctrine of Prevention Claim
Tabatabai argues that the district court erred when it
ruled that he was required to provide evidence of inten-
tional or purposeful misconduct before invoking the
doctrine of prevention. In contract law, the general princi-
ple known as the doctrine of prevention provides that,
“if one party to a contract hinders, prevents, or makes
impossible performance by the other party, the latter’s
failure to perform will be excused.” 13 Richard A. Lord,
Williston on Contracts § 39:3 (4th ed. 2000). Tabatabai
argued that the doctrine of prevention should be applied
here because of West Coast Life’s failure to notify
Ms. Keshmiri of the need for a second urine specimen in
a timely fashion. According to Tabatabai, West Coast
Life’s unreasonable delay and failure to adequately notify
Ms. Keshmiri of its request for a second urine specimen
prevented Ms. Keshmiri from satisfying that condition,
and therefore West Coast Life should be barred from
relying on her failure to satisfy the condition as a
defense to enforcement of the CRA. Tabatabai directs
our attention to two cases. The first one, N.L.R.B. v.
Local 554, Graphic Commc’ns Int’l, AFL-CIO, is a case
involving a dispute over a collective bargaining agree-
ment. N.L.R.B v. Local 554, Graphic Commc’ns Int’l, AFL-
CIO, 991 F.2d 1302 (7th Cir. 1993) In that case, the
National Labor Relations Board sought enforcement of
an order on behalf of World Color Press. World Color
Press and the defendant labor union had entered into
an agreement, the validity of which depended on
approval by the international union. To satisfy this con-
No. 11-1170 7
dition, the defendant had to seek the approval of the
international union president, which it refused to do.
The evidence supported the Board’s argument that it
was the defendant’s dilatory tactic of refusing to seek
approval from the union president that prevented the
agreement from becoming effective. On review, this
Court enforced the Board’s order based on the general
principle behind the doctrine of prevention. We stated,
“[T]he nonoccurrence or nonperformance of a condition
is excused where that failure of the condition is caused
by the party against whom the condition operates to
impose a duty.” Id. at 1302. In an effort to draw a
parallel between N.L.R.B. and his suit, Tabatabai argues
that this Court’s use of “dilatory”, with regard to the
labor union’s behavior, refers to something other than
intentional or purposeful misconduct. We disagree.
West Coast Life’s actions can be easily distinguished
from that of the defendant labor union. West Coast
Life acted in good faith in both the handling and the
underwriting of Ms. Keshmiri’s policy. Moreover, the
record indicates multiple occasions in which agents
of West Coast Life took steps in an effort to notify
Ms. Keshmiri of the necessary second urine specimen
prior to her hospitalization. Finally, as even Tabatabai
admitted, there was at least one successful attempt, in
the form of a voicemail, notifying her of their request.
We agree that there is no evidence of a purposeful
design on the part of West Coast Life to prevent
Ms. Keshmiri from complying with the conditions
required by the CRA.
8 No. 11-1170
The second case Tabatabai cites is Rohde v. Massachusetts
Mutual Life Ins. Co. In that case, the appellant was a
widow whose husband died of a heart attack on the
same day he had completed an application and medical
examination for life insurance. When the plaintiff sought
to recover as beneficiary, the defendant denied her
claim after determining that the deceased was not insur-
able under the policy for which he had applied. Rohde
v. Massachusetts Mut. Life Ins. Co., 632 F.2d 667, 668
(6th Cir. 1980). The Sixth Circuit determined that the
insurance company had acted in bad faith and as a re-
sult the defendant “was without reasonable grounds in
determining that plaintiff’s husband failed to meet the
requirements for the policy sought.” Rohde, 632 F.2d at 670.
The record regarding Ms. Keshmiri suggests no such
bad faith; rather, it suggests reasonable grounds for
denying her a policy. Even setting aside the urine
analyses, her cholesterol level was well beyond the usual
clinical range for a “Super Preferred” applicant. It is
undisputed that these results alone were grounds for
denying the policy she applied for. Moreover, it is undis-
puted that West Coast Life was within its rights to deny
Ms. Keshmiri a policy upon learning of her brain tumor.
In any event, there was no evidence of purposeful mis-
conduct, and the district court properly dismissed
his claim.
B. The Good Faith and Fair Dealing Claim
The argument that West Coast Life violated an implied
duty of good faith and fair dealing, required an initial
No. 11-1170 9
determination as to whether or not the district court
erred in finding that no contractual agreement existed
between the parties. The district court stated:
[T]he language of the CRA is unambiguous and pro-
vides that insurability and completion of all tests or
examinations required by West Coast Life shall be
conditions precedent and, thus, must be satisfied
prior to the effectiveness of coverage. . . . Therefore, in
this case, an interim contract of insurance would
arise only upon West Coast Life’s good faith deter-
mination that the applicant was insurable exactly
as applied for and upon the applicant’s completion
of all requested tests and examinations.
Tabatabai v. West Coast Life Ins. Co., No. 08-CV-227, 2010
U.S. Dist. LEXIS 135507, at *5 (E.D. Wis. Dec. 21, 2010)
(emphasis added).
By terms of the CRA, to form any contract between
Ms. Keshmiri and West Coast Life, it was required that
requests to Ms. Keshmiri by West Coast be satisfied
and that West Coast Life approved the application and
delivered the policy.
It is undisputed that Ms. Keshmiri did not submit the
second urine specimen ordered by West Coast Life. It is
also undisputed that Ms. Keshmiri’s cholesterol test
revealed results that exceeded the usual clinical range
for a “Super Preferred” applicant. Because Ms. Keshmiri
did not satisfy all of the necessary requirements, and
because it was impossible for her to qualify for a policy
“exactly as applied for,” no contractual agreement existed.
10 No. 11-1170
Tabatabai contends that the district court erred in
dismissing the claim that West Coast Life owed
and breached an implied duty of good faith and fair
dealing. According to Tabatabai, when Ms. Keshmiri
provided her application, paid her initial $100 premium,
and complied with West Coast Life’s initial request
for blood and urine specimens, she and West Coast
Life entered into a binding contractual relationship ren-
dering the CRA effective. While Tabatabai correctly
argues that under Wisconsin law an implied duty of
good faith and fair dealing exists in all contractual rela-
tionships, this argument ultimately fails. As both the
district court and we have noted, because Ms. Keshmiri
did not satisfy the conditions precedent required by
the CRA, regardless of the unfortunate nature of the
circumstances, no contract was ever formed. Established
Wisconsin law states, “If there is no contract, the
implied duty of good faith and fair dealing does not
come into play.” NII-JII Entm’t, LLC v. Troha, 2007 WI
App. 183 (Wis. Ct. App. 2007).
III. CONCLUSION
For the reasons stated, summary judgment in favor of
the defendant-appellee is affirmed.
12-16-11