Standard Life & Accident Insurance v. Dewberry & Davis, LLC

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-2159
STANDARD LIFE & ACCIDENT INSURANCE COMPANY,
Plaintiff - Appellant,
versus
DEWBERRY & DAVIS, LLC; DEWBERRY & DAVIS,
INCORPORATED,
Defendants - Appellees.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (CA-05-956)
Argued: October 25, 2006 Decided: December 19, 2006
Before KING, GREGORY, and SHEDD, Circuit Judges.
Affirmed by unpublished opinion. Judge Gregory wrote the opinion,
in which Judge King and Judge Shedd joined.
ARGUED: Craig Lawrence Mytelka, WILLIAMS MULLEN, Virginia Beach,
Virginia, for Appellant. Stephen Michael Sayers, HUNTON &
WILLIAMS, L.L.P., McLean, Virginia, for Appellees. ON BRIEF: James
A. Gorry, III, WILLIAMS MULLEN HOFHEIMER NUSBAUM, P.C., Norfolk,
Virginia; William R. Poynter, WILLIAMS MULLEN, Virginia Beach,
Virginia, for Appellant.
Unpublished opinions are not binding precedent in this circuit.
GREGORY, Circuit Judge:
Standard Life & Accident Insurance Co. appeals the dismissal
of its complaint under Rule 12(b)(6) of the Federal Rules of Civil
Procedure. Because we agree with the district court that the
attachments to Standard's complaint belie any legal claims
contained therein, we affirm the ruling of the district court and
dismiss Standard's action.
I.
Dewberry & Davis, LLC, is an engineering, architectural, and
surveying business with its headquarters in Fairfax, Virginia.1
Dewberry provides health insurance to its employees through a self-
insured plan, using CoreSource, Inc., as its third party
administrator. In September 2004 Dewberry applied for reinsurance
from Standard, an Oklahoma corporation with its principal place of
business in Galveston, Texas. Standard was to provide reinsurance
coverage for members of Dewberry's health plan from October 1,
2004, through October 1, 2005.
As part of the reinsurance application process, Standard
required Dewberry to fill out an Employer Disclosure Statement. The
disclosure statement inquired into the medical condition of
1
Because this case was dismissed for failure to state a claim
on which relief may be granted, the facts are taken as true from
Standard's complaint and the exhibits attached to it. See Veney v.
Wyche, 293 F.3d 726, 730 (4th Cir. 2006).
2
Dewberry employees whom Standard would cover and was signed by
Dewberry on September 22, 2004. While Dewberry and Standard were
still negotiating the terms of coverage for Dewberry's employees,
Dewberry acquired Philip Swager Associates. Dewberry notified
Standard of the acquisition on December 15, 2004; Dewberry wished
to add excess loss reinsurance coverage for its new employees, to
be effective January 1, 2005.
At Standard's behest, Dewberry signed an Employer Disclosure
Statement regarding its new employees on January 12, 2005.
CoreSource signed the disclosure statement a few days later, on
January 21, 2005. The statement is four pages long and contains
nine questions. Its directions indicate that the reinsurance
applicant should use the reverse side of the form or attach
additional paper if it needs more space to complete the form. If a
question is inapplicable, the applicant should so indicate with
"N/A." On its signature page, the form stated:
The Reinsurer is entitled to rely upon this information
when setting terms and conditions of stop loss coverage
as of the effective date; and to the extent such
information is inaccurate or incomplete, the Reinsurer
reserves the right to rescind coverage as of the
effective date, or to adjust the terms and conditions to
levels that the Reinsurer would have established if the
information provided had been correct; including the
right to exclude coverage for any person who should have
been identified as a result of this review but was not
disclosed herein.
Dewberry left all but three questions of this second Employer
Disclosure Statement blank. It listed one name after question
3
three, one name after question six, and answered question eight
with: "See above, those are only two people to have been in case
management." Below the signatures on the final page of the form,
CoreSource added the following:
Disclaimer: CoreSource has signed the Disclosure
Statement as required by Standard Life & Accident. Please
note that we make no representation on behalf of the new
division added effective 1/1/05. CoreSource has no
knowledge of large claims prior to this date.
Attached is additional information for the existing group
only.
Attached to the form were approximately twenty pages of
computer-generated medical history reports, current to the date of
CoreSource's signature, for Dewberry employees and their covered
dependents. The woman around whom this case centers ("the
Dependent"), was the dependent of one of the new Dewberry
employees. She is mentioned in two locations in those attached
pages. Her name first appears, along with minimal additional
information, on a document entitled "Case Management Log - Active."
Her diagnosis is listed as "Complicated Pregnancy" and her
prognosis as "Good." The second time her name appears, extensive
information about her medical condition and treatment history is
listed in a document entitled "HCM Reinsurance Report." The
Dependent's entry includes the January 10, 2005, note: "WILL OPEN
[the Dependent's case] FOR ASSESSMENT FOR CASE MANAGEMENT." The
next day's entry indicates that the Dependent was or would be
admitted to a high-risk obstetrics unit. At that time, four of the
4
Dependent's six unborn children were transverse, and one was
breech. On January 14, 2005, according to the attachment, a
physician told the Dependent one of the babies would probably live
only two to three weeks. The doctor noted "INCREASED SUSPICION OF
PROBLEMS."
The Dependent was admitted to the hospital on January 6, 2005,
for early onset of delivery of her sextuplets and for other
unspecified complications. She was released January 21, 2005, the
day CoreSource signed the disclosure statement pertaining to the
new Dewberry employees. She delivered five live children on
February 4, 2005, each of whom required extended hospitalization
over the next few months.
On February 3, 2005, Dewberry signed Standard's Treaty of
Excess Loss Reinsurance in Dewberry's Virginia office. The Treaty
was to cover (retroactively, to some extent) the one-year period
beginning October 1, 2004. On June 6, 2005, Benmark, Inc.,
Standard's managing general underwriter, received a letter from
CoreSource notifying Standard that the Dependent had "reached the
potential for a large claim and is currently being monitored for
large case management . . . ." Later in June, Benmark received
requests for reinsurance reimbursement from Dewberry relating to
the Dependent's five surviving children. Standard brought an action
for declaratory judgment on June 30, 2005, in the Eastern District
5
of Virginia, seeking to avoid payment for the Dependent and her
children.
Standard's complaint contains five counts.2 The first, labeled
"AVOIDANCE OF COVERAGE," contends simply that Dewberry was not
entitled to excess loss reinsurance coverage for the Dependent or
"any dependents." This count relies on the language of the Employer
Disclosure Statement relating to Standard's freedom to change or
rescind coverage if Dewberry inaccurately reported relevant
information. The second count ("DECLARATION OF NON-LIABILITY")
seems a reiteration of the first: as a result of Dewberry's
misrepresentations, Standard is not obligated under the Treaty to
pay for the Dependent or her children. Count Three relies on
fraudulent concealment, and Count Four on breach of a duty of
utmost good faith. Finally, Count Five states that, “[i]n the
alternative, coverage under the Treaty of the medical expenses of
[the Dependent] and her dependents should be rescinded for all of
the foregoing reasons."
In response to a motion by Dewberry under Rule 12(b)(6), the
district court dismissed all of Standard's claims. The court found
every claim hinged upon the non-disclosure of the Dependent's
medical information. Because the court found that "Dewberry did
disclose both [the Dependent] and her condition during the
2
By the parties’ agreement, Standard’s claims should be
adjudged under Virginia law. See Smith v. McDonald, 895 F.2d 147,
148 (4th Cir. 1990).
6
application process," it concluded that Standard could not state a
claim for relief. We review the district court’s dismissal de novo.
Partington v. American Intern. Specialty Lines Ins. Co., 443 F.3d
334, 338 (4th Cir. 2006).
II.
We agree with the district court. Standard's success is
contingent upon Dewberry’s failure to disclose the Dependent and
her medical situation. Despite the allegations to the contrary in
Standard’s complaint, the relevant information about the Dependent
was, of course, disclosed—it was included in the pages attached to
the second Employer Disclosure Statement submitted by Dewberry. See
Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462,
1465 (4th Cir. 1991) (“[I]n the event of conflict between the bare
allegations of the complaint and any exhibit attached pursuant to
Rule 10(c), Fed. R. Civ. P., the exhibit prevails.”). Standard does
not allege that the information contained in the computer printouts
was insufficient for its purposes. Rather, it claims that the
information was not there at all or was not accessible to Standard
when it needed to be.3 Because the Dependent’s information was
3
For example, Standard maintains that the disclaimer on the
Employer Disclosure Statement “prevented Standard and its agent
Benchmark from learning about the Dependent,” a statement that,
without further explanation, we find impossible to countenance.
7
quite plainly disclosed to Standard, we affirm the ruling of the
district court.
Despite the presence of the Dependent’s information in the
attachments to the second Employer Disclosure Statement, Standard
contends that Dewberry has violated its duty of uberrimae fidae, or
“utmost good faith,” and that this violation entitles Standard to
the relief it requests. More accurately, Standard invites us to
adopt, on behalf of the Commonwealth of Virginia, the doctrine of
uberrimae fidae in reinsurance cases and then find that Dewberry
violated the doctrine. Regrettably for Standard, we must decline.
Virginia has embraced uberrimae fidae in some areas of the
law, see, e.g., Stiers v. Hall, 197 S.E. 450, 454 (Va. 1938)
(“uberrima fides” exists between attorney and client), but not yet
in the reinsurance context. In addition to our usual reluctance to
decide important, novel issues of state law, we avoid deciding more
than is necessary to settle the disputes before us. See Chawla v.
Transamerica Occidental Life Ins. Co., 440 F.3d 639, 648 (4th Cir.
2006). In the instant case, we need not decide whether or not
uberrimae fidae applies because the doctrine would require no more
of Dewberry than would ordinary Virginia insurance law or
Standard’s Treaty itself.
Under longstanding Virginia law, an insured is required to
disclose information asked of him that is material to the insurance
coverage. See St. Paul Fire & Marine Ins. Co. v. Jacobson, 48 F.3d
8
778, 780–81 (4th Cir. 1995) (citing Greensboro Nat'l Life Ins. Co.
v. Southside Bank, 142 S.E.2d 551, 555 (Va. 1965)). Information
pertaining to matters that would substantially increase the risk of
loss to the insurer, such that the insurer would reject the risk or
charge an increased premium, is material. See Buckeye Union Cas.
Co. v. Robertson, 147 S.E.2d 94, 96 (Va. 1966). The Dependent’s
medical condition and status as a covered individual were certainly
material to Standard’s agreement to reinsure Dewberry, and Standard
asked for information about individuals like her in its Employer
Disclosure Statements. Consequently, Dewberry had a duty under
ordinary Virginia insurance law to disclose the Dependent’s
information.
The agreement between Standard and Dewberry also obligated
Dewberry to disclose the Dependent’s information. The Employer
Disclosure Statement Dewberry submitted detailed the contractual
consequences of incomplete or incorrect disclosure. Those
consequences included rescission of the reinsurance contract and
exclusion of coverage for the person whose information was
incompletely or improperly disclosed. Dewberry’s agreement with
Standard, then, demanded that Dewberry disclose the Dependent’s
information. Uberrimae fidae would demand no more.
The uberrimae fidae doctrine, as Standard itself describes it,
obligates the insured to volunteer information that might bear on
the scope of the risk assumed by the insurer. See, e.g.,
9
Contractors Realty Co. v. Ins. Co. of N. Am., 469 F. Supp. 1287,
1294 (S.D.N.Y. 1979) (noting also that there is "a reciprocal duty
on the part of the insurer to deal fairly, [and] to give the
assured fair notice of his obligations"). In this case, then,
settled Virginia law, the terms of the Employer Disclosure
Statement, and the uberrimae fidae doctrine all would require
Dewberry to disclose information material to Standard's reinsurance
coverage. There is no need for us to decide whether uberrimae fidae
applies in this case, just as there would be no need to decide the
case using that doctrine were we certain the standard applied.
Even if uberrimae fidae did apply, Standard never explains how
it would affect the outcome of this case. Standard did not allege
that Dewberry disclosed the information in a manner that violated
its duty of utmost good faith (whatever manner that might be).4
Rather, it alleged that Dewberry's "failure to identify [the
4
In its brief Standard adds a new complaint: that the computer
printouts did not identify the Dependent as a new employee. The
“BREACH OF DUTY OF GOOD FAITH” portion of its complaint focuses
only on Dewberry’s alleged failure to identify the Dependent and
her high-risk pregnancy at all, not Dewberry’s failure to identify
her as a new employee. Because this claim is raised only in the
brief and not in the complaint itself, we do not consider it on
appeal. See Minyard Enters., Inc. v. Se. Chem. & Solvent Co., 184
F.3d 373, 387 n.15 (4th Cir. 1999). In any event, the Dependent’s
association with the new employees was not material under the
circumstances. Because the new Dewberry employees were covered for
a shorter term than the old, the Dependent’s association with the
new employees, as opposed to the old, would not have substantially
increased Standard’s risk. It would have decreased it. What was
material was whether the Dependent was covered at all, not whether
she was covered as a new or old Dewberry employee. See Buckeye
Union, 147 S.E.2d at 96.
10
Dependent] and her complicated high-risk pregnancy on Dewberry's
Employer Disclosure Statement" violated that duty. Such a failure
to identify the Dependent in response to a direct query would
violate the clearly-established, lesser duty under Virginia law and
permit relief under the Treaty as well.
Here Dewberry is not an especially sympathetic defendant, but
its inconsiderately-answered disclosure statement does not excuse
Standard’s obligations as reinsurer. Dewberry did not organize the
data in its attachments to reflect the questions asked on the
Employer Disclosure Statement, and its answers to some of the
form’s questions could create confusion as to how the attachments
related to the form. Standard exaggerates, though, when it
complains that Dewberry gave the impression that all questions were
completely answered by leaving blank questions on the form when the
Dependent’s name should have been listed. If all of the questions
purported to be answered completely, and the Disclosure Statement
itself constituted Dewberry’s only disclosure, Standard might have
a claim that principles of insurance law require avoidance of the
policy. See Phoenix Mut. Life Ins. v. Raddin, 120 U.S. 183, 189–90
(1887) (“Where an answer of the applicant to a direct question of
the insurers purports to be a complete answer to the question, any
substantial misstatements or omission in the answer avoids a policy
issued on the faith of the application.”); Williams v. Metro. Life
Ins. Co., 123 S.E. 509, 511 (Va. 1924) (adopting a significant
11
portion of the doctrine espoused in Phoenix Mutual). Standard is
disingenuous to suggest, however, that a nearly blank disclosure
statement appeared to be completely answered such that Standard did
not even have to read the attached medical information.
The district court rightly observed that all of Standard’s
claims rest upon Dewberry’s non-disclosure of medical information
that Dewberry, in fact, disclosed. Standard’s complaint cannot,
therefore, state a claim for relief and was properly dismissed. See
Venkatraman v. REI Sys., Inc., 417 F.3d 418, 420 (4th Cir. 2005)
(permitting dismissal of a claim under Rule 12(b)(6) when “a
plaintiff can prove no set of facts which would support his claim
and entitle him to relief").
III.
For the foregoing reasons, the district court’s order is
affirmed. Standard’s complaint is dismissed.
AFFIRMED
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