Essex Insurance Company v. Luis Angarita

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 14-1791, 14-1801
ESSEX INSURANCE COMPANY,
Plaintiff-Appellee,
v.
GALILEE MEDICAL CENTER S.C., D/B/A MRI LINCOLN IMAGING
CENTER, et al.,
Defendants-Appellants.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 11-CV-06934 — John W. Darrah, Judge.
____________________
ARGUED FEBRUARY 10, 2016 — DECIDED MARCH 4, 2016
____________________
Before BAUER, FLAUM, and SYKES, Circuit Judges.
FLAUM, Circuit Judge. Plaintiff Essex Insurance Company
(“Essex”) filed a declaratory judgment action against Galilee
Medical Center S.C., doing business as MRI Lincoln Imaging
Center (“Galilee”), and Luis Angarita, M.D., a physician em-
ployed by Galilee, seeking rescission of an insurance policy
issued to Galilee. The district court entered summary judg-
ment for Essex, reasoning that rescission was warranted be-
2 Nos. 14-1791, 14-1801
cause defendants had made material misrepresentations in
their insurance policy applications. For the reasons that fol-
low, we affirm the judgment of the district court.
I. Background
A. Insurance Policy
Galilee is a Delaware corporation that provides medical
services in Chicago. Essex issued a professional liability in-
surance policy to Galilee (the “Essex Policy” or the “Policy”)
under which Essex was obligated to pay for claims against
Galilee, the “insured,” for personal injuries caused by “any
act, error or omission” in Galilee’s professional services. The
Policy also covered claims against Galilee physicians, includ-
ing Angarita, “solely while acting on behalf of [Galilee] and
within the scope of his/her duties as such.”
To obtain coverage, Essex required both Galilee and An-
garita to fill out applications. The applications contained a
notice that Essex would rely on the answers provided by the
applicants when issuing the policy. Accordingly, the Essex
Policy deemed all information and statements made in the
applications “material to the acceptance of the risk or hazard
assumed by” Essex. Coverage under the Essex Policy was
conditioned on Galilee’s acceptance that the applications
were part of the Policy, that Essex had relied on the truth of
the representations made in the applications, and that Essex
had deemed the representations material to the acceptance
of the risk assumed by Essex.
Galilee’s application asked, “Do[] the Applicant’s em-
ployees or independent contractors use drugs for weight re-
duction for patients?” Galilee answered in the negative. The
question continued: “If yes, attach a list of drugs used and
Nos. 14-1791, 14-1801 3
percentage of practice devoted to weight reduction.” Galilee
did not identify any such drugs. Galilee also answered “no”
to the question of whether its employees or independent
contractors performed any experimental procedures.
Likewise, Angarita answered “no” to the following ques-
tions:
5. With the exception of surgery for obesity,
does your practice include weight reduction or
control by other [sic] than diet or exercise?
5.(b) Do you dispense any drugs?
5.(c) Do you use injections for weight control?
9.(a) Do you use experimental procedures, de-
vices, drugs, or therapy in treatment or sur-
gery?
B. Medical Negligence Action
In June 2011, Rosa Ravelo, one of Angarita’s former pa-
tients, sued Angarita and an affiliated Galilee corporation,
Galilee Medical Center S.C., doing business as Affiliated
Physicians (“Galilee Affiliated Physicians”), for medical neg-
ligence based on mesotherapy treatments recommended and
administered by Angarita. Mesotherapy (also known as lip-
odissolve, lipozap, lipotherapy, or injection lipolysis) is a
non-surgical medical treatment involving injections into
subcutaneous layers of fat. According to Angarita, “meso-
therapy is intended to dissolve deposits of subcutaneous fat
to reduce the size of isolated portions of the body in order to
provide a more desirable body shape and contour for pa-
tients. Common examples include flattening areas of cellulite
and smoothing … [such as the] pouching of a woman’s
4 Nos. 14-1791, 14-1801
stomach following birth.” Mesotherapy has not been ap-
proved by the U.S. Food and Drug Administration for any
purpose. Angarita admitted to providing mesotherapy
treatment to more than 5,000 patients, including Ravelo.
Ravelo’s first appointment with Angarita occurred on
November 8, 2008, at Galilee Affiliated Physicians. During
the appointment, Angarita recommended that Ravelo un-
dergo mesotherapy treatment. Ravelo agreed, and from No-
vember 15, 2008 to July 30, 2009, Angarita treated her with
mesotherapy at his home office in Riverside, Illinois. In June
2011, Ravelo sued Galilee Affiliated Physicians and Angarita
for medical negligence, alleging that as a result of the meso-
therapy, she developed painful, infected, blister-like granu-
lomas on her body. That lawsuit is currently stayed pending
the disposition of this litigation.
C. Procedural Background
In September 2011, Galilee sought insurance coverage
under the Essex Policy for Ravelo’s lawsuit. Essex denied
coverage and then filed a declaratory judgment action
against defendants seeking rescission of the Policy. Essex ar-
gued that rescission was warranted because defendants
made the following material misrepresentations in their in-
surance policy applications: (1) Galilee’s answer of “no”
when asked whether its employees use drugs for weight re-
duction; (2) Angarita’s answer of “no” when asked if his
practice includes weight reduction by methods other than
diet or exercise and if he “dispenses drugs or injections” for
weight control; (3) Galilee’s answer of “no” when asked
whether its employees use experimental procedures; and (4)
Angarita’s answer of “no” when asked whether he uses ex-
perimental procedures, drugs, or therapies. In the alterna-
Nos. 14-1791, 14-1801 5
tive, Essex sought a declaration that it was not obligated to
defend or indemnify defendants. In response, defendants
filed motions for judgment on the pleadings seeking a decla-
ration that Essex had a duty to defend the lawsuit.
Essex filed a motion for summary judgment on March 22,
2013, and the district court granted the motion, holding that
rescission was warranted because of defendants’ material
misrepresentations. Accordingly, the district court denied as
moot Essex’s alternative argument for declaratory relief, as
well as defendants’ motions for judgment on the pleadings.
The district court also denied defendants’ ensuing motion
for reconsideration. This appeal followed.
II. Discussion
Defendants1 argue that the district court erred in holding
that they made material misrepresentations in their insur-
ance policy applications.2 We review de novo a district
court’s grant of summary judgment, as well as its denial of a
motion for judgment on the pleadings. Illinois Conf. of Team-
sters & Emp’rs Welfare Fund v. Steve Gilbert Trucking, 71 F.3d
1361, 1364 (7th Cir. 1995); Northern Indiana Gun & Outdoor
Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir.
1998). The parties agree that Illinois law, and specifically §
154 of the Illinois Insurance Code, governs this suit. Section
1 Although defendants filed separate briefs, Angarita adopted Galilee’s
arguments, and thus, we characterize Galilee’s arguments as “defend-
ants’ arguments.”
2 Defendants also argue that they are entitled to a declaration that Essex
is obligated to defend them. Because we agree with the district court’s
conclusion that rescission of the insurance policy is warranted, we need
not address the merits of this argument.
6 Nos. 14-1791, 14-1801
154 allows insurers to deny coverage and rescind a policy if
(1) a statement in the policy application is false and (2) the
false statement either was made with the intent to deceive
the insurer or materially affects the acceptance of the risk as-
sumed by the insurer. Illinois State Bar Ass’n Mut. Ins. Co. v.
Law Office of Tuzzolino & Terpinas, 27 N.E.3d 67, 71 (Ill. 2015).
Defendants first contend that the district court erred in
concluding that defendants made material misrepresenta-
tions in their insurance policy applications about their “use”
of drugs for weight control or reduction. Defendants argue
that “use” includes only the act of administering mesothera-
py. Under that narrow definition, Galilee (through Angarita)
could not have “used” mesotherapy because Angarita ad-
ministered the injections at his home office, and only recom-
mended mesotherapy while working at Galilee. In the alter-
native, defendants argue that “use” is ambiguous, and that
the ambiguity should be construed in defendants’ favor.
Illinois courts construe terms in an insurance application
in accordance with their plain meaning and from the stand-
point of an ordinary, reasonable person.3 Gillen v. State Farm
Mut. Auto. Ins. Co., 830 N.E.2d 575, 582 (Ill. 2005). Applying
that standard, we agree with the district court that the term
3 Defendants contend that the district court erred in construing the in-
surance policy application under a reasonable person standard. But de-
fendants did not object to the use of that standard before the district
court—in fact, Galilee argued that the insurance policy should be con-
strued “with reference to … [the] average, ordinary, normal reasonable
person.” “A party may not ‘invite’ error and then argue on appeal that
the error for which he was responsible entitles him to relief.” United
States v. Johnson, 26 F.3d 669, 677 (7th Cir. 1994). Therefore, we need not
address this argument.
Nos. 14-1791, 14-1801 7
“use” is not ambiguous, nor should it be interpreted narrow-
ly to encompass only the act of administering mesotherapy.
Any reasonable applicant would have understood that by
asking several questions about the use of experimental drugs
and weight reduction procedures, Essex wanted to know
whether Galilee doctors were recommending and adminis-
tering such procedures. But defendants did not disclose this
information, and thus, Essex was not able to correctly price
the insurance policy based on the risk it was undertaking.
We will not permit defendants, who did not pay for cover-
age for suits arising out of weight loss procedures, to cir-
cumvent their duty to make truthful representations to their
insurer by reading ambiguity into a clear insurance policy
application.
The fact that Angarita made his recommendation at his
Galilee office, and then administered the treatment in his
home office, does not change this analysis. Angarita admits
that he recommended mesotherapy to Ravelo, a Galilee pa-
tient, while working at Galilee, and that he followed up on
his recommendation by administering the treatment. Per-
haps this would be a different case if Angarita had referred
Ravelo to another provider for treatment, or made a recom-
mendation that Ravelo ignored. But here, a reasonable per-
son would not find a meaningful distinction between the
recommendation and the treatment. There is no evidence
that Angarita informed Ravelo that he was administering
mesotherapy in his individual capacity, and Ravelo likely
relied on Angarita’s employment at Galilee, a reputable
medical center, when she took him up on his offer. It is also
irrelevant that Galilee may have been unaware that Angarita
was recommending and administering mesotherapy to his
patients—under § 154, “a misrepresentation, even if inno-
8 Nos. 14-1791, 14-1801
cently made, can serve as the basis to void a policy.” Golden
Rule Ins. Co. v. Schwartz, 786 N.E.2d 1010, 1015 (Ill. 2003).
Defendants next contend that the district court improper-
ly equated “size reduction,” which is supposedly the goal of
mesotherapy, with “weight reduction.” Defendants did not
raise this argument until after Ravelo amended her com-
plaint. Initially, Ravelo had alleged that Angarita recom-
mended mesotherapy for “weight loss.” After Essex filed its
declaratory judgment action against defendants, Ravelo
amended her complaint to substitute “size reduction” for
“weight loss,” despite the fact that Galilee Affiliated Physi-
cians and Angarita never objected to her use of the term
“weight loss.” Around the same time, defendants amended
their motions for judgment on the pleadings and opposition
briefs, arguing for the first time that mesotherapy is used for
“size reduction,” and not “weight reduction.” More specifi-
cally, defendants contended that mesotherapy is a body
shaping procedure that is used to reduce fat in isolated parts
of the body, not to reduce a patient’s overall weight.
The district court rejected this argument, describing the
distinction between weight reduction and size reduction as
“disingenuous at best.” We agree. Defendants fail to con-
vince us that there is a meaningful difference between
“weight reduction” and “size reduction” that would excuse
the negative and incomplete answers on their insurance pol-
icy applications. Any reasonable person would have under-
stood from the insurance policy application questions that
Essex wanted to know whether Galilee doctors performed
non-traditional weight loss procedures. Experimental proce-
dures used to eliminate fat in certain parts of the body, such
as mesotherapy, certainly fall within that category.
Nos. 14-1791, 14-1801 9
Finally, we agree with the district court that defendants’
misrepresentations were sufficiently material to warrant re-
scission. To determine materiality, Illinois courts use an ob-
jective test that asks whether a “reasonably careful and intel-
ligent” underwriter “would regard the facts as stated to sub-
stantially increase the chances of the event insured against,
so as to cause a rejection of the application.” Small v. Pruden-
tial Life Ins. Co., 617 N.E.2d 80, 83 (Ill. App. Ct. 1993). Testi-
mony from an insurer’s underwriter may be used to estab-
lish the materiality of omitted information. Id. Accordingly,
Essex submitted an affidavit from the managing director of
Essex’s underwriter stating that if Galilee and Angarita had
answered “yes” to the disputed questions, Essex would not
have issued the policy or would have issued it for a much
higher premium. That conclusion is consistent with the in-
surance policy application, which asked several questions
about non-traditional and experimental weight loss proce-
dures, and with the Policy itself, which noted that all state-
ments made in the application were material to the ac-
ceptance of the risk assumed by Essex.
Although defendants argue that summary judgment is
warranted only if the insurer can show that truthful state-
ments by the insured would have caused the insurer to reject
the application entirely, defendants’ interpretation of the
materiality inquiry is too limited. Under § 154, a misrepre-
sentation is material if it “affects either the acceptance of the
risk or the hazard assumed” by the insurer. Here, the mis-
representations involving the scope of Angarita’s medical
practice significantly increased Galilee’s exposure, and thus,
Essex’s risk. Because Angarita’s use of mesotherapy led di-
rectly to Essex’s exposure in the Ravelo suit, “it borders on
the surreal to think that the nondisclosure was immaterial.”
10 Nos. 14-1791, 14-1801
TIG Ins. Co. v. Reliable Research Co., 334 F.3d 630, 637 (7th Cir.
2003). Accordingly, the district court did not err in holding
that Essex was entitled to rescission of the Essex Policy.
AFFIRMED.