Mulrooney v. Life Insurance Co. of the Southwest

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
KEITH MULROONEY and )
HOLLY MULROONEY, )
husband and wife, )
)
Plaintiffs, )
)
v. ) C.A. No. N11C-04-192 JAP
)
LIFE INSURANCE COMPANY )
OF THE SOUTHWEST, )
FRANK L. TOMAZINE, )
PIKE CREEK FINANCIAL GROUP, )
INC. )
)
Defendants. )
MEMORANDUM OPINION
(Corrected)
This case is about the consequences of signing an insurance application
without first reading it. The Mulrooneys’ application for insurance contained an
incorrect statement of Mrs. Mulrooney’s height which was written on the
application by the agent of the insurer. The Mulrooneys concede that they were
told that the statements on the application were important, that the policy might
be voided if any of them were incorrect, and that they should read the application
before signing it. Nonetheless, Mrs. Mulrooney merely glanced at the application
and signed it without correcting the misstatement of her height. Four months
later, Mrs. Mulrooney suffered a non-fatal stroke. The insurer now seeks to void
the policy because of the material misstatement of Mrs. Mulrooney’s height. The
court holds that the Mulrooneys are bound by the misrepresentations contained
in the application they signed. The Mulrooneys do not dispute the
misrepresentation about her height and the insurer is therefore entitled to void
the policy.
A. Procedural History
The Mulrooneys have brought suit against Life Insurance Company of the
Southwest (“LSW”), a local insurance agency, Pike Creek Financial Group, and
Frank Tomazine, an insurance agent employed by Pike Creek. In 2008 the
Mulrooneys purchased, through Mr. Tomazine, an LSW life insurance policy on
the life of Mr. Mulrooney with a rider naming Mrs. Mulrooney as an other
insured. It is undisputed, and the court so finds, that Mr. Tomazine and Pike
Creek were acting as the agents of LSW at all times pertinent to this dispute.
The LSW policy contained an accelerated benefits rider which provided that
under certain circumstances the insureds could receive some portion of the death
benefits even if the insured did not die. Four months after they purchased the
policy Mrs. Mulrooney suffered a non-fatal stroke which they contend entitles
them to benefits under the accelerated benefits rider. LSW denied coverage
claiming, among other things, that Mrs. Mulrooney materially misstated her
height on the insurance application. The Mulrooneys deny this and also claim
that any misstatement on the application was attributable to Mr. Tomazine, who
filled out the application forms for the Mulrooneys before they signed them.
After being told they would receive no benefits the Mulrooneys brought suit
against Mr. Tomazine, Pike Creek and LSW. They charge Mr. Tomazine and Pike
Creek with breach of contract and negligence, and they assert claims of breach of
contract and bad faith against LSW which filed a counterclaim seeking a
2
declaratory judgment that it is entitled to void the policy because of several
alleged misrepresentations in the applications by the Mulrooneys. After discovery
all of the defendants have moved for summary judgment. In their motion Pike
Creek and Mr. Tomazine together argue, among other things, that they owed no
duty of care to the Mulrooneys and they had no contractual relationship with
them. LSW argues that, because of Mrs. Mulrooneys alleged misrepresentation of
her height, it is entitled to void the policy. 1
Today the court finds from the undisputed facts that Mrs. Mulrooney
materially misrepresented her height in the application and, therefore, LSW is
entitled to void the policy. As a result of this holding, the Mulrooneys bad faith
claims against LSW are moot. The court will momentarily defer ruling on the
Tomazine/Pike Creek motion in order to give the parties an opportunity to
comment on the effect, if any, of today’s ruling on the claims against these
defendants.
B. Background Facts
The following are undisputed facts taken from the record. These facts are
based, for the most part, on the Mulrooneys’ deposition testimony. There are
occasional facts based upon testimony of others, but in each instance the
Mulrooneys offer no evidence to dispute that testimony. Not all of the facts
described here are material and some are included simply to provide context. The
1
For purposes of its motion, LSW relied exclusively on Mrs. Mulrooney’s alleged misrepresentation of her height. In
doing so, it has not waived its contention that other alleged misrepresentations in the application by Mrs. Mulrooney
also justify voiding the policy.
3
facts which the court deems to be material are repeated in summary fashion in
the next section of the opinion.
The Mulrooneys look for replacement life insurance
In 2008, Family Benefits Marketing Company (which is not a party to this
litigation) mailed to Plaintiffs and others an unsolicited flyer advertising life
insurance. The flyer asked the recipient (in this case the Mulrooneys) to fill out a
brief questionnaire at the bottom and return it if they were interested. The
Mulrooneys were interested in replacing their existing $100,000 policy with
Prudential because they had just purchased a home and wanted a policy with
limits of $250,000 to cover their new mortgage and pay funeral expenses.
Accordingly, they returned the questionnaire to Family Benefits, which in turn
forwarded it to defendant Pike Creek Financial Group. 2
Shortly after receiving the Mulrooneys’ expression of interest an employee
of Pike Creek, Kim Gotschall, telephoned the Mulrooneys and interviewed Mr.
Mulrooney over the phone using questions from a pre-prepared script as her
guide. Those questions called for, among other things, information about the
applicants’ height and weight. According to Ms. Gotschall, she routinely made
notes of such conversations on the script, and she did so during her conversation
with Mr. Mulrooney.
2
It is unclear from the record what information was sought in the marketing questionnaire. LSW does not contend that
it was misled by the Mulrooneys’ response. Likewise, the Mulrooneys do not argue that the information they allegedly
withheld was supplied to LSW in their response to the marketing questionnaire. The court concludes therefore that the
contents of the marketing questionnaire and the Mulrooneys’ response are not pertinent to the issues raised in the
present motion.
4
The notion Mrs. Mulrooney was 5 feet 8 inches tall
There are two contemporaneous documents which show that after her
telephone call with Mr. Mulrooney, Ms. Gotschall believed that Mrs. Mulrooney
was 5 feet 8 inches tall. The first is the note made by Ms. Gotschall during the
interview wherein Ms. Gotschall wrote that Mrs. Mulrooney was five feet eight and
weighed 275 pounds. The second is an email sent shortly thereafter by Ms.
Gotschall to two potential underwriters. In that email Ms. Gotschall wrote:
I have a 26 year old female who is 5’ 8” and 275
pounds—no meds—non smoker—no medical issues.
Please rate.
There is no evidence that defendant Mr. Tomazine was aware of Mrs. Mulrooney’s
ostensible height and weight at the time Ms. Gotschall conducted the telephone
interview and sent the email to the underwriters.
The meeting between Tomazine and the Mulrooneys
LSW responded to Ms. Gotschall’s email saying it would consider issuing a
policy to the Mulrooneys. Someone at Pike Creek then scheduled a meeting
between Mr. Tomazine and the Mulrooneys. The meeting took place in the living
room of their home on July 15, 2008. Mr. Tomazine and the Mulrooneys
(occasionally joined by their infant and toddler) were the only persons at the
meeting. According to the Mulrooneys, the first portion of the meeting consisted of
Mr. Tomazine asking some questions about their insurance needs and describing
insurance products which were available. During the second phase of the
meeting, Mr. Tomazine asked each of the Mulrooneys medical questions “from a
sheet” and wrote down their answers on that sheet. (The Mulrooneys did not have
5
a copy of the papers when Mr. Tomazine was filling them out.) From time to time
the Mulrooney’s asked for clarification about the scope of the questions and they
recount that occasionally Mr. Tomazine told them certain information need not be
disclosed.
The Mulrooneys advanced one version in their complaint of what occurred
at that meeting and also testified about it in their depositions. Those versions
differ in some respects, but the discrepancies are not material to the issue now
before the court. For example, in their amended complaint they allege:
Tomazine asked Holly about her height and weight.
Holly stated that she was not sure of her exact
measurements. Tomazine suggested that she consult
her driver’s license. Holly gave Tomazine her driver’s
license. Tomazine then entered Holly’s height and weight
on the . . . application.
At her deposition, on the other hand, Mrs. Mulrooney testified she distinctly
recalled telling Mr. Tomazine that she was 5 feet 4 and weighed approximately
275 pounds. She did testify that Mr. Tomazine asked for her driver’s license
which she gave to him. Her driver’s license could not, however, have been the
source of Mrs. Mulrooney’s weight listed on the application. That license, which
was issued less than four months before the meeting, listed Mrs. Mulrooney’s
weight as only 174 pounds.
The completed application form
Mr. and Mrs. Mulrooney signed separate, but identical, two page
application forms which were filled out by Mr. Tomazine at the time he met with
them. Both pages contained spaces where information was to be written in, as
well as questions to be checked off with yes or no answers. The questions on the
6
first page related primarily to personal and background information (such as the
names of the beneficiaries), whereas the second page was devoted to health
questions. 3 The top portion of that page contained a blank where the applicant
was to supply his or her height and weight. There is no dispute that Mr. Tomazine
listed in the appropriate spaces her height as “5’ 8”” and her weight as “275.”
Following that is a series of 19 maladies which the applicant is to disclose
whether “in the last 10 years [the applicant has] been diagnosed, treated, taken
medication for, or know of any indication of any” of the listed maladies. The
applicant is to check a box marked “yes” or a box marked “no” for each of the
conditions listed. Following that there are five questions soliciting yes or no
checks for past and anticipated future medical testing. The form asks for brief
information about parents and siblings including their “State of Health.” Finally,
the form provides space where “yes” answers should be explained. 4 There is
nothing vague or confusing about the questions Mrs. Mulrooney is alleged to have
falsely answered, particularly the question about her height. Indeed, when asked
at her deposition Mrs. Mulrooney agreed that the pertinent questions were not
confusing.
The application signed by Mrs. Mulrooney contained several alleged errors
or omissions. As noted, a check-off form in the application asked “in the last 10
years have you been diagnosed, treated, taken medication for, or know of having
any indication of any:”
c. Emphysema, Pleurisy, Asthma or Lung Disease;
3
Mrs. Mulrooney testified she remembers Mr. Tomazine asking health questions from a sheet of paper during the
meeting.
4
The space for providing explanations is not limited. There is a form which can be used if additional space is needed.
7
f. Nervous disorders or headaches;
g. Spine, Bones, Muscles, Joints, Skin or Gland Disorder;
i. Veins, Arteries, Blood or Blood Pressure Disorder.
Mrs. Mulrooney answered “No” to each of these questions. But her medical
records and deposition testimony show that:
• Emphysema, pleurisy, asthma or lung disease.
Mrs. Mulrooney had, in her own words, a “long history” of
breathing problems. Although she denied in her deposition she
ever had asthma, she admitted to having difficulty breathing in
the presence of allergens and in cold weather. In October,
2006 she was taken to the emergency room because of her
difficulty breathing. The physicians there diagnosed her with
asthma. Other medical records written before the Mulrooneys
completed the insurance application also show a diagnosis of
asthma. In a history taken by Dr. Bae, the neurologist who
treated Mrs. Mulrooney for her stroke, he recorded that Mrs.
Mulrooney had a history of asthma. Finally Mrs. Mulrooney
had been regularly using the medication albuterol which she
administered through a nebulizer, which is a common
treatment for asthma.
• Nervous disorders or headaches.
A November 2008 Emergency Room record recites Mrs.
Mulrooney had a history of migraines.
8
• Spine, bones . . . disorder
In 2007 Mrs. Mulrooney went to the emergency room
complaining of pain that “felt like fire” from her neck down.
She was diagnosed with a cervical radiculopathy.
• Blood pressure disorder
A 2007 note written by Mrs. Mulrooney’s obstetrician during
her pregnancy states she had high blood pressure. Mrs.
Mulrooney was referred to her family doctor for treatment.
The application also asked about medications Mrs. Mulrooney used. She listed
“meds to keep triglycerides low” and “meds for acid reflux.” She made no
mention, however, of the albuterol she used from time to time. Mrs. Mulrooney
offers justifications for these apparent omissions, including that Mr. Tomazine
told her the omitted information need not be disclosed on the application.
Fortunately the court need not consider the significance, if any, of these alleged
omissions.
For purposes of the instant motion, LSW has chosen to use a rifle and not a
shotgun, and relies only upon the misstatement of Mrs. Mulrooney’s height. The
court will therefore limit its consideration to the responses provided by Mrs.
Mulrooney about her height. The answer written on the form indicates that she
was 5 feet 8 inches tall and weighed 275 pounds. Plaintiffs admit that Mrs.
Mulrooney is not 5 feet 8 inches tall, but is in fact between 5 feet four inches and
5 feet five. When shown the application at her deposition she testified she had no
9
idea why Mr. Tomazine wrote she was 5 feet 8. With respect to the stated weight
of 275 pounds, LSW has adduced evidence that, less than four months after the
application was signed, Mrs. Mulrooney weighed 322 pounds when she was taken
to the hospital for her stroke. Still, because this is a motion for summary
judgment the court will consider the 275 pounds stated by Mrs. Mulrooney to be
accurate.
Mrs. Mulrooney is aware of the importance of accuracy
It is undisputed that Mrs. Mulrooney was well aware of the significance of
her answers and that they be full and complete. Mr. Tomazine testified at his
deposition that after filling out the form he reminded the Mulrooneys of the
importance of the application’s accuracy and advised them they should read the
form before signing it. According to Mr. Tomazine:
When I get to the end of the application proves. . . I
want to cover my butt. Okay? And so when I get to the
end, I basically say to the client, what you are signing
is every question I have asked you is truthful to the
best of your knowledge. You have not withheld any
information that is pertinent to the underwriting of
this insurance policy. You are giving the insurance
company permission to look at things like the Medical
Information Bureau. You are certifying that the Social
Security number you gave me is yours and not
somebody else’s. You are acknowledging receipt of
your conditional receipt and your FCR report. But,
most importantly, Lisa, what you are signing is that
not only did you provide me with accurate information,
but it has been recorded accurately as well. So before
you sign, I need you to review, initial, review, and sign.
Mrs. Mulrooney confirmed at her deposition that Mr. Tomazine told them of the
importance of correct answers.
10
Q. Before you signed the application did Mr. Tomazine
make a statement to you to the effect that what you were
signing is every question I have asked you is truthful to
the best of your knowledge, you have not withheld any
information that is pertinent to the underwriting of this
insurance policy?
A. Yes, I remember that.
Q. He did make that statement to you?
A. Yes.
Q. Did he go on to say something to the effect that, most
importantly, what you are signing is that not only did
you provide me with accurate information but that it has
been recorded accurately as well?
A. Yes.
Later in her deposition Mrs. Mulrooney was questioned at length confirming that
she understood at the time that LSW would rely upon her representations and
that the policy could be cancelled if anything on the application was untrue:
Q. At the time you and Mr. Tomazine filled out your part
of the application, did you understand that LSW was
going to review this information?
A. Yes.
Q. Did you understand that they were going to rely on
this information as being accurate for purposes of
deciding whether or not to issue you the policy or at what
premium level?
A. Yes.
Q. Did you understand from your conversations with Mr.
Tomazine and the types of questions he was asking you,
did you have a belief or understanding that your answers
were important?
A. Yes.
11
Q. Did you understand that your answers, whether or
not they were correct was important?
A. Yes.
Q. What was your understanding of what could
happen—well, why they were important?
A. Because you need to know that information, for
instance, like if I had strokes in the past and I had a
stroke, and I died from it you wouldn’t cover it because I
didn’t tell the truth.
Q. So you understand the importance of telling the truth
with respect to being issued a policy and having claims
paid, correct?
A. Yes.
Q. And you knew that at the time Mr. Tomazine was
filling out the application with you?
A. Yes.
The Mulrooneys review and sign the applications.
There is nothing in the record suggesting that Mr. Tomazine rushed the
Mulrooneys into signing the applications or attempted to limit the time they had
to review them before signing. Mrs. Mulrooney understood that she was to review
the application for any errors by Mr. Tomazine:
Q. And what were you looking for when you gave it a
quick look?
A. Just to kind of make sure that everything that I said
to him was okay on here.
Q. In other words, that what you had told him he had
accurately recorded in the application?
A. Yes.
12
Yet despite her awareness of the importance of the accuracy of her answers, Mrs.
Mulrooney barely glanced at it before signing it:
Q. Did you read the questions in this application before
you signed it?
A. Word for word, no.
Q. Did you read them at all?
A. Just vaguely glanced.
Q. Okay. How much time did you take to review the
actual application for accuracy before you signed it?
A. Not long.
When asked at her deposition why she did not take more time to review the
document Mrs. Mulrooney did not blame Mr. Tomazine. Rather, she explained,
she had to leave for work:
Q. Why is that [so little time]? Why didn’t you take more
time to go through and make sure that what was here
was accurate?
A. Because I wasn’t—I remember that when I had it, I
kind of like, was like, okay, like really like that
(Indicating). And then I had to leave for work, so I had to
go.
Q. Otherwise, if you had taken more time to look at this
you would have been late for work?
A. Yes.
Mrs. Mulrooney signed the application. Just above her signature is a paragraph
which begins “I understand and agree that all answers given above and in any
medical exam are to the best of my knowledge and belief complete and true.”
13
The policy is delivered to the Mulrooneys
At some undetermined (but immaterial) time later Mr. Tomazine received
the Mulrooneys’ policy from LSW. He drove to the Mulrooneys’ home and
personally delivered it to Mr. Mulrooney.
The policy consisted of the agreement itself, the riders, certain data sheets
and the application submitted by the Mulrooneys. The first page of the policy
states, in plain English, that the application was part of the policy: “the entire
contract between the parties consists of this policy, the attached copy of the
application, and any other riders….” The policy once again reminded the
Mulrooneys that any statement they made in the application can be used to void
the policy. 5 The cover page of that policy advised the Mulrooneys of their right to
review it:
This policy may be returned to us at any time prior to the
end of the tenth [extended to the twentieth by addendum]
following its receipt by the Owner. The policy may be
returned in person or by mail to us or to the agent
through whom it was bought. Upon such return, we will
refund any premiums paid, and the policy will be deemed
void as of its Date of Issue.
Mrs. Mulrooney was aware the policy had been delivered to her home, but she
never looked at it.
Mrs. Mulrooney’s stroke
5
“Any statement made by the Insured shall be deemed a representation and not a warranty. Unless such statement is
in the attached application it shall not be used to . . . make this policy void.” (emphasis added).
14
Less than four months after signing the insurance application, Mrs.
Mulrooney had a non-fatal stroke. That stroke prompted her to apply for benefits
under the accelerated benefits rider in her insurance policy. LSW denies
coverage, thus giving rise to this lawsuit.
C. Material facts
The following facts are material to the court’s resolution of the pending
motion. They are almost all undisputed. In those few instances where there is a
factual dispute, the court has assumed the version most favorable to the
Mulrooneys is true.
• At all times pertinent hereto, defendant Tomazine was an agent
of LSW.
• Mr. Tomazine met with the Mulrooneys at their home on July
15, 2008.
• During the meeting Mr. Tomazine asked each of the
Mulrooneys health-related questions based upon an
application for LSW insurance.
• As the Mulrooneys answered the health questions Mr.
Tomazine filled in the application form.
• Two of the questions asked of Mrs. Mulrooney were her height
and weight.
• Mrs. Mulrooney told Mr. Tomazine she was between 5 feet 4
and 5 feet 5 inches tall. She told Mr. Tomazine she weighed
approximately 275 pounds.
15
• While Mr. Tomazine was completing the application form for
Mrs. Mulrooney, he wrote down that she weighed 275 pounds
but incorrectly wrote down that she was 5 feet 8 inches tall.
• Mrs. Mulrooney’s actual height was between 5 feet 4 and 5 feet
5 inches.
• After he finished filling out the forms, Mr. Tomazine told the
Mulrooneys that it was important that the information listed on
the form was correct and that the policy could be voided if it
was not.
• Mr. Tomazine advised the Mulrooneys to read the application
carefully before signing it.
• Mrs. Mulrooney understood that LSW would rely upon the
information she provided. She understood this information
was important and that LSW could void her policy if any of the
information on the application was untrue.
• Mrs. Mulrooney had the opportunity to review the application
before signing it. Mr. Tomazine did not rush her into signing.
• Mrs. Mulrooney just glanced at the application. She signed it
without reading it word for word because she had to leave for
work.
• Just above her signature the application form states “I
understand and agree that all answers given above and in any
16
medical exam are to the best of my knowledge and belief
complete and true.”
• Sometime after the meeting, Mr. Tomazine delivered a copy of
the issued policy to the Mulrooneys at their home.
• The policy recites that the application signed by the
Mulrooneys was deemed to be part of the policy, and copies of
the Mulrooney applications were physically attached to the
policy delivered to them.
• Mrs. Mulrooney never read the policy or the attached copy of
her application after Mr. Tomazine delivered it.
D. The standard to be applied
LSW has the burden of proof with respect to its claim for rescission.
Although the parties have not discussed it in the briefs, this has some
significance when determining the standard to be applied to its motion.
The standard to be applied in summary judgment motions is a familiar one.
We must determine “whether the record shows that
there is no genuine material issue of fact and the moving
party is entitled to judgment as a matter of law.” When
the evidence shows no genuine issues of material fact in
dispute, the burden shifts to the nonmoving party to
demonstrate that there are genuine issues of material
fact that must be resolved at trial. If there are material
facts in dispute, it is inappropriate to grant summary
judgment and the case should be submitted to the fact
finder to determine the disposition of the matter. 6
6
Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 144 (Del. 2009).
17
Typically this means that when a defendant moving for summary judgment points
to the absence of evidence supporting an element of plaintiff’s case. The United
States Supreme Court has noted “as we have explained, the burden on the
moving party may be discharged by ‘showing’—that is, pointing out to the district
court—that there is an absence of evidence to support the nonmoving party's
case.” 7
Where, as here, the party bearing the burden of proof is the moving party,
the analysis shifts slightly. LSW cannot rest its motion upon the assertion that
the Mulrooneys have failed to adduce proof of something; rather it must initially
come forward with evidence supporting all of the elements of its own claim. A
party bearing the burden of proof at trial has “the burden of supporting [its]
motion[] with credible evidence ... that would entitle [it] to a directed verdict if not
controverted at trial.” 8 As discussed below, LSW has come forward with
undisputed evidence showing it is entitled to judgment on its claim.
F. Analysis
1. Delaware statutory law permits rescission if the
representation about Mrs. Mulrooney’s height is attributable to
her.
The court begins with an examination of the statutory framework
surrounding this claim. A Delaware statute provides that “[a]ll statements and
descriptions” contained in an application for insurance are deemed to be
7
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
8
In re Bressman, 327 F.3d 229, 237 (3rd Cir. 2003)(internal quotation marks omitted). The Court of Appeals quoted
Justice Brennan’s dissenting opinion in Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). As the Court of Appeals
noted, “Justice Brennan's dissent does not differ with the opinion of the Court regarding the appropriate standards for
summary judgment. The disagreement is with respect to the application of those standards to the record before the Court
in Celotex.” 327 F.3d at 237, n.3. Other Courts of Appeals have followed Bressman. E.g., Johnson v. Hix Wrecker
Serv., Inc., 651 F.3d 658 (7th Cir. 2011).
18
representation and that an insurer may rely upon an incorrect statement to void
a policy if the incorrect statement was material to the risk or if the insurer would
not have issued the policy (or issued the policy at an increased premium) had it
known the true facts. Section 2711 of title 18 provides:
All statements and descriptions in any application for an
insurance policy or annuity contract by or in behalf of
the insured or annuitant shall be deemed to be
representations and not warranties. Misrepresentations,
omissions, concealment of facts and incorrect statements
shall not prevent a recovery under the policy or contract
unless either:
(1) Fraudulent; or
(2) Material either to the acceptance of the risk or to the
hazard assumed by the insurer; or
(3) The insurer in good faith would either not have issued
the policy or contract, or would not have issued it at the
same premium rate or would not have issued a policy or
contract in as large an amount or would not have
provided coverage with respect to the hazard resulting in
the loss if the true facts had been made known to the
insurer as required either by the application for the
policy or contract or otherwise. 9
The Mulrooneys argue that LSW “opted out” of section 2711 because it
required only that the applicants answer the application questions “to the best of
my knowledge and belief are complete and true.” They argue section 2711 makes
insurance applicants strictly liable for any misstatements whereas the LSW
application requires LSW to show something more—that the statements were not
to the best of the applicant’s knowledge and belief. Citing to this court’s opinion
9
18 Del. C. § 2711.
19
in Dickson-Witmer v. Union Bankers, Ins. Co 10 the Mulrooney’s argue that LSW’s
decision to employ the more lenient “knowledge and belief” standard (from the
applicant’s point of view) means that section 2711 does not apply to this case.
The court need not explore its opinion in Dickson-Witmer in detail. Suffice
it to say that the Dickson-Witmer court expressly found there were no untrue
statements in the application, thus making its consideration of section 2711
dictum. More importantly, it does not matter which standard is applied—strict
liability or “knowledge and belief”—if Mrs. Mulrooney’s statement that she was 5
feet 8 attributable to her, it satisfies the “knowledge and belief” standard because
she had actual knowledge she was only between 5 feet 4 and 5 feet 5.
Section 2711 permits an insurer to void a policy because of an untrue
statement (even if the “knowledge and belief” standard is applied) when the
statement is material or when the insurer “in good faith would either not have
issued the policy or contract, or would not have issued it at the same premium
rate.” 11 Nowhere do the Mulrooneys argue that the misstated height was
immaterial, nor do they contest that had LSW known her true height it would
either ave not issued the policy or issued it at an increased premium. Health
risks can be approximated by body mass index, and if Mrs. Mulrooney’s true
height were used the increase in her body mass index (and the increase in her
risk of future health problems and premature death) would have been
substantial. Courts routinely hold “nondisclosures of serious disease or ailments
10
1994 WL 164554 (Del.Super.)
11
18 Del. C. § 2711 (b)(c).
20
to be material as a matter of law.” 12 In any event, because the Mulrooneys did not
contest the issue, the court finds that the misstatement of Mrs. Mulrooney’s
height, if attributable to her, was material and would have caused LSW to charge
an increased premium if indeed it issued a policy at all.
2. The representation about Mrs. Mulrooney’s height is
attributable to her because she signed the application
The principal issue here is whether the statement in the application is
attributable to Mrs. Mulrooney. “It is a fundamental principle in insurance law
that both the insured and the insurer have a duty to deal with each other with
utmost fairness.” 13 When completing an insurance application, particularly one
for health or life insurance, the applicant has a duty to accurately disclose the
information requested by the insurer. 14 Where the duty of utmost fairness is not
met due to applicant's knowledge, Delaware courts have “consistently held” that a
court may grant rescission on an insurance contract based on
misrepresentation. 15 Included in this duty of “utmost fairness” is a duty on the
part of the applicant to insure that the representations on the application are
correct. 16
The Mulrooneys do not dispute that the representation on the application
that she was five feet eight inches tall was untrue. They also do not dispute that
this untrue statement was material to the issuance of the policy. Their defense is
12
Brasure v. Optimum Choice Ins. Co. 37 F. Supp. 2d 340, 346 (D.Del. 1999).
13
Oglesby v. Penn Mut. Life. Ins.Co., 877 F. Supp. 872, 888 (D.Del. 1994) (applying Delaware law and collecting
Delaware cases).
14
Id.
15
Id. at 889.
16
See id.
21
that because the notation was written by LSW’s agent, LSW is estopped from
relying upon it in its efforts to void the policy. They primarily rely upon Rust v.
Metropolitan Life Insurance Co., 17 an eighty year old decision in which this court
held that an agent’s misstatement when completing an insurance application may
be attributable to the insurer, notwithstanding that the applicant signed the
application containing the erroneous material. Their reliance upon Rust is
misplaced because that opinion is no longer good law.
a. This court’s 1934 opinion in Rust
In Rust the insurance company sought to void a policy because of certain
false answers to medical questions on the policy application. According to the
complaint in Rust, the carrier’s agent completed the application based upon the
answers given to him by the applicant and, once completed, the applicant signed
the application. The complaint also alleged that the applicant gave truthful
answers to the agent but that the agent substituted false answers which were
designed to enhance the chances the policy would be issued. The Rust court
reviewed the then extant case law and concluded:
In considering the questions which have arisen, a
majority of the Courts have held that the applicant,
notwithstanding the fact that he had signed the
application, was not bound by the incorrect answers to
questions contained in the application which are
written in by the agent of the Company without his
consent. And further, that the Company could not take
advantage of the incorrect answers to the questions in
the application, written in by its agent, without the
consent of the applicant, in order to defeat a recovery on
the policy. 18
17
172 A. 869 (Del. Super. 1934).
18
Id. at 871 (emphasis added).
22
This court held that the applicant could defend the claim for rescission on the
basis that the misrepresentations were attributable to the company, not him.
b. The law has changed since Rust was decided
Time has eroded the basis for Rust, and over the years what it perceived to
be the majority rule has changed. Although it is still the general rule that an
insurer is bound by the acts of its agent, that rule “has been overridden by the
signature of an applicant on the policy or application” where the application
contains some sort of representation by the applicant that the statements in the
application are accurate. 19 Another indication that Rust is antiquated is the fact
that the opinions discussed and relied upon in Rust are themselves, for the most
part, no longer good law. For example, Rust cited the 1891 Kentucky case of
Wright's Adm'r v. Northwestern Mutual Life Ins. Co, 20 but times have changed and
in 1968 the same court held that an illiterate insurance applicant was bound by
the answers on an application filled by the insurance agent:
The rule gleaned from the statute, as so construed, is
that when the falsity of the representation is established
and its materiality is not disputed, there can be no
recovery. This is true despite the illiteracy of the
applicant. The cases cited say that an illiterate shall not
permit an application to be signed for him until he has
had a responsible person to examine for correctness the
answers inserted by the agent. It is admitted by appellee
that the applicant had his son at his side who could have
checked the accuracy of the answers in the application.
In each of the cases cited, the fact that the agent had
inserted false answers did not relieve the applicant of
this responsibility. 21
19
6 Couch, Couch of Insurance § 65:28 (2014).
20
15 S.W. 242, 243 (Ky. 1891).
21
Ky. Central Life Ins. Co. v. Combs, 432 S.W.2d 415, 417 (Ky. 1968).
23
The Rust court also cited the Indiana Supreme Court’s 1894 opinion in Michigan
Mut. Life Ins. Co. v. Leon. 22 Several years after Leon, the Indiana legislature
enacted a statute which made the insurance application part of the policy. As a
result, the applicant bears the burden of reading the application to ensure the
answers he or she gave are accurate:
In view of the foregoing declarations of the law relative to
insurance contracts, we are of the opinion that an
insurance contract is controlled by the same law as any
other contract and that there never has been any sound
reason why such a contract should be looked upon in
other light. We believe that the Legislature had a purpose
in view when it said: ‘That the policy, together with the
application therefor, a copy of which application shall be
attached to the policy and made a part thereof.’ It had
the power and right to pass such legislation and we can
conceive of no other reason than to conclude that it was
passed for the good of both the insurer and the insured.
It protects the insured by giving him the opportunity of
examining the application when it is returned to ascertain
if his answers were correctly written pursuant to the
answers made by him, and, if not, to notify the company
and have them corrected. It protects the company from
paying unjust and fraudulent claims, and at the same
time it protects honest policyholders from paying
increased premiums on account of payments to
dishonest and fraudulent policyholders. It places
insurance contracts on the same basis as other contracts
and we have failed to find any well-reasoned opinion of
any court to place such contracts on any other basis. 23
Even in Delaware time has eroded whatever vitality Rust may have once
had. In their brief the Mulrooneys refer to the “Rust line of cases” as supporting
their position. There is no such thing, at least as envisioned by the Mulrooneys.
22
37 N.E. 584 (Ind. 1894).
23
Metropolitan Life Ins. Co. v. Alterovitz, 14 N.E.2d 570, 576 (Ind. 1938)(emphasis added).
24
Although there are a few Delaware cases which mention Rust for one proposition
or another, none actually applies its holding and precludes an insurance carrier
from seeking rescission because its agent erroneously filled in an application later
signed by the applicant. More current cases (both in Delaware and the local
federal court) hold that the applicant is responsible for reading the application
and insuring that when the applicant “had an opportunity to correct any
inadvertent mistakes contained in his answers to the critical questions to which
he failed to give adequate answers” the insurance carrier base a claim for
rescission on those answers even though they were filled in by its agent.24 Those
cases are discussed below.
c. Rust is not binding on this court
The Mulrooneys argue that this court is obligated to follow Rust because it
was “approved” by the Supreme Court in Prudential Ins. Co. of America v.
Gutowski. 25 A close reading of Gutowski shows that although the Supreme Court
had some bons mots for the Rust opinion, it never followed it. Rather the
Gutowski court simply held that Rust would not apply to the facts before it.
Thus the comments about Rust were dictum.
The Delaware Supreme Court has on occasion described dictum in its own
opinions as not constituting binding precedent. 26 At other times, it has found “a
passing mention of liability insurance in the dicta” to be “unpersuasive” 27 and,
24
American Cas. Co. of Reading, Pa. v. Ford, 187 A.2d 425, 427 (Del. Ch 1963).
25
113 A.2d 579 (Del. 1955).
26
Humm v. Aetna Cas. and Sur. Co., 656 A.2d 712, 715 (Del. 1995) (“This language is obiter dicta and is, therefore,
not binding as legal precedent”).
27
In re Krafft-Murphy Co., Inc., 82 A.3d 696, 707 n.68 (Del. 2013).
25
yet at other times, has confined earlier dicta “to the facts of that case.” 28 As an
inferior court, this court must tread carefully when determining whether language
from a Supreme Court opinion was intended as a principle to be followed by the
lower courts, or whether it is dictum intended to only provide context to its
holding. As one federal court well put it, “there is dicta and then there is dicta,
and then there is Supreme Court dicta.” 29
This court concludes that the language in Gutowski was not intended as
binding precedent:
• One would expect that had the Supreme Court intended Rust
to be the law of this state there would have been a critical
examination of it. Yet, nowhere in Gutowski did the Supreme
Court make a single mention of the authorities cited in Rust,
nor did it examine or even discuss the rationale employed by
this court in Rust. Indeed, the entire discussion of Rust in the
Gutowski opinion consumed only two sentences.
• By the time Gutowski was decided, the opinion in Rust was
already more than twenty years old. Yet, the Gutowski court
did not consider whether there were any intervening opinions,
from Delaware or elsewhere, which might cause it to rethink
the Rust rationale.
28
In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766, 774 (Del..,2006).
29
Schwab v. Crosby, 451 F.3d 1308, 1324 (11th Cir. 2006).
26
Given the ambiguous language in Gutowski, the absence in Gutowski of any
analysis of Rust or the cases upon which the Rust court relied, and the absence in
Gutowski of any discussion of the cases following Rust, this court concludes that
the Supreme Court did not intend its comments about Rust as signifying the law
of Delaware. This conclusion is supported by the absence of any judicial
endorsement of the Mulrooney’s view of Gutowski. Although Gutowski has been
cited by the courts for propositions relating to the duty of insurance applicants to
disclose pertinent information; 30 the materiality of withheld information; 31 and
determining whether a death was the result of an accident or suicide, 32 it has
never been cited for “approving” Rust.
3. Mrs. Mulrooney is bound to the representations
because she signed the application
People are free to sign legal documents without reading
them, but the documents are binding whether read or not.
The failure to read a document before signing it does not
enable one to ignore the obligations imposed by that
document on the ground that they did not read the
contract or that the contents of the contract were not
known to the party. 33
Whatever ambiguity there may be about Gutowski’s “approval” of Rust,
there is absolutely none about the legal repercussions of signing a document. In
Graham v. State Farm Mut. Auto. Ins. Co 34 the Supreme Court was faced with
insureds who were seeking to avoid an arbitration clause in an insurance policy
30
Pacific Ins. Co. v. Higgins, 1992 WL 212601 (Del. Ch.); Oglesby, 877 F.Supp.at 888-89.
31
Prudential Ins. Co. of America v. Ford, 144 A.2d 234 (Del.Ch. 1958); Oglesby, 877 F. Supp. at 889.
32
Campbell v. Stonebridge Life Ins. Co. 966 A.2d 347 (Table); Maneval v. Lutheran Broth. 281 A.2d 502 (Del.Super.
1971).
33
Moore v. O'Connor, 2006 WL 2442027 (Del.Super.) (quoting 17A Am.Jur.2d Contracts § 210).
34
565 A.2d 908 (Del. 1989).
27
they did not read. The Supreme Court rejected the notion that the insureds could
avoid the arbitration clause in the policy simply by showing they did not know it
was in there. According to the Supreme Court, acceptance of the insureds’
argument would stand the law of contracts on its head. “If the [insureds’]
argument were followed to its logical extreme, an insured could radically redefine
his policy simply by proving that he had not been informed of its stated terms in
advance of purchase.” 35
Two years after Graham the Supreme Court had occasion to specifically
consider the effect of signing a contract without reading it. In Pellaton v. Bank of
New York 36 an individual signed a promissory note on behalf of his company
which contained a personal guarantee and confession of judgment on that
guarantee. The individual sought to avoid that guarantee and confession of
judgment, claiming that he relied upon his lawyers. The Supreme Court rejected
his contention, reasoning that he was responsible for reading the documents and,
if he signed them without reading them, he did so at his own peril. According to
the Pellaton court:
That ... [Pellaton] did not read the ... [loan documents], if
such were the fact, was his own fault. It will not do for a
man to enter into a contract, and, when called upon to
respond to its obligations, to say that he did not read it
when he signed it, or did not know what it contained. If
this were permitted, contracts would not be worth the
paper on which they are written. But such is not the law.
A contractor must stand by the words of his contract;
and, if he will not read what he signs, he alone is
responsible for his omission. 37
35
Id. at 912 (footnote omitted).
36
592 A.2d 473 (Del. 1991).
37
Id. at 477 (quoting, Upton, Assignee v. Tribilcock, 91 U.S. 45, 50 (1875) (citations and quotation marks omitted)).
28
It is undisputed that Mr. Tomazine explained the importance of making
sure the applications were correct; Mrs. Mulrooney admitted she understood that
importance and was aware that LSW could void her policy if anything on the
application was incorrect; Mr. Tomazine did not pressure or rush the Mulrooneys
and they had as much time as they wanted to review the applications before
signing them. Nonetheless, Mrs. Mulrooney chose to merely “glance” at the
application before signing it. Mrs. Mulrooney is therefore bound by the
misrepresentation that she was 5 feet 8 inches tall, irrespective of whether Mr.
Tomazine incorrectly transcribed what Mrs. Mulrooney told him. 38
Not only does Mrs. Mulrooney’s decision to sign the application bind her to
the representations contained in that application, but also she is bound because
of her duty of “utmost fairness” to the insurer. The local federal court, applying
Delaware law, found that an applicant’s failure to read and correct any mistakes
on the application violated that duty and justified rescission of the insurance
policy:
For example, where plaintiff affixed his signature to
documents memorializing his representations to Penn
Mutual, and certified the information as true, complete,
and accurate, plaintiff was charged with a duty to review
those statements to which he subscribed and report any
misrepresentations or omissions to Penn Mutual. 39
Mrs. Mulrooney attempts to justify her failure to read the application before
signing it because she had to leave to go to work. The same excuse for not
38
Oglesby, 877 F. Supp. at 888 (“In view of plaintiff's unqualified written certification that he had read the
incomplete answers before signing the document, that they were correctly written, true, and complete, the conclusion is
inevitable that he did not act in utmost fairness when signing the factually deficient application.”).
39
Id.
29
reviewing an insurance application was rejected by the Court of Chancery in
American Casualty Co. of Reading, Pa. v. Ford 40 wherein the court held:
While there is some evidence of ‘sales pressure’ on the
part of the agent selling the policy here in issue in that
defendant signed the application while at his dining room
table at a time when he was anxious to return to his job
of running a service station, nonetheless I am satisfied
that defendant is a man of normal intelligence and knew
or should have known what he was signing. 41
Even assuming Mrs. Mulrooney were justified in signing the application
without reading it because she had to hurry off to work, she and her husband are
still bound by the representation in the applications because they never notified
LSW of the error after the policies were delivered to them. There is no dispute
that shortly after the meeting in the Mulrooney house when they signed the
applications Mr. Tomazine hand delivered copies of the policies to their home.
There is also no dispute that copies of the applications were physically attached
to the policy and expressly made part of the policy. As part of their duty to act
with the “utmost fairness” to LSW, the Mulrooneys were obligated to read the
policy and the attached applications to ensure that everything was correct.42
“Even if [the insured] cannot be charged with the responsibility to read the entire
insurance policy, he is held responsible for reading those portions, such as the
application, which involve information he provided, and which were required to be
40
187 A.2d 425 (Del. Ch. 1963).
41
Id. at 427.
42
The policy provided that any statement the Mulrooneys made could not be used “to make the policy void,” “[u]nless
such statement is in the attached application.”
30
truthful at the risk of voiding the policy.” 43 The Court of Chancery explained this
obligation in Prudential Ins. Co. of America v. Ford: 44
A cursory examination of the issued policy with its
attached photostat of the application would have
disclosed to him that the answers concerning medical
history appearing on the application were the very basis
for the issuance to him of a policy of insurance and that
the answers ‘filled in’ by the agent were false. The policy
clearly states that the insured's basic state of health, as
disclosed in the application is material to the
undertaking to be assumed by the insurer. So that if the
actual application for insurance was solicited under
pressure and without proper regard for the fiduciary duty
owed by the agent to Mr. Ford, and such would seem to
have been the case, on receipt of the policy by Mr.
Ford there would appear to have been an ample
opportunity for him to read and understand it and a
duty resting on him to bring material mistakes in
the application form to the insurer's attention for
such action as it saw fit to take .... 45
Mrs. Mulrooney admitted she never read the policy or the application form after it
was delivered to them by Mr. Tomazine. 46
Conclusion
The court assumes that Mrs. Mulrooney told Mr. Tomazine she was
between 5 feet 4 and 5 feet 5 when Mr. Tomazine was filling in the application in
the Mulrooney living room. The court further assumes that Mr. Tomazine
43
Oglesby, 877 F. Supp. at 888.
44
144 A.2d 234 (Del.Ch. 1958).
45
Id. at 237.
46
The Mulrooneys also seem to suggest that LSW should have caught the mistake on its own, either by Mr.
Tomazine’s observations of Mrs. Mulrooney at the meeting or by the height stated on her driver’s license which was
handed to Mr. Tomazine (recall that that driver’s license, which was then four months old, understated Mrs.
Mulrooney’s weight by 100 pounds.) Mrs. Mulrooney also stated she thought a para professional coming to her home
to take blood samples for the insurance company would also correctly identify her height. None of this excuses her
obligation to ensure that the facts stated on the application were correct. “Delaware courts have even taken this
majority rule a step further, holding that even if an insurer should have researched the veracity of an applicant's
representations, it has not waived the right to later assert and prevail on a claim for misrepresentation.” Oglesby, 877
F. Supp. at 895.
31
incorrectly recorded her height as 5 feet 8 on the form. Nonetheless Mrs.
Mulrooney is responsible for that misrepresentation. She understood the
importance of the application being correct and understood that LSW could void
the policy if the information was wrong. She was told to read the policy before
signing it. She chose not to. To paraphrase the Court of Chancery:
[Mrs. Mulrooney] is understandably unhappy that she
did not read the [completed application]; however, she
was presented with a fair opportunity to do so . . . and
even [signed the application saying the statements were
true to the best of her knowledge and belief]. She . . .
appears to regret [doing so] now, but it was her choice to
modify her rights without fully investigating the terms to
which she agreed. 47
WHEREFORE, LSW’s motion for summary judgment on its application to
rescind the agreement is GRANTED. Because Plaintiffs’ claims for bad faith
against LSW are predicated on the existence of a contract, LSW’s motion for
summary judgment dismissing those claims is GRANTED.
Date: September 3, 2014 ________________________________
John A. Parkins, Jr.
Superior Court Judge
oc: Prothonotary
cc: Lisa C. McLaughlin Esquire, Wilmington, Delaware
John D. Demmy, Esquire, Wilmington, Delaware
Richard D. Abrams, Esquire, Wilmington, Delaware
47
Newell Rubbermaid Inc. v. Storm, 2014 WL 1266827 (Del.Ch.).
32