Richards v . Durham Life CV-93-637-B 10/4/94 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

William F. Richards, J r . and Susan P. Richards v. Civil Action N o . 93-637-B

Durham Life Insurance C o .

O R D E R The defendant, Durham Life Insurance Company, moves for summary judgment to deny William and Susan Richards' petition for declaratory judgment seeking reinstatement of their health and life insurance policies and coverage for Susan's medical costs. For the reasons that follow, I grant summary judgment in favor of Durham Life as to Susan's claims, but not as to William's. In September 1991, William and Susan Richards petitioned for declaratory judgment asking the Belknap County Superior Court to declare that Durham Life's rescission of "certain life and health insurance policies1 was unjustified and improper" and was "an act

1 The Richards' Petition for Declaratory Judgment states that Durham Life rescinded their life and health insurance policies. Durham Life does not explain whether it issued two policies or whether the single application completed by William Richards in August 1991 applied for both health and life coverage from a single policy. Because none of the parties have suggested otherwise, I will assume that Durham Life rescinded both health and life coverage, whether from the same or separate policies, of bad faith." In their prayer for relief, the Richards

requested that the superior court order Durham Life to continue

the policies in full force and effect, and to pay Susan's claims

for health care costs. The Richards also requested enhanced

damages, reimbursement, and indemnification for costs and fees

incurred in defending actions brought by Susan's health care

providers, and the costs and fees associated with their

declaratory judgment action. Durham Life responded by filing a

notice of removal in this court alleging that the Richards'

claims were preempted by the Employee Retirement Income Security

Act of 1974,

et seq., ("ERISA"). Although the

Richards made no claims based on ERISA, they did not object to

removal. To date, the Richards have not amended their petition

to include any ERISA claims.

I. JURISDICTION

As a preliminary matter, I must resolve a question not

addressed by the parties concerning subject matter jurisdiction.

Because this court cannot act in the absence of subject matter

jurisdiction, I have a duty to inquire sua sponte into the

based upon the same application.

2 jurisdictional foundation of the case presented. In re Recticel

Foam Corp.,

(1st Cir. 1988). Ordinarily, I would determine whether subject matter jurisdiction exists by addressing Durham Life's contention that the court has federal question jurisdiction pursuant to

(West 1993) because the Richards' claims are preempted by ERISA. Here, however, the parties appear to be of diverse citizenship,2 the defendant is not a citizen of New Hampshire, and the insurance policies and benefits in controversy have a value exceeding $50,000. Accordingly, irrespective of whether ERISA preempts the Richards' claims, Durham Life was entitled to remove the case to this court pursuant to 28 U.S.C.A. 1441 (West 1994) and the court has diversity of citizenship jurisdiction over the claims pursuant to

(West 1993). 3

2 According to the petition for declaratory judgment, Durham Life is a North Carolina corporation, and the Richards are both residents of New Hampshire. 3 I do not decide the preemption question because it has not been briefed. Among the myriad of issues that will have to be addressed if and when the preemption question is properly presented are (i) whether Durham Life's insurance coverage was offered as a part of an employee benefit within the meaning of ERISA; (ii) whether the Richards were "beneficiaries" of an ERISA plan; (iii) whether the Richards' cause of action relates to their employee benefit plan within the meaning of ERISA; and (iv) whether ERISA's savings clause exempts the Richards' claims. See generally Tingle v . Pacific Mut. Ins. Co.,

(5th

3 Cir. 1993). 4 II. FACTS

Summary judgment is appropriate when the pleadings,

affidavits, and other appropriate materials on file reveal no

genuine issue of material fact, and the moving party is entitled

to judgment as a matter of law. Fed. R. Civ. P. 56(c). The

moving party, Durham Life in this case, bears the initial burden

of showing that there is no genuine dispute concerning facts that

are material to the issues raised in the pleadings. General

Office Prod. Corp. v . A . M . Capen's Sons, Inc.,

(1st Cir. 1986). In applying the summary judgment standard,

I view the record in the light most favorable to the non-moving

parties, the Richards, and resolve all reasonable inferences in

their favor. Oliver v . Digital Equip. Corp.,

(1st Cir. 1988). In that context, I summarize the pertinent facts as follows.

The parties agree that the Richards applied for and received

health insurance coverage through a plan offered by W . F.

Richards & Son, Inc. as a participant in the "Small Business

Group Insurance Trust." On August 2 0 , 1991, William Richards

completed an application for health insurance for his wife,

Susan, as an employee of W . F. Richards & Son, Inc. and for

himself as beneficiary. William checked the "no" boxes to answer

5 all of the questions concerning the applicants' prior medical

history. Susan signed the application after William had

completed the information. The Richards' application was

accepted and insurance coverage was provided by Durham Life

effective on December 1 , 1991.

In March 1992, Susan was treated in the hospital for

symptoms diagnosed as acute alcoholic hepatitis, cirrhosis and

alcoholism, among other things. After the Richards submitted the

medical bills for Susan's treatment in March, Durham Life

conducted an investigation into Susan's medical history. As a

result, Durham Life learned that Susan had been treated at

Laconia Region General Hospital in 1982 for an acute anxiety

depressive reaction. Her discharge summary submitted by Durham

Life indicated that her depression had been successfully treated

previously with Pamelor, that she was drinking slightly more heavily than previously, consuming about five cocktails in the

evening, and her liver function studies indicated borderline

elevation with one test showing a three fold elevation. Susan's

other medical records showed that she was treated with Pamelor

until 1983. The medical records include summaries of Susan's

medical office visits from 1982 through 1985 and one visit in

6 1989, and the results of tests run at Lakes Region Hospital dated

July 1 9 , 1989.

III. DISCUSSION

Durham Life alleged in its removal petition that the

Richards' state law claims were preempted by ERISA. Rather than

pursuing this argument in a motion to dismiss, however, it moves

for summary judgment on the ground that state law authorized it

to rescind the Richards' insurance because they made material

misstatements in their joint insurance application.4 In making

this argument, Durham Life relies on a term in the Richards'

insurance policy which states that "any material omission or

misrepresentation about health history or status may be cause for

us to decline a claim or rescind coverage." The Richards' insurance application contains two questions

that specifically require applicants to disclose certain prior

4 Notwithstanding the fact that the Richards' claims are based on state law, Durham Life argues that its actions should be judged by the deferential standard of review that ERISA requires under certain circumstances. See Firestone Tire & Rubber C o . v . Bruch,

0 1 , 115 (1989). I reject this argument because this standard is simply not applicable in evaluating state law claims. If Durham Life wishes to invoke ERISA, it must first demonstrate that ERISA preempts the Richards' state law claims.

7 contacts with health care providers. These questions ask: 1 . Have you or any of your dependents ever sought or received advice for, or treatment of or ever had any known indication o f : b . Persistent . . . disorder . . . of . . . liver? e . Abuse of alcohol . . . ; or consultation, treatment, therapy or counseling for psychiatric illness, problem relating to personality or mental state . . . or for any other reason?

4 . Have you or any of your eligible dependents consulted a doctor . . . or other practitioner or been a patient in a hospital, clinic, sanitorium or other facility within the past 5 years?

Durham Life argues that Susan's negative answers to these

questions were material misstatements entitling it to rescind her

insurance coverage. It specifically contends that (i) Susan's

answers qualify as misstatements because, notwithstanding her

denials, she had received extensive medical treatment within the

5 years prior to signing the application; and (ii) Susan's misstatements were material because it would have learned of her

medical history and declined to insure her if she had answered

the questions accurately.

The Richards do not dispute Durham Life's claims that

Susan's answers to the above-quoted questions were incorrect.

Nor do they challenge Durham Life's carefully documented

8 explanation for its position that it would have learned of her

medical history and refused to insure her if she had answered the

questions correctly. Instead, they argue that summary judgment

should be denied because a genuine dispute exists as to whether

Susan's statements were willfully false. The difficulty with

this contention is that the materiality of a misstatement does

not depend on the declarant's intentions when the misstatement

was made. New Hampshire law provides that a false statement in

an application for insurance "shall not bar the right to recovery

thereunder, unless such false statement was made with actual

intent to deceive, or unless it materially affected either the

acceptance of the risk or the hazard assumed by the insurer."

N.H. Rev. Stat. Ann. ("RSA") § 415:9 (1991). The test of a

misrepresentation's materiality under RSA 415:9 is "'whether the

statement could reasonably be considered material in affecting the insurer's decision to enter into the contract, in estimating

the degree or character of the risk, or in fixing the premium

thereon.'" Mutual Benefit Life Ins. C o . v . Gruette,

(1987) (quoting Taylor v . Metropolitan Life Ins. Co.,

(1965)). Since the Richards have produced no

evidence to challenge Durham Life's claims that their application

9 contained misstatements and that it would not have insured Susan

if the misstatements had not been made, Durham Life is entitled

to summary judgment on this issue.5

Durham Life argues, without citing any supporting authority,

that if an insured's misstatements are material to the insurer's

decision to cover one applicant, they are also sufficient as a

matter of law to support a decision to rescind the co-applicant's

insurance. I reject this argument because I find nothing either

in the applicable law or in the Richards' insurance policy that

requires such a harsh result. Thus, I deny Durham Life's motion

insofar as it applies to William's claims.

IV. CONCLUSION

For the foregoing reasons Durham Life's motion for summary judgment (document n o . 11) is granted as to Susan Richards and

5 I note that I would have reached the same result if I had analyzed Susan's claim under ERISA. See Negoski v . Country Life Ins. Co.,

7 2 , 375 (N.D. Ill. 1993) (a misrepre- sentation is material under ERISA "when the representation would have affected the insurance company's decision to accept the applicant for coverage"); see also Tingle v . Pacific Mutual Life Ins. Co.,

9 1 , 193 (W.D. L a . 1993).

10 denied as to William Richards.

SO ORDERED.

Paul Barbadoro United States District Judge October 4 , 1994

cc: Philip P. Bonafide, Esq. Scott D. McGuffin, Esq. Claudia Damon, Esq.

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