JANUARY 2018 BAD FAITH CASES: NO BAD FAITH AFTER INSURER REFUSED TO PAY BENEFITS DUE TO A PROPER RECISSION OF THE POLICY (Middle District)
The insured procured a life insurance policy with a benefit of $200,000, and listed his wife (the plaintiff in this action) as the beneficiary. Ten months later, the insured passed away from respiratory failure. Plaintiff submitted a claim to the insurer for the life insurance benefits. The insurer denied the claim, arguing that it had rescinded the policy due to material misrepresentations made by the insured during the application process. The plaintiff then sued the insurer for breach of contract, bad faith, and negligent supervision/vicarious liability. The insurer filed a motion for summary judgment on all claims.
The Court reiterated the Rule 56 summary judgment standard, which is appropriate only where the record contains no genuine issue of material fact. Specifically at issue was whether the insured materially misrepresented his medical history on the policy application.
The Court stated that “Pennsylvania law allows for rescission of an insurance contract when, in applying for a policy, an applicant makes a 1) false representation; 2) which the insured knew was false when made or was made in bad faith; and 3) the representation was material to the risk being insured.” The Court found all three of these elements present.
The insured falsely denied being treated for or diagnosed with cancer, and falsely denied being treated for or diagnosed with any lung disorder.
With regard to the second element (knowledge of falsity), the plaintiff argued that, although the insured signed the application, the application was erroneously completed by a third party. The Court rejected this argument and discussed existing case law that holds “a ‘party is bound to know what he signs[,]’” and “the general rule is that one who signs an application for insurance without reading it, when he might have done so will be held to have read it.”
Lastly, the Court found that the false answers provided by the insured were material, because they “influence[d] the judgment of the insurer in selling the policy and accepting the risk.”
Thus, rescission was proper and the Court granted summary judgment.