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MacBean v. Farmers New World Life Insurance Co.

United States District Court, D. Utah, Central Division

June 12, 2018

DONNA G. MACBEAN, Plaintiff,
v.
FARMERS NEW WORLD LIFE INSURANCE COMPANY, Defendant.

          MEMORANDUM DECISION AND ORDER: • GRANTING IN PART AND DENYING IN PART [26] PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND • DENYING [40] PLAINTIFF'S MOTION TO BIFURCATE

          DAVID NUFFER UNITED STATES DISTRICT JUDGE

         Plaintiff Donna MacBean (“MacBean”), the owner and beneficiary of a life insurance policy, has moved for partial summary judgment against Defendant Farmers New World Life Insurance Company (“Farmers”), the issuer of the insurance policy.[1] The policy insured the life of MacBean's husband, Eric Oeming (“Husband”), in the amount of $125, 000. After Husband's death, MacBean submitted notice and proof of death to Farmers. Farmers denied MacBean's claim on the grounds that Husband did not fully disclose his medical history in the insurance policy application. MacBean sued Farmers, alleging breach of contract and breach of the implied covenant of good faith and fair dealing.[2] MacBean's Motion for Partial Summary Judgment (“Motion for Summary Judgment”)[3] is limited to her breach of contract claim.[4] Farmers opposed the Motion for Summary Judgment (“Opposition”), [5] and MacBean replied (“Reply”).[6]

         MacBean sets forth three arguments for partial summary judgment: (1) Farmers failed to plead its affirmative defense of fraud with particularity as required by Fed.R.Civ.P. 9(b), or in the alternative, failed to plead an affirmative defense of rescission of the policy as required by Fed.R.Civ.P. 8(c); (2) Farmers failed to comply with state law requirements to rescind the policy or otherwise deny policy benefits; and (3) there is no evidence to support a finding of fraud or other basis upon which Farmers could deny benefits.

         MacBean later filed a Motion to Bifurcate Bench Trial of Equitable Defenses of Rescission of Policy and Jury Trial of Remaining Contract Claims (“Motion to Bifurcate”), [7]which has been fully briefed by the parties.[8] In her Motion to Bifurcate, MacBean requests that Farmers's unstated affirmative defense of rescission be bifurcated and tried by the court before the remaining issues proceed to the jury.

         The Motion for Summary Judgment[9] is GRANTED IN PART and DENIED IN PART. Partial summary judgment is proper as to the affirmative defense of fraud based upon Farmers's admission that it plead misrepresentation-not fraud.[10] Farmers also acknowledges that it did not plead an affirmative defense of rescission; however, under the circumstances, Farmers was not required to do so and may, based upon misrepresentation, defend against MacBean's breach of contract claim. The remaining request for relief in the Motion for Summary Judgment involves factual issues that must be determined by the jury, which are therefore reserved for trial.

         The Motion to Bifurcate is DENIED because Farmers did not plead an affirmative defense of rescission, and the remedy of rescission based on the affirmative defense of misrepresentation is a jury issue.

         Table of Contents

         MOTION FOR SUMMARY JUDGMENT .................................................................................... 4

         Standard of Review ............................................................................................................. 4

         Undisputed Material Facts .................................................................................................. 5

         Discussion ........................................................................................................................... 9

Farmers sufficiently pleaded an affirmative defense of misrepresentation. . ........ 10
Farmers has not sufficiently pleaded an affirmative defense of fraud. . ................ 12
Farmers has not pleaded an affirmative defense of rescission, but it was not required to do so .................................................... 13
Whether a misrepresentation was made by MacBean or Husband affecting Farmers's obligations under the policy depends on issues of material fact which are genuinely disputed .................................................................... 15
MacBean's request for interest on policy benefits is reserved. . ........................... 16

         MOTION TO BIFURCATE ......................................................................................................... 17

         ORDER ......................................................................................................................................... 18

         MOTION FOR SUMMARY JUDGMENT

         Standard of Review

         Summary judgment is appropriate if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[11] “By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.”[12] A factual dispute is genuine when “there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way.”[13] In determining whether there is a genuine dispute as to material fact, the court should “view the factual record and draw all reasonable inferences therefrom most favorably to the nonmovant.”[14] “As to materiality, the substantive law will identify which facts are material.”[15]“Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.”[16] “Factual disputes that are irrelevant or unnecessary will not be counted.”[17]

         Undisputed Material Facts [18]

         The Life Insurance Policy

         1. MacBean is a resident of Washington County, State of Utah.[19]

         2. Farmers is an insurer licensed to do business throughout the State of Utah.[20]

         3. On October 2, 2013, MacBean and Husband completed an application for a term life insurance policy on Husband listing MacBean as owner and beneficiary with a principal sum (the amount payable upon Husband's death) of $125, 000.[21]

         4. The application included the following questions regarding Husband's medical history:

Question 5. Have you, in the past seven years, had, consulted a physician or other healthcare provider(s) for, or been treated or hospitalized for or taken medication for any of the following: any diseases or disorders of the heart (including rheumatic fever), circulatory system, diabetes/endocrine/thyroid, blood, kidneys, liver, digestive system, lungs (including allergies or sleep apnea); any mental or nervous disorders (including depression, anxiety, or suicide); muscular, spinal, joint, or bone disorders or injuries (including concussions); high blood pressure; elevated cholesterol; cancer/skin cancer; stroke; epilepsy/seizures (including dizziness or fainting); arthritis; congenial defects or physical impairments?
Question 8. Have you scheduled or been advised to have, a surgical operation, diagnostic test, or evaluation that has not been completed?[22]

         5. Husband answered “No” to Question 5 and Question 8 in the application.[23]

         6. On November 22, 2013, Farmers issued the subject policy.[24]

         Denial of Claim

         7. Husband died on March 13, 2015.[25]

         8. MacBean provided Farmers notice and proof of Husband's death and requested that the policy benefits be issued to her.[26]

         9. On July 8, 2015, Farmers issued a letter denying policy benefits to MacBean (“denial letter”).[27] In its denial letter, Farmer provided the following explanation for the denial:

During our claim evaluation we received medical records from Intermountain Instacare Clinic, Dr. Gay Sleight, Sav-On Pharmacy, Utah Department of Public Safety, and Intermountain Hospital. These records showed that [Husband] had a history of Cirrhosis and COPD. These records also showed that [Husband] had been scheduled, or advised to have a surgical operation, diagnostic test or evaluation that was not completed by the application date.
Given the preceding health history, when the application Medical and Supplemental Information questions were answered by [Husband] on October 2, 2013, question No. 5 and 8 should have been answered “Yes.” After noting the correct response, [Husband] should have fully disclosed his medical history as outlined above.
The Incontestability Provision of policy 009770758 states that we will not contest the coverage on this policy after it has been in force for two years from the date of issue during the insured's lifetime. Because [Husband]'s death occurred within two years of the policy issue date the contract remains contestable.
Our Underwriting Department has reviewed the medical history that occurred prior to the application date. Their determination was that [Husband]'s history was both significant and material to their evaluation of his insurability. If full details of [Husband]'s medical history as outlined above had been disclosed on the application as requested, the policy could not have been issued on any basis. Given this we have no alternative but to consider the policy to be null and void from its inception date and refund the premiums received.”[28]

         10. On August 5, 2015, MacBean made a written request to Farmers for information and documents, including:

A copy of all documentation of any type or nature relevant or potentially relevant to policy benefits of [Husband] including, but not limited to, medical records of [Husband], communications with [Husband], recordings, statements of the claimant or others. Any other document or evidence of any type whatsoever relevant or potentially relevant to the policy whether or not relied upon by Farmers Insurance regarding its denial of policy benefits to our client and beneficiary of the relevant life insurance policy, [MacBean].[29]

         11. On August 18, 2015, Farmers replied and declined to provide any of the requested documentation stating:

The documents you requested contain proprietary work product information wherein our internal privacy policy limits disclosure of the information without the appropriate safeguards commensurate with a court order.[30]

         Farmers did provide the contact information for the previously identified providers of medical records to MacBean.[31]

         12. On October 12, 2015, MacBean renewed her request for copies of Husband's medical records:

I am writing in response to your August 18, 2015 correspondence wherein you decline to provide us with a copy of medical records relied upon Farmers in their denial. Your letter sites [sic] the work product doctrine as the basis for your denial.
While some of the materials requested may arguably be work product, a simple copy of all medical records in Farmers' [sic] possession clearly is not work product. As you may be aware, Utah Law implies a covenant of good faith in fair dealing on first party insurance companies in dealing with an insured/beneficiary and their representatives. Making a beneficiary gather documents that are already in Farmer's [sic] possession is not “good faith‘ nor “fair dealing”.
A request is again made that Farmers provided a copy of all medical records of [Husband] (deceased) in its possession.[32]

         13. On October 16, 2015, Farmers refused to provide Husband's medical records, again citing the work product doctrine.[33]

         MacBean's Complaint and Farmers's Answer

         14. On January 18, 2017, MacBean filed suit against Farmers in the Fifth District Court, State of Utah, which was removed to federal court.[34] MacBean pleaded in part for a judgment in the amount of $125, 000 plus interest “on all damages at the rate of 10% per annum pursuant to Utah Code Ann. §15-1-1 or in such other amount as provided by law.”[35]

         15. On March 1, 2017, Farmers filed its Answer. Farmers set forth fifteen ...


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