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Thorpe v. Banner Life Insurance Co.

July 14, 2009


The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge


Sarah L. Thorpe ("Thorpe"), a life insurance policy beneficiary, brings this action against Banner Life Insurance Company ("Banner") alleging that Banner breached its contract with Peter Boyle ("Boyle"), the holder of life insurance policy number 17B758759 (the "Policy") by refusing to pay benefits under the Policy to Thorpe. Thorpe also alleges a tort cause of action based on Banner's refusal to pay. Thorpe seeks a declaratory judgment that the life insurance policy issued to Boyle is valid, and also seeks to recover compensatory and punitive damages for Banner's alleged breach of contract and tortious refusal to pay under the Policy.

Before the Court is Banner's motion for summary judgment [#25]. Upon consideration of the motion, the opposition thereto, and the record of this case, the Court concludes that the motion must be GRANTED in part and DENIED in part.


In May 2004, Boyle applied for a life insurance policy with Banner. Boyle filled out a number of forms, (collectively, the "Application"), that requested information about Boyle's state of health. Boyle's representations on the Medical Examiner's Report, Part II of the Application ("Part II") are of particular importance to this case. Part II asked Boyle to answer a number of questions regarding his medical history and current state of health. Part II consists of the front and back of a single page. At the top of the front page, Part II states, "All YES answers require full details." (Def.'s Mot. Summ. J., Ex. 1 to Ex. A.) The back page of Part II requested details in connection with the insured's answers on the front page, asking the insured to "[g]ive full details for each question answered YES, including date, nature of illness or injury, number of attacks, duration, severity, treatment, results, name, address and telephone number of doctors, hospitals or clinics involved." (Id.) Finally, Part II required Boyle to attest that "to the best of [his] knowledge and belief, the answers recorded herein are true and complete" by signing the back page of Part II. (Id.)

In September 2004, Banner issued Boyle the Policy insuring Boyle's life for $1 million. Boyle named Thorpe as his beneficiary upon his death. Boyle died on January 3, 2006. The autopsy indicated that he died of cardiovascular disease. Thorpe notified Banner of Boyle's death and submitted a claim to Banner for payment according to the Policy. Upon learning of Boyle's death, Banner initiated an investigation into Boyle's medical history pursuant to the terms of the Policy, which permitted Banner to contest the Policy if the insured died within two years of the issuance of the Policy.

Banner's investigation revealed that Boyle filled prescriptions for a variety of medications in the five-year period prior to applying for the Policy and the time between applying for and being issued the Policy. Boyle filled prescriptions for pain killers, including Vicodin, Percocet and Oxycontin, as well as muscle relaxants, antidepressants, and sleep aids. Boyle did not reveal these prescriptions on his Application. At least eight different doctors prescribed these medications for Boyle; the doctors stated they were unaware that Boyle was receiving prescriptions for other medications from other doctors. In a letter dated February 2, 2007, Banner denied issuance of benefits under the Policy and rescinded the Policy on the grounds that Banner would not have issued the Policy had Boyle represented his true medical history in the Application.


Banner moves for summary judgment on all of Thorpe's claims.*fn1 First, Banner alleges that Boyle's misrepresentations on the Application were false and material to Banner. Second, Banner argues that the Policy never took effect because Boyle failed to meet a condition precedent; therefore, Banner could never have breached its contract with Boyle by failing to pay benefits under the Policy. Finally, Banner asserts that its alleged failure to pay under the Policy does not assume the character of a tort, and therefore Thorpe cannot recover on her asserted tort cause of action. Thorpe rejoins that Banner waived its right to conduct an investigation following Boyle's death and that the court cannot rescind the Policy or declare it invalid as a matter of law. Thorpe further argues that she may maintain her tort claim. The Court addresses each argument in turn.

A. Choice of Law

The parties disagree as to which law should apply to this case. Banner argues that Maryland law applies because the Policy was issued pursuant to an application form approved for use in Maryland and because Part I of the Application was signed in Maryland. Banner contends, however, that Maryland and District of Columbia law are substantially similar and that Banner is entitled to summary judgment under either jurisdiction's law. Thorpe rejoins that District of Columbia law should apply because the Policy was delivered in the District of Columbia. The Court agrees with Thorpe.

When deciding state law claims in federal court where jurisdiction is based on diversity, the court "'appl[ies] the choice-of-law rules of the jurisdiction in which'" it sits. Nnadili v. Chevron USA, Inc., 435 F. Supp. 2d 93, 97 (D.D.C. 2006) (quoting Ideal Elec. Sec. Co. v. Int'l Fid. Ins. Co., 129 F.3d 143, 148 (D.C. Cir. 1997)). Under the choice of law rules in the District of Columbia, insurance contracts are governed by the substantive law of the state in which the policy is delivered. Liberty Mut. Ins. Co. v. Travelers Indem. Co., 78 F.3d 639, 642 (D.C. Cir. 1996). Here, the policy was delivered to Boyle in the District of Columbia on September 14, 2004. (Compl. ¶ 15.) Therefore, District of Columbia substantive law applies to this case.*fn2

B. Thorpe's Breach of Contract Claim

Banner argues that Thorpe's breach of contract claim must fail because Banner was entitled to rescind the Policy and, in the alternative, the Policy was never valid. Thorpe disagrees and further argues that Banner waived is right to conduct an investigation following Boyle's death in the first place.

1. Banner Did Not Waive its Right to Conduct an Investigation

As an initial matter, the court concludes that Banner did not waive its right to conduct the investigation. Thorpe argues that Banner waived its right to void the Policy because it failed to conduct more than a cursory investigation at the time Boyle applied for the Policy. Thorpe further alleges that Banner should have requested the medical records of Dr. Elion, who Boyle listed on a document not part of the formal Application, before issuing the Policy. Banner rejoins that none of Boyle's representations placed Banner on notice that he was taking the prescription medications that Banner asserts would have been material to its decision to issue the Policy. Banner is correct.

An insurer has a right to rely on the insured's statements in an insurance application. Burlington Ins. Co., 398 F. Supp. 2d at 157. An insurer is also entitled to truthful responses on the insured's application. Id. Only where the insurer has actual knowledge of any misrepresentation at the time of application does it waive its right to conduct an investigation. For example, in Saxe, the insurance agent had actual knowledge that the applicant was hospitalized, even though the hospitalization was not represented on the application. 134 F.2d at 31. Although the agent failed to inform the main office of the hospitalization, the insurer was charged with actual notice of the hospitalization and therefore waived its right to rescind a policy based on this information. Id.; see also Gov't Employees Ins. Co. v. Govan, 451 A.2d 884, 886 (D.C. 1982) ...

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