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Wear v. Transamerica Life Insurance Co.

November 1, 2007


The opinion of the court was delivered by: Thomas A. Varlan United States District Judge



This is an action to recover $100,000 in life insurance proceeds under a group term life insurance policy offered by defendant Transamerica Life Insurance Company*fn1 (Transamerica) to employees at Carlex Glass Company (Carlex) [Doc. 1-2, pp.4-5]. Plaintiff Fe Wear, a Carlex employee, originally filed this action on May 25, 2006, in the Circuit Court for Monroe County, Tennessee, seeking those policy limits after her husband, Ricky Wear, died from a shotgun blast to the chest during an altercation on September 24, 2004 [see id., pp.4-7]. Plaintiff also seeks $25,000 as a bad faith penalty pursuant to Tenn. Code Ann. § 56-7-105 [id., p.5].

On June 27, 2006, Transamerica timely removed the action to this Court, see 28 U.S.C. § 1446(b), alleging federal question jurisdiction, see 28 U.S.C. § 1331, based on the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq., as well as jurisdiction based on diversity of citizenship of the parties*fn2 and the amount in controversy exceeding $75,000 [Doc. 1, p.2]. See 28 U.S.C. § 1332(a)(1). On July 17, 2006, Transamerica filed its answer, denying any and all liability to plaintiff [Doc. 3]. This matter is presently before the Court on the following motions by Transamerica:

1. Motion for summary judgment [Doc. 14] based on the fact that: (a) Transamerica declined coverage because the spouse of a non-participating employee was not entitled to coverage; and (b) plaintiff made certain misrepresentations on the application about her husband's medical record which increased Transamerica's risk of loss; and

2. Motion to dismiss [Doc. 18] based on plaintiff's failure to prosecute and, in particular, to comply with certain facets of the Scheduling Order [Doc. 8] filed on December 19, 2006.

With respect to the motion for summary judgment, the issues raised have now been fully briefed by the parties [see Docs. 15, 16, 17, 20, 21, 22, and 23] so that this motion is ripe for adjudication.*fn3 For the reasons that follow, Transamerica's motion for summary judgment will be granted and its motion to dismiss will be denied as moot.

I. Factual Background

The facts of this case will, of course, be viewed in the light most favorable to plaintiff. Pursuant to its collective bargaining agreement with the United Auto Workers, Carlex is required to offer "employee-paid voluntary life insurance" to its employees [Doc. 16-3, p.3]. Voluntary life insurance meetings were therefore conducted at Carlex on an annual basis [id.]. Carlex would send a notice through its supervisors when those voluntary life insurance meetings would occur [id.]. All employees who had been hired since the previous meetings were invited to attend those informational meetings and would receive a memo to that end [id.]. Employees who had previously purchased insurance were also invited to meet with a representative if they had questions or concerns [id.].

A short meeting would be held to inform the employees that voluntary life insurance is available for employees and their spouses, children, and other dependents [id.]. If employees were interested in meeting with the representative from the insurance company, they would complete a form requesting a meeting [id.]. The representative would then meet with all employees who made that request [id.].

When all meetings and appointments were completed, the representative would leave payroll deduction forms, if applicable [id.]. The insurance policies and all communications regarding those policies were sent directly to the employees' homes [id.]. If employees elected to stop or cancel their insurance, they could complete a form at Carlex and the payroll deduction would be stopped [id.]. If the employee left Carlex, the payroll deduction would automatically stop and the employee would be responsible for paying his or her premium [id.].

Against this background, plaintiff testifies that on April 1, 2003, "a friend told me about this insurance program where we could insure our husbands." [Doc. 16-2, p.4].*fn4 Plaintiff testifies further that she then met "the agent who asked me what I wanted to buy." [Id.]. Plaintiff told him that she "just wanted insurance on [her] husband because [she] already ha[d] a policy through Carlex." [Id.].

It is undisputed that plaintiff completed an application for life insurance with Transamerica on April 1, 2003 [see Doc. 14-2, pp.4-5]. Plaintiff's application sought to insure the life of her husband, making her the sole beneficiary of the $100,000 policy [id.]. Plaintiff did not seek coverage for herself [id., p.4].

The insurance application at issue, like virtually every other life insurance application, asks several questions concerning the proposed insured's background and medical history [see id., pp.4-5]. Of particular significance to the issues raised in Transamerica's motion, Question 28(c) asks whether the proposed insured has ever been treated for, or currently had, "emotional or mental disorders, any disease or abnormality of the brain, [or] drug addiction or alcoholism[.]" [Id., p.5]. Question 30 asks whether the proposed insured has ever "received any medical or surgical advice for any ailment, injury or sickness other than those listed above[.]" [Id.]. The form also includes an area for providing additional information about any medical conditions which may be responsive to the individual questions set forth in the form [id.].

When plaintiff completed the form on April 1, she answered "No" to Questions 28(c) and 30 [id.]. Plaintiff did, however, provide information about her husband's hypertension and listed two medications, Lisinopril and Hydrochlorothiazide, both of which are used to treat hypertension [id.].*fn5 No other medical conditions nor medications were listed [id.]. It is undisputed that plaintiff signed the insurance application. It must be noted that, just above plaintiff's signature, the insurance application form states, "I/WE REPRESENT that all statements and answers made in this Application ... are true and complete to the best of my/own knowledge and belief." [Id.]. Furthermore, just above that statement, the following warning appears: "CERTIFICATION STATEMENT -- EACH PROPOSED INSURED MUST READ THE ENTIRE FORM CAREFULLY BEFORE SIGNING." [Id.]. Finally, it is undisputed that, after completion of the application, Transamerica issued a policy to plaintiff insuring the life of her husband [see Doc. 14-3, pp.5-27]. The effective date of the policy was June 1, 2003 [see id., p.7].

Under the terms of the Group Master Policy, the spouse of a non-participating employee is not entitled to coverage [see Doc. 14-3, p.21]. Accordingly, on May 15, 2003, before the effective date, Transamerica's New Business Department cancelled this policy because plaintiff had sought no insurance for herself [see Doc. 14-3, pp.2,4]. On August 12, 2003, Transamerica returned the premium payments that had been made by plaintiff at that time, totaling $23.58, to Carlex [id. at p.28]. Transamerica further informed Carlex that the policy had been declined and requested that Carlex credit plaintiff's paycheck with the returned premiums [id.]. It must be emphasized at this juncture that Carlex, pursuant to the terms of the insurance policy, serves as plaintiff's agent -- not Transamerica's agent [see Doc. 14-3, p.11].*fn6

As previously noted, plaintiff's husband, Ricky Wear, was killed in an altercation on September 24, 2004, as the result of a shotgun blast to the chest. Because Mr. Wear passed away within the two-year contestability period of the life insurance policy, Transamerica opened a standard investigation into plaintiff's claim for benefits pursuant to its normal practice [see Doc. 14-3, pp.2, 11].*fn7 Transamerica's investigation indicated that Mr. Wear suffered from serious medical problems that were not set forth on the life insurance application [Doc. 14-2, p.2, ¶¶7-8]. More specifically, Sally Davis, a senior underwriter for Transamerica, testifies that her review of Mr. Wear's medical records dated December 19, 2002, less than four months before plaintiff's completion of Mr. Wear's application for insurance, indicates that "Mr. Wear had diagnoses of 'major depressive disorder, recurrent, severe, and alcohol abuse, in early remission, and personality disorder, not otherwise specified with features of social anxiety as well as impulse control problems.'" [See Doc. 14-2, p.2, ¶9].*fn8 These same medical records, according to Ms. Davis's review, also show that Mr. Wear was taking "Paroxetine, an anti-depressant, and Quetiapine Fumarate, a psychiatric medication." [Id., p.2, ¶10].*fn9 Consequently, Transamerica's underwriters determined that these medical conditions, which were not disclosed on the insurance application, "raised the risk of loss for Transamerica Life Insurance Company with regard to Mr. Wear's life insurance policy." [Id., p.3, ¶14].

The record in this case further reflects that a subsequent audit of plaintiff's claim by Transamerica indicated that Carlex had erroneously continued to send premiums on behalf of plaintiff to Transamerica for this policy even though the policy had previously been declined [see Doc. 14-3, p.31]. As a result, on December 2, 2004, Transamerica sent to Carlex a check totaling $290.82, which represented premiums forwarded by Carlex to Transamerica for Ms. Wear's policy [see id.]. Although Carlex did forward that check to plaintiff [see Doc. 16, p.11], plaintiff never cashed this check [see id., p.12].

On February 17, 2005, plaintiff, through her attorney of record, made demand on Transamerica for payment of the policy limits of $100,000 [id.]. When Transamerica refused to pay for the same reasons set forth in its pending motion, plaintiff filed this action on May 25, 2006, in the Circuit Court for Monroe County, Tennessee [see Doc. 1-2, pp.4-7].

In response to Transamerica's motion for summary judgment, plaintiff primarily takes the position that she did not understand the questions on the insurance application form because of her "marginal knowledge of English and [her] limited education" [Doc. 16, p.3] and that the involvement of a third party in the completion of the insurance application adversely affects the merits of Transamerica's defense of this litigation. In further support of her position, plaintiff has filed her affidavit in which she testifies that she was born in the Phillippines; that she graduated from the St. Anthony Academy in the Phillippines, "which was equivalent to a U.S. high school"; that she came to the United States in December 1989 as the fiancé of a member of the United States Marine Corps; that she was married in 1990 and was divorced in 1991; and that she met Ricky Wear shortly thereafter and was married to him in 1992 [see Doc. 16-2, p.3]. With respect to the facts and circumstances surrounding this case, plaintiff testifies verbatim as follows:

5. I was working at Carlex Glass Company and on April 1, 2003, a friend told me about this insurance program where we could insure our husbands. I met the agent who asked me what I wanted to buy. I told him I just wanted insurance on my husband because I already have a policy through Carlex.

6. The agent read me questions from the form and I answered them and he filled out the form.

7. I did not say Ricky was treated for alcoholism because I do not know what is meant by the word "treatment." I never thought he was treated for alcoholism because he said he was going to rehab after his second DUI ...

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