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New York Life Insurance Co. v. Saul

United States District Court, D. New Mexico

October 11, 2018

NEW YORK LIFE INSURANCE COMPANY, Plaintiff,
v.
ROGER SAUL, ROSEANNE SILVA, and ESTATE OF JAMES SILVA, deceased, Defendants.

          MEMORANDUM OPINION AND ORDER

         This matter comes before the Court upon Plaintiff's Opposed Motion for Summary Judgment (Motion for Summary Judgment), filed November 20, 2017. (Doc. 57). Defendant Roger Saul filed a response on December 6, 2017, [1] and Plaintiff filed a reply on December 21, 2017. (Docs. 64 and 66). Having considered the Motion for Summary Judgment and the accompanying briefing, the Court grants the Motion for Summary Judgment.

         A. Factual Background[2]

         James Silva was hospitalized from July 20, 2013, through July 29, 2013, for medical conditions associated with alcoholism. (Doc. 57-3) at ¶ 8. Mr. Silva was again hospitalized from February 4, 2015, to February 5, 2015, for chest and leg pain. (Doc. 57-2) at 2.

         On June 28, 2015, Mr. Silva applied for a $100, 000 life insurance policy with Plaintiff. (Doc. 57-1). In his application, Mr. Silva designated Defendant Rosanne Silva, his spouse, as the sole beneficiary. Id. Mr. Silva also answered “No” to the following question in the application: “In the past 2 years, for any condition, have you been admitted to or confined in a hospital, nursing home, extended care or special treatment facility?” Id. Mr. Silva, in signing the application, acknowledged the following: “I represent that, to the best of my knowledge and belief, the information on this request is true and complete.” Id. He further acknowledged that “[i]f material facts have been misstated here, benefits may be denied if the insured's death occurs within the first two years after the Insurance Date.” Id.

         Plaintiff accepted Mr. Silva's insurance application and issued Mr. Silva a $100, 000 life insurance policy, certificate number A8118559, with an Insurance Date of July 14, 2015. (Doc. 57-4) at 2. Relevant to this lawsuit, the policy has an incontestability clause which states, in pertinent part:

Except for nonpayment of PREMIUMS, WE cannot contest the validity of the insurance … after it has been in force for two years during the INSURED's lifetime from … the INSURANCE DATE…. To contest, WE will only rely upon statements signed by the OWNER in applying for such insurance.

Id. at 4.

         Mr. Silva then passed away on June 16, 2016, within the 2-year contestability period. (Doc. 57-2) at 1. Mrs. Silva subsequently submitted a claim to Plaintiff to collect on Mr. Silva's life insurance policy. (Doc. 57-2) at 1. According to Mr. Saul, in November 2016, he “agreed to champion the widow Silva's cause by accepting an assignment of $10, 000 … of the policy; with an understanding that [he] would apply 100% of all net proceeds from any award toward her rental arrears for her Elder Care/Hospice.”[3] (Doc. 57-8) at 2. On January 4, 2017, Mrs. Silva assigned to Mr. Saul $10, 000 of the proceeds of the life insurance policy in consideration for Mr. Saul's application of “all net cash proceeds” toward her “rental arrears” for “Elder Care/Hospice.”[4] (Doc. 57-6).

         In identical letters dated April 28, 2017, Bates Number 000021, (Doc. 57-2), and May 11, 2017, Bates Number 000014, (Doc. 64) at 7, Plaintiff informed Mrs. Silva of its decision to deny her claim for the life insurance proceeds. Plaintiff explained that Mr. Silva “did not disclose material information concerning his medical history” when he indicated on the insurance policy application that he had not been hospitalized in the past 2 years although, in fact, he had been hospitalized on July 20, 2013, and on February 4, 2015. (Doc. 57-2) at 2. Plaintiff stated that had it “been aware of this medical information when processing the insured's application [it] would have declined to issue this coverage.” Id. Plaintiff then concluded that “the appropriate resolution is to rescind the Contract.” Id. To that end, Plaintiff noted that it would send Mrs. Silva a check to “refund … all the premiums paid, plus interest.” Id. Plaintiff further explained that

Your endorsing, cashing or depositing of this check will constitute your agreement to rescission of the Contract. By doing so, you agree that the Contract is of no force or effect and irrevocably waive and release all claims you may have under the Contract. The refund check is being sent to you on the express condition that your acceptance of this check is without reservation and in full and complete satisfaction of any claims you may have under the Contract.

Id. Moreover, Plaintiff stated that “you may contest our decision by bringing a legal action in court.” Id.

         Plaintiff separately sent Mrs. Silva a check dated April 28, 2017, for $1, 928.69. (Doc. 57-5). The check notes on it: “Refund of premiums paid under contract A8118559. Coverage is hereby rescinded.”[5] Id. Mrs. Silva endorsed the back of the check and cashed it. Id. Sometime later, Mr. Saul wrote a check to Plaintiff for $1, 928.69.[6] (Doc. 64) at 13. There is no evidence that Plaintiff received Mr. Saul's check let alone cashed it.

         Roderick Boggs, a corporate vice president for Plaintiff, attested in a declaration that Plaintiff will not issue a life insurance policy to an applicant that “is receiving or has recently received medical treatment for serious medical conditions related to alcoholism….” (Doc. 57-3) at ¶ 6. Mr. Boggs further attested that if Plaintiff had known about Mr. Silva's hospitalization for alcoholism related conditions, Plaintiff would not have issued a life insurance policy to Mr. Silva. Id. at ¶ 9. Mr. Boggs noted that “Mr. Silva's medical conditions disqualified him from coverage completely and could not have been dealt with through an increased premium.” Id. at ¶ 10. In addition, Mr. Boggs attested that Plaintiff “relied on Mr. Silva's representation that he had not been hospitalized in the two years prior to his application.” Id. at ¶ 12. Consequently, Plaintiff “did not have any reason to investigate Mr. Silva's medical history” prior to issuing the life insurance policy.[7] Id. at ¶ 11.

         B. Relevant Procedural History

         1. The Complaint

         Plaintiff is suing Mr. Saul, Mrs. Silva, and the estate of Mr. Silva to seek a

declaratory order that the Policy was effectively rescinded, that the beneficiary has affirmatively waived all claims under the Policy, that no proceeds are payable under the Policy, and that no action may be brought under the Policy.

(Doc. 1) at ¶ 2. Plaintiff alleges that the life insurance policy was rescinded because Mr. Silva “died during the Policy's contestability period” and Plaintiff's “investigation revealed that Mr. Silva had made a material misrepresentation on his insurance application….” Id. at ¶ 3. Plaintiff further alleges that Mrs. Silva waived any claims under the life insurance policy when Plaintiff advised Mrs. Silva

in writing that the Policy was being rescinded, that [Mrs.] Silva was advised in writing that she would receive a check refunding the premiums paid, that [Mrs.] Silva was advised in writing that cashing, depositing, or endorsing the check would constitute acknowledgment of the rescission and waiver of all claims under the Policy, and that she cashed or deposited the check.

Id. at ¶ 4. Finally, Plaintiff alleges that Mr. Saul has no claim against Plaintiff because his

interest, if any, is only in the proceeds of the Policy and that rescission of the Policy extinguished any claim that Mr. Saul otherwise may have had as the existence of a valid Policy is a condition precedent of Mr. Saul's claims.

Id. at ¶ 5.

         2. Mr. Saul's Counterclaims (Doc. 6) and Bifurcation

         Mr. Saul answered Plaintiff's Complaint and raised counterclaims based on Plaintiff's failure to pay the $100, 000 claim and bad faith insurance practices. (Doc. 6) at 8-9. In November 2017, the Court bifurcated this case so that the Court could first address the issues raised in Plaintiff's Complaint and then, if necessary, address the counterclaims. (Doc. 58). The Court agreed with Plaintiff that if a ...


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