Title: Golden Rule Insurance Co. v. Schwartz

State: illinois

Issuer: Illinois Supreme Court

Document:

Docket No. 92215-Agenda 9-November 2002.
GOLDEN RULE INSURANCE COMPANY, Appellee, v. MARK
								SCHWARTZ, Appellant.
Opinion filed January 24, 2003.
 
	JUSTICE FREEMAN delivered the opinion of the court:
	In July 1985, plaintiff, Golden Rule Insurance Company, filed
an action in the circuit court of Lawrence County, seeking a
declaration that it was entitled to rescind a health insurance policy
it had issued to defendant, Mark Schwartz. Defendant
subsequently filed a countersuit in the action. In 1997, the cause
was transferred to the circuit court of Cook County. Ultimately,
the circuit court granted summary judgment in defendant's favor
on the declaratory judgment action and on the first count of
defendant's counterclaim. The circuit court also ruled that
defendant was entitled to sanctions under section 155 of the
Illinois Insurance Code and therefore granted summary judgment
on that issue as well. The circuit court awarded defendant
$447,074 in damages. Both parties filed cross-appeals from the
circuit court's ruling.
	The appellate court held that the circuit court's entry of
summary judgment in defendant's favor in the declaratory
judgment action was erroneous and reversed and remanded the
matter for further proceedings. 323 Ill. App. 3d 86. We granted
defendant's petition for leave to appeal (177 Ill. 2d R. 315(a)), and
now affirm in part and vacate in part the appellate court's
judgment.



BACKGROUND
	In the spring of 1985, defendant was a 23-year-old full-time
medical student. Due to defendant's age, his father, Spencer
Schwartz (Spencer), inquired of his insurance broker about
insurance coverage for defendant. The broker sent Spencer
separate Golden Rule applications for defendant and the rest of
Spencer's family. The broker advised Spencer that defendant
would have to be covered under a separate policy because
defendant was too old to be covered as a dependent under a family
policy. On March 11, 1985, the broker filled out the Golden Rule
applications while Spencer, on defendant's behalf, answered the
questions on the telephone.
	Question 9 on the application asks: "Are any persons named
in #1 [proposed insured] covered by, or has application been made
for, any type of Life, Disability, or Medical Insurance?" This
question was answered in the negative. The application contains
the following information with respect to other insurance:
			"This policy will not be issued as a supplement to other
health plans that you may have at the time of application.
Medical payment provisions under liability policies and
small cancer only policies do not affect our underwriting.
A misstatement in the application about other medical
insurance may cause us to void the policy. If, after the
policy is issued, you are covered by other plans, the
benefits paid under these other plans may be used to help
satisfy the deductible and 20% coinsurance ***. Other
plans are all policies and plans that provide benefits for
hospital, surgical, or medical expenses, including
individual and family policies, group programs, union
programs, automobile medical payments insurance,
Medicare and others."
The application also includes the following statement just above
the signature line:
			"I represent that the statements and answers in this
application are true and complete to the best of my
knowledge and belief. I agree that *** the statements and
answers given in this application and any amendments to
it will form the basis of any insurance issued."
Based on the application, Golden Rule issued a health insurance
policy in defendant's name which became effective on March 14,
1985.
	On March 24, 1985, defendant suffered serious injuries in an
automobile accident which took place in New York. As a result,
Spencer reviewed his insurance policies and realized that
defendant was covered not only by the Golden Rule policy, but
was also an "eligible dependent" under a policy Spencer held with
Mutual of Omaha. The Mutual of Omaha policy was a group
policy held through the American Bar Endowment and was issued
to Spencer in 1973. Defendant submitted claim forms to both
Mutual of Omaha and Golden Rule.
	During its investigation of the claim, Golden Rule learned of
the existence of the Mutual of Omaha policy. Based on this,
Golden Rule decided to rescind its policy, which prompted the
instant litigation. In its declaratory judgment action, Golden Rule
alleged that defendant's failure to disclose the Mutual of Omaha
policy constituted a material misrepresentation which justified
rescission of the policy. Defendant filed a countersuit, in which he
claimed, inter alia, that Golden Rule (i) was not entitled to offset
damages with medical payments made by other insurance
companies, (ii) engaged in improper claims practices which
allowed for attorney fees under section 155 of the Illinois
Insurance Code and (iii) breached its contract with defendant
which entitled defendant to a recovery of all damages reasonably
forseeable as a result of the breach.
	The circuit court initially concluded that, as a matter law,
defendant did not make a material misrepresentation on the
application with respect to question 9. As to the claims made in
defendant's countersuit, the circuit court granted defendant
summary judgment, ruling that Golden Rule could not offset
damages with payments made by other insurers. The circuit court
also ruled that defendant was entitled to sanctions under section
155, but was not entitled to pro se attorney fees. As for the breach
of contract claim, the circuit court found defendant entitled to
recover the premiums he paid for comparable replacement
coverage, but was not entitled to any prejudgment interest. The
case was thereafter set for a bench trial in order to determine
damages, after which judgment was entered in defendant's favor
in the amount of $447,074. The circuit court reserved the issue of
attorney fees and added Supreme Court Rule 304(a) language in
its order, making it immediately appealable.
	On appeal, Golden Rule challenged the circuit court's
decision, arguing that it was entitled to rescind its policy due to
defendant's material misrepresentation on the application. Golden
Rule also contended that sanctions should not have been awarded
in this case. Defendant filed a cross-appeal in which he maintained
that the circuit court erred in finding that prejudgment interest was
not appropriate in this case. Defendant further argued that the
circuit court erred in refusing to award pro se attorney fees as
sanctions.
	The appellate court reversed the circuit court's entry of
summary judgment in favor of defendant on the misrepresentation
issue. The appellate court held that a misrepresentation "made in
good faith or resulting from a mistake of the applicant is enough
to avoid the contract if it was material to the risk assumed by the
insurance company." 323 Ill. App. 3d at 93. In reaching this
conclusion, the appellate court relied upon section 154 of the
Insurance Code, which provides that an insurance contract may be
voided on the basis of a misrepresentation that is either intentional
or material. 323 Ill. App. 3d at 92-94. The court concluded that
whether the misrepresentation in this case was material, however,
was a question of fact which precluded the entry of summary
judgment. 323 Ill. App. 3d at 96-99. The appellate court also ruled
that the misrepresentation issue in the case constituted a bona fide
dispute which precluded an award of sanctions under section 155.
323 Ill. App. 3d at 99-100. Although the appellate court remanded
the cause on the rescission issue, it commented briefly on several
other issues which it believed likely to "reappear"-namely that
Golden Rule was entitled to an offset and that defendant was not
entitled to prejudgment interest. 323 Ill. App. 3d at 101.



ANALYSIS
	We begin our discussion by noting that summary judgment is
appropriate when "the pleadings, depositions, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c)
(West 2000); Petrovich v. Share Health Plan of Illinois, Inc., 188 Ill. 2d 17, 30-31 (1999). The purpose of summary judgment is not
to try a question of fact, but to determine if one exists. Robidoux
v. Oliphant, 201 Ill. 2d 324 (2002). Our review of an order
granting summary judgment is de novo. Morris v. Margulis, 197 Ill. 2d 28, 35 (2001).
	Defendant argues that he did not make a misrepresentation on
the Golden Rule application because his answers were given on
the basis of his "knowledge and belief." He contends that the
appellate court "completely disregarded" the "to the best of your
knowledge and belief" language and, as a result, misapplied
section 154 of the Insurance Code to this case.
	We believe it unfair of defendant to characterize the appellate
court as having "completely disregarded" the knowledge and
belief language contained in the application. The appellate court
did not consider the language's effect on the case because
defendant did not ask it to do so. In fact, defendant never argued
that this language played any role in the analysis of this issue until
he filed his petition for rehearing in the appellate court. "Questions
not raised in the trial court cannot be argued for the first time on
appeal." Ragan v. Columbia Mutual Insurance Co., 183 Ill. 2d 342, 355 (1998). Not surprisingly, Golden Rule encourages us to
apply this rule here.
	The rule of waiver, however, serves as a limitation on the
parties and not the court. This court "is not precluded from
considering issues not properly preserved by the parties, and
indeed has 'the responsibility *** for a just result and for the
maintenance of a sound and uniform body of precedent [that] may
sometimes override the considerations of waiver that stem from
the adversary character of our system.' " Jackson Jordan, Inc. v.
Leydig, Voit & Mayer, 158 Ill. 2d 240, 251 (1994), quoting Hux v.
Raben, 38 Ill. 2d 223, 225 (1967). We believe that this case falls
within this exception, and we therefore address the issue on its
merits.
	In determining the effects of a misrepresentation on an
insurance coverage application, section 154 of the Insurance Code
provides that:
			"No misrepresentation or false warranty made by the
insured or in his behalf in the negotiation for a policy of
insurance *** shall defeat or avoid the policy or prevent
its attaching unless such mispresentation, false warranty
or condition shall have been stated in the policy or
endorsement or rider attached thereto, or in the written
application therefor. No such misrepresentation or false
warranty shall defeat or avoid the policy unless it shall
have been made with actual intent to deceive or materially
affects either the acceptance of the risk or the hazard
assumed by the company." 215 ILCS 5/154 (West 1998).
The statute establishes a two-prong test to be used in situations
where insurance policies may be voided: the statement must be
false and the false statement must have been made with an intent
to deceive or must materially affect the acceptance of the risk or
hazard assumed by the insurer. Campbell v. Prudential Insurance
Co. of America, 15 Ill. 2d 308 (1958); Weinstein v. Metropolitan
Life Insurance Co., 389 Ill. 571 (1945). Under the statute,
therefore, a misrepresentation, even if innocently made, can serve
as the basis to void a policy. Campbell, 15 Ill. 2d  at 312.
	We note that section 154 is representative of statutes which
"are designed to relieve against the rigorous consequences of the
common-law rules as to warranties and misrepresentations
concerning insurance, particularly if made in good faith with no
intent to deceive and in relation to a matter which does not
increase the risk or contribute to the loss." 43 Am. Jur. 2d
Insurance §1034 (1982); see also Campbell, 15 Ill. 2d  at 312
(explaining common law antecedents to the statute). Such statutes
provide insureds with basic protections, but do not preclude the
parties to the contract from entering into an agreement which is
more favorable to the insured than the statute provides. Indeed,
			"[i]t is axiomatic that parties are free to create the
insurance contract they deem appropriate to their needs,
provided its form and content do not conflict with any
provision of law or public policy; and such is the case
even though the resulting contract is improvident as to the
insured.
			Assuming compliance with a standard form and the
absence of conflict with statute, the parties to a contract of
insurance are free to incorporate such provisions and
conditions as they desire." 1 L. Russ, Couch on Insurance
3d §17:2 (1997).
Terms and conditions of a contract, if unambiguous, are enforced
as they appear (P.A. Bergner & Co. of Illinois v. Lloyds Jewelers,
Inc., 112 Ill. 2d 196, 203 (1986)) and will control the rights of the
parties (Midland Management Co. v. Helgason, 158 Ill. 2d 98, 103
(1994), quoting Fichter v. Milk Wagon Drivers' Union, Local 753,
382 Ill. 91, 100 (1943)).
	Courts in other jurisdictions which have examined the
"knowledge and belief" language in light of statutes similar to our
section 154 have concluded that the addition of such a standard in
an application bypasses the "rigid" standard of accuracy set forth
in the statute. See, e.g., Green v. Life & Health of America, 704 So. 2d 1386, 1391 (Fla. 1998). In other words, the contract, "by its
own terms, established a lesser knowledge standard" than that
required by the statute. Green, 704 So. 2d  at 1391. As one federal
court has explained,
			"[the insurer] chose to include language in its group
insurance enrollment form that had the effect of shifting
the focus, in a determination of the truth or falsity of an
applicant's statement, from an inquiry into whether the
facts asserted were true to whether, on the basis of what
he knew, the applicant believed them to be true. Thus,
[the applicant's] answer must be assessed in the light of
his actual knowledge and belief." Skinner v. Aetna Life &
Casualty, 804 F.2d 148, 150 (D.C. Cir. 1986).
In cases where insurance applications contained the "knowledge
and belief" language, courts have not allowed insurers to seek
refuge in the higher standard of accuracy encompassed by statute.
See, e.g., Skinner, 804 F.2d  at 150; Hauser v. Life General
Security Insurance Co., 56 F.3d 1330 (11th Cir. 1995); Green, 704 So. 2d 1386 (and cases cited therein). The reason for doing so was
best expressed by the Eleventh Circuit:
			"Had [the insurer] intended to retain the ability to void
the contract based on any inaccuracy, it should not have
used the 'knowledge and belief' qualifying language.
Such language would reasonably induce an insurance
applicant to believe that they were covered under the
policy if they answered the questions to the best of their
knowledge and the insurer subsequently issued the policy.
To permit an insurer to rescind a policy containing
'knowledge and belief' language due to an unknowing
misstatement not only contravenes the terms of the
contract itself, but is unfair as well. Insurance applicants
faced with a policy that unambiguously stated that it could
be voided for unknowing misstatements might have
rejected those terms and sought another policy ***."
William Penn Life Insurance Co. of New York v. Sands,
912 F.2d 1359, 1364 n.7 (11th Cir. 1990).
We agree with these sentiments and adopt the reasoning of those
courts which have concluded that the addition of the "knowledge
and belief" language to an application establishes a lesser standard
of accuracy than that imposed under statutes akin to section 154.
	In this case, Golden Rule opted to include language in its
application that had the effect of shifting the focus, in a
determination of the truth or falsity of an applicant's statement,
from an inquiry into whether the facts asserted were true to
whether, on the basis of what he knew, the applicant believed
them to be true. Thus, the response given to question 9 must be
assessed in the light of the applicant's actual knowledge and
belief.(1)
	Notwithstanding the above, we note that the presence of
"knowledge and belief" provision in a policy will not insulate an
applicant's responses from all review. To that end, we approve the
following test, adopted by the District of Columbia Circuit Court
of Appeals, for examining responses to questions asked according
to an applicant's knowledge and belief:
			"[T]he twin qualifiers [knowledge and belief] require[ ]
that knowledge not defy belief ***. *** What the
applicant in fact believed to be true is the determining
factor in judging the truth or falsity of his answer, but
only so far as that belief is not clearly contradicted by the
factual knowledge on which it is based. In such event, a
court may properly find a statement false as a matter of
law, however sincerely it may be believed. To conclude
otherwise would be to place insurance companies at the
mercy of those capable of the most invincible self-deception-persons who having witnessed the Apollo
landings, still believe the moon is made of cheese."
(Emphasis omitted.) Skinner, 804 F.2d  at 151.
Based upon the facts of the case now before us, we find that this
assessment involves a credibility determination that may only be
made by the jury.
	An insurer has the right to inquire of an applicant whether that
applicant has other insurance, and such information may be vital
to the preliminary investigation of the proposed insured. Garde v.
Country Life Insurance Co., 147 Ill. App. 3d 1023, 1033 (1986)
(collecting authorities). If a jury determines that the answer to
Question 9 was not made to best of the applicant's knowledge and
belief, the jury must then determine whether the misstatement was
material to the insurer's acceptance of the risk and whether the
insurer would have issued the policy had it known the true facts.
This court has recognized that the issue of materiality is generally
a question of fact for a jury to decide. Mooney v. Underwriters at
Lloyd's, London, 33 Ill. 2d 566, 569 (1965). The application of
this principle to the present case is particularly apt given that we
view summary judgment as "a drastic means of disposing of
litigation," which must be granted only when the movant's right
to the relief "is clear and free from doubt." Purtill v. Hess, 111 Ill. 2d 229, 240 (1986). In this regard, we agree with the appellate
court's conclusion that questions of genuine fact exist as to
materiality. The affidavits filed by both parties in this matter
present questions as to motivation that should be resolved by a
finder of fact. We also believe that, based on the evidence
contained in the documents filed in this case, a question of fact
exists as to whether Golden Rule would have issued the policy had
it known the true facts. We therefore affirm the appellate court's
decision that this matter must be remanded for a trial on the
rescission issue.
	In light of our disposition, we agree with the appellate court
that the circuit court erred in granting summary judgment in favor
of defendant on the issue of section 155 sanctions.
	Section 155 of the Insurance Code provides, in pertinent part,
as follows:
			"(1) In any action by or against a company wherein
there is in issue the liability of a company on a policy or
policies of insurance or the amount of the loss payable
thereunder, or for an unreasonable delay in settling a
claim, and it appears to the court that such action or delay
is vexatious and unreasonable, the court may allow as part
of the taxable costs in the action reasonable attorney fees,
other costs, plus an amount not to exceed any one of the
following amounts:
			(a) 25% of the amount which the court or jury finds
such party is entitled to recover against the company,
exclusive of all costs;
			(b) $ 25,000;
			(c) the excess of the amount which the court or jury
finds such party is entitled to recover, exclusive of costs,
over the amount, if any, which the company offered to pay
in settlement of the claim prior to the action." 215 ILCS
5/155 (West 1998).
Illinois courts have regarded section 155 as the legislature's
"remedy to an insured who encounters unnecessary difficulties
when an insurer withholds policy benefits." See Richardson v.
Illinois Power Co., 217 Ill. App. 3d 708, 711 (1991) (and cases
cited therein). A trial court must consider the totality of the
circumstances before it determines that an insurer's conduct
violates section 155 of the Illinois Insurance Code. See Mohr v.
Dix Mutual County Fire Insurance Co., 143 Ill. App. 3d 989
(1986). If there is a bona fide dispute about coverage, delay in
settling a claim may not violate the statute. Mohr, 143 Ill. App. 3d
at 998-99. We believe that the circumstances in this case establish
that a bona fide dispute regarding coverage does indeed exist in
this case. The appellate court correctly reversed the circuit court's
award of sanctions.
	Although the parties urge this court to address the other issues
that the appellate court briefly commented upon due to the
likelihood of their reappearance in the future, we decline to do so.
The courts of Illinois do not issue advisory opinions to guide
future litigation, and this court has adhered to this rule with few
exceptions. First National Bank of Waukegan v. Kusper, 98 Ill. 2d 226, 233-34 (1983); People ex rel. Black v. Dukes, 96 Ill. 2d 273,
276-77 (1983); Bluthardt v. Breslin, 74 Ill. 2d 246, 250-51 (1979).
We therefore vacate that portion of the appellate court's judgment
which addressed issues dealing with damages and attorney fees.
Whether those issues will become relevant is, at this juncture, a
matter of speculation. If they at some point become germane, the
parties are free to raise these matters with the benefit of the
additional facts and evidence that will be adduced at the
proceedings held on remand. We further note that, due to our
decision to apply the knowledge and belief language to the
rescission issue, additional discovery may be needed by the parties
in order to litigate this new aspect of the case. We trust that the
circuit court will be sensitive to the needs of the parties with
respect to this matter.



CONCLUSION
	The appellate court correctly vacated the circuit court's entry
of summary judgment on the issue of the policy rescission. We
therefore affirm the appellate court judgment in part, vacate it in
part, and remand the cause to the circuit court for further
proceedings consonant with this opinion.



Appellate judgment affirmed in part
and vacated in part;
cause remanded.
	JUSTICE RARICK took no part in the consideration or
decision of this case.
1.      1We agree with the appellate court that because Spencer was acting
as his son's agent in applying for the policy, defendant may be charged
with his father's knowledge. 323 Ill. App. 3d at 96, citing Ratliff v.
Safeway Insurance Co., 257 Ill. App. 3d 281, 289 (1993).