Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-02751/USCOURTS-cand-3_04-cv-02751-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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United States District Court

For the Northern District of California

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1

 According to the Complaint, Defendant is "California State

Automobile Association dba AAA Life Insurance Company." Defendant

has stated that its correct name is simply "AAA Life Insurance

Company." This Court will simply refer to "Defendant."

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

BARBARA WILLIAMS-HUGHES,

Plaintiff,

v.

CALIFORNIA STATE AUTOMOBILE

ASSOCIATION d/b/a AAA LIFE

INSURANCE COMPANY, 

Defendant. 

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No. C-04-2751 SC

FINDINGS OF FACT AND

CONCLUSIONS OF LAW 

I. INTRODUCTION

Plaintiff Barbara Williams-Hughes ("Plaintiff") brought this

suit against Defendant California State Automobile Association1

("Defendant") in California state court. The action focused on

Defendant's non-payment of a life insurance claim following a

claim for benefits. Plaintiff's First Cause of Action is for

Breach of Contract. Plaintiff's Second Cause of Action is for

Breach of the Covenant of Good Faith and Fair Dealing. 

Plaintiff's Third Cause of Action is for Fraudulent Concealment. 

Defendant removed the matter to this Court pursuant to 28 U.S.C. §

Case 3:04-cv-02751-SC Document 101 Filed 04/20/05 Page 1 of 9
United States District Court

For the Northern District of California

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2

 At the time of its February 18, 2005 Order denying

Defendant's Motion for Summary Judgment, the Court stated that

based on the record then before the Court, diversity appeared to

exist, notwithstanding the opaque citizenship of Defendant. At the

present time, the Court once again states that based on the record

now before it, the Court has no reason to doubt that diversity

exists between the parties. 

2

1441(b), asserting jurisdiction based on diversity of the parties

and an amount in controversy over $75,000.2 28 U.S.C. § 1332. 

Following a bench trial which concluded on April 11, 2005, the

Court now sets forth these Findings of Fact and Conclusions of

Law. 

II. FINDINGS OF FACT

The Court hereby makes the following findings of fact.

Plaintiff purchased a term life insurance policy for her

daughter, Dominiqua L. Franklin ("the Insured") on May 6, 2002. 

The policy had a term of 20 years. The benefit amount was

$95,000. Plaintiff's Exhibit 1. On July 16, 2002, the Insured

died of a gunshot wound to the head in a homicide. According to

the coroner's report, when she died, the Insured was wearing a

black and gray leather jacket. In the left front pocket of the

jacket was a partially smoked cigarette. In the right front

pocket of the jacket was a butane lighter. Also, in the left

front pocket of a sweatshirt that the Insured was also wearing was

a book of matches. Defendant's Exhibit D-516. Plaintiff filed a

claim for benefits on July 17, 2002.

On May 6, 2002, Plaintiff, the Insured and the insurance

agent, Zenobia Stanton, ("Agent") together filled out the "Short

Form Application for Life Insurance" ("Application"). See

Case 3:04-cv-02751-SC Document 101 Filed 04/20/05 Page 2 of 9
United States District Court

For the Northern District of California

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3

 After the "If Yes ..." question, there was no "If no ..."

question; rather, the form simply asked "Year last used ..." 

3

Plaintiff's Exhibit 1. The Court finds that Plaintiff, the

Insured, and Agent each signed their own names in the proper

spaces on the Application. The Court makes no finding as to who

filled out other portions of the Application.

The Application included questions about the Insured's

nicotine use. These questions appeared in a separate box on the

front face of the form. Questions included 1) "Does Proposed

Insured currently use any nicotine product? [box] Yes [box] No;"

2) "If Yes, Indicate type: [box] Cigarettes [box] Patch [box] Gum

[box] Cigars/Pipe [box] Chewing Tobacco/Snuff [box] Other;" and 3)

"Year last used: _____ or __ Never?" According to the Insured's

form, the first question on current usage was marked "No." The

second question on "type" was left blank. The third question on

last usage was marked "Never." Id. The Court makes no finding as

to the temporal definition of the phrase "currently use" other

than it at least includes the period of time immediately before

May 6, 2002. The Court does find that the response of "Never"

with respect to the third question refers inclusively to each form

of nicotine mentioned in the second question. 

The parties dispute whether or not these three nicotinerelated questions are ambiguous or not.3 The Court makes no

finding of fact with respect to that issue. However, even if the

nicotine-related questions were ambiguous, the Court finds that it

is immaterial to the enforceability of the contract at hand. The

Court reaches this conclusion because Plaintiff's testimony at her

Case 3:04-cv-02751-SC Document 101 Filed 04/20/05 Page 3 of 9
United States District Court

For the Northern District of California

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February 11, 2005 deposition, entered into the record during

trial, demonstrates that Plaintiff and Insured understood the

nicotine usage questions unambiguously. Plaintiff's testimony was

as follows:

[Question] "Is it fair to say, Ms. Williams, that you

don't recall exactly what [the insurance agent] Ms.

Stanton asked in connection with the use of tobacco

products?"

[Answer] "No. That was not how it went. She said,

'You don't smoke?" and [the insured] Dominiqua

answered in reply, 'No.' Then she goes, 'You ain't

never smoked, have you?' and then she goes, 'No.' and

then she continued. Something like that happened."

[Question] "So, Ms. Stanton asked if she has never

smoked and Dominiqua said 'Yes, I have never

smoked.'"

[Answer] "Yeah."

[Question] "And so she marked 'Never?'"

[Answer] "I think. I think that's how it went. I'm

not sure. I don't want to say -- I can't swear to

that so I don't know. I don't remember off the top

of my head how it went exactly."

[Question] "But that's your best recollection today?"

[Answer] "That's my -- Yes."

Testimony of Barbara Williams-Hughes at 55-56. While

Plaintiff ends her response to this line of questioning in

somewhat guarded terms, she clearly stated that her best

recollection at the time of her deposition was that the Agent

asked her daughter about past cigarette usage and her daughter

answered in the negative. At the time of trial, Plaintiff made no

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4

 Prior to trial, Plaintiff did request that her deposition

testimony be "corrected." Plaintiff's proposed corrections would

completely reverse her testimony given at deposition. Defendant's

Motion in Limine to Preclude Plaintiff from Introducing Evidence

Based on Changes Made to Her Deposition Testimony, Exhibit A. 

Corrections to Depositions can only be made for "corrective, and

not contradictory, changes." Hambleton Bros. Lumber Co. v. Balkin

Enters., 397 F.3d 1217, 1226 (9th Cir. 2005). Therefore, the Court

grants Defendant's Motion in Limine to preclude these proposed

changes to Plaintiff's deposition testimony.

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objection to the entering of this testimony into the record.4

Therefore, the Court finds that regardless of whether or not the

Application's questions on nicotine usage are ambiguous, oral

questioning at the time the Application was filled out was not

ambiguous. The Court also finds that when asked about past

cigarette usage at the time of her application for coverage, the

Insured answered "Never" and "No."

Also on the Application signed by the Insured and Plaintiff

was a section titled "Representations, Acknowledgement and

Authorization." The signatures of both the Insured and the

Plaintiff appeared directly below this section. Statements in

this section included, "The answers recorded in Part 1 and Part 2

required for this application are, to the best of my knowledge and

belief, true and complete and correctly recorded." Plaintiff's

Exhibit 1. Furthermore, the Court finds that regardless of

whether or not Defendant explicitly informed Plaintiff about the

two-year contestability period for new policyholders, this section

authorizes Defendant to determine eligibility for life insurance

by accessing the Insured's medical records for up to 30 months. 

Based on this section and the signatures below it, the Court finds

that Plaintiff and the Insured were aware that for a period of

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time after applying for insurance, the Insurer could contest a

claim based on investigation of the Insured's medical records. 

Whether this period of time was two years or 30 months, it

certainly extended beyond the date of the Insured's death.

Based on the Insured's medical records submitted at trial,

the Court finds that the Insured was either an on-again-off-again

or a full-time smoker from November 7, 1994 to June 20, 2001. The

medical records contain the following:

• November 7, 1994, "smoker" box checked by medical provider.

• December 14, 1994, "non-smoker" indicated by medical

provider.

• May 8, 1996, "no-smoker" indicated by medical provider.

• January 2, 1997, "smoker" box checked by medical provider.

• February 4, 1997, "smoker 4 cigs/day" and "Tobacco use -

discussed cessation" written by medical provider.

• July 22, 1997, "non-smoker" indicated by medical provider.

• October 9, 1997, "tobacco use" followed by "yes" box checked

by medical provider.

• December 8, 1997, "non-smoker" indicated by medical provider.

• March 22, 1998, "smoker" box checked by medical provider.

• September 29, 1998, "non-smoker" check crossed out and

"current smoker" checked by medical provider.

• October 9, 1998, "non-smoker" indicated by medical provider.

• March 20, 2000, "current smoker" checked by medical provider.

• June 20, 2001, Insured answered "yes" to the question "Do you

smoke?" on a health questionnaire attached to her medical

record.

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Defendants Exhibits D-501-D-509; Plaintiff's Exhibits 19-23.

The Court makes no finding of fact as to whether the Insured

smoked subsequent to June 20, 2001. However, the Court notes the

coroner's finding of a partially smoked cigarette, a lighter, and

matches on the Insured's body at the time of her death. Even

though this fact is not relevant to whether or not the Insured

smoked at the time of her application for life insurance, it

indicates that she was an on-again-off-again smoker. 

III. CONCLUSIONS OF LAW

Under California law, "material misrepresentations or

concealments in an application for insurance are grounds for

rescission of the policy." Old Line Life Ins. Co. v. Superior

Court, 281 Cal. Rptr. 15, 17 (Cal. Ct. App. 1991). Section 331 of

the California Insurance Code states, "Concealment, whether

intentional or unintentional, entitles the injured party to

rescind insurance." Section 359 of the Code states, "If a

representation is false in a material point, whether affirmative

or promissory, the injured party is entitled to rescind the

contract from the time the representation becomes false." 

Furthermore, "[t]he most generally accepted test of materiality is

whether or not the matter misstated could reasonably be considered

material in affecting the insurer's decision as to whether or not

to enter into the contract, in estimating the degree or character

of the risk, or in fixing the premium rate thereon." Old Line,

281 Cal. Rptr. at 18 (internal quotations and citations omitted). 

California courts hold that representations concerning nicotine

usage are material. Id. at 19 ("[W]e conclude that California law

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allows an insurance company to rescind a life insurance policy

based upon misrepresentations as to the insured's smoking

history."). 

Also, under California law, when an insurance company seeks

rescission of an insurance contract due to misrepresentations,

"The burden is on the insurer to prove that the applicant breached

the duty to disclose material facts." Miller v. Republic Nat'l

Life Ins. Co., 789 F.2d 1336, 1340 (9th Cir. 1986) citing to Olson

v. Standard Marine Insurance Co., 240 P.2d 379, 384 (Cal. Ct. App.

1952).

Here, the Insured informed Defendant that she had never

smoked cigarettes. Looking to the testimony and exhibits in the

record, she informed Defendant both orally and in writing. Based

on the Insured's medical records, the Court finds that this was a

material misrepresentation under Old Line. In sum, Defendant has

met the burden of proving that the Insured breached the duty to

disclose material facts. Therefore, Defendant may rescind the

contract.

Looking to each of Plaintiff's Causes of Action, the Court

holds that Plaintiff has not shown a right to recovery under any

of the causes of action. On the First Cause of Action, for Breach

of Contract, Plaintiff has not shown a breach because Defendant,

as described above, has a right to rescind the contract. On the

Second and Third Causes of Action, for Breach of the Covenant of

Good Faith and Fair Dealing and for Fraudulent Concealment,

Plaintiff has not shown a breach because, among other reasons,

Plaintiff's oral testimony demonstrates that Plaintiff was not

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injured by any potential ambiguities in the contract. 

IV. CONCLUSION

In light of the above Findings of Fact and Conclusions of

Law, the Court finds that the Insured materially misrepresented

her smoking history on her life insurance application. Material

misrepresentations regarding the Insured's smoking history were of

paramount importance to the Insurer in deciding whether or not to

enter the contract with Insured, in understanding the degree and

character of the risk of covering the Insured, and in fixing the

premium rate for the Insured. Regardless of who filled out the

relevant questions on the application form, both the Insured and

Plaintiff signed and acknowledged the application form. With

regard to the question of whether the application form was

facially ambiguous, Plaintiff's oral testimony demonstrates that

there were no ambiguities at the time of application. Therefore,

the Court hereby finds for Defendant on all Causes of Action.

IT IS SO ORDERED.

Dated: April 20 , 2005

 /s/ Samuel Conti 

UNITED STATES DISTRICT JUDGE

Case 3:04-cv-02751-SC Document 101 Filed 04/20/05 Page 9 of 9