Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-02806/USCOURTS-azd-2_05-cv-02806-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Thomas P. Sciranko, 

Plaintiff, 

vs.

Fidelity & Guaranty Life Insurance

Company, a Maryland corporation, 

Defendant. 

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No. CV 05-02806-PHX-NVW

ORDER

Table of Contents

I. Background .......................................................1

A. Sciranko’s Preexisting Conditions ................................1

B. The Insurance Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

C. The Terms of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

D. Sciranko’s Disability Claim .....................................9

II. Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

III. The Insurance Application is Admissible as Evidence . . . . . . . . . . . . . . . . . . . . . 16

IV. There is a Genuine Issue of Material Fact as to Whether Fidelity Breached

the Insurance Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

A. There is No Genuine Issue of Material Fact as to Whether the 

Coverage Exclusion for Undisclosed Preexisting Conditions Applied 

on its Own Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1. Sciranko’s Claimed Disability Resulted from his 

Preexisting Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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ii

2. Sciranko Did Not Disclose his Preexisting Conditions Despite

his Awareness of Them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

a. Although there is a Genuine Dispute Regarding Whether 

Sciranko Orally Disclosed his History of Angina, it is 

Not Material Because Sciranko Had an Opportunity to

Review his Application and Made no Changes . . . . . . . . . . 22

b. Sciranko Was Aware of His History of ASHD and

Hyperlipidemia but Did Not Disclose Those Conditions . . 25

B. There is a Genuine Issue of Material Fact as to Whether Fidelity’s

Denial of Benefits Violated the Incontestability Clause in Sciranko’s

Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

1. Sciranko’s Incontestability Clause Prohibits a Denial of Benefits

After Two Years for Mere Failure to Disclose a 

Preexisting Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

2. The Incontestability Clause Permits a Denial of Benefits

After Two Years in the Case of Fraud, But Fraud Has Not 

Been Argued on this Motion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

V. Fidelity Did Not Exhibit Bad Faith in Processing and Denying Sciranko’s

Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

A. There is No Genuine Dispute that Fidelity Acted in an Objectively 

Reasonable Fashion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

B. Even Assuming that Fidelity Acted Unreasonably, There is No 

Evidence that Fidelity Acted in a Consciously Unreasonable Manner . . . 43

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Pending before the court is Defendant’s Motion for Summary Judgment (Doc. # 34).

I. Background

This action in diversity raises the question of whether Defendant Fidelity & Guaranty

Life Insurance Company (“Fidelity”) permissibly denied disability benefits to Plaintiff

Thomas P. Sciranko on the ground that he failed to disclose preexisting medical conditions

on his insurance application. Fidelity is a Maryland Corporation. Sciranko is a 45 year-old

resident of Arizona. The facts are partially disputed.

A. Sciranko’s Preexisting Conditions

Sciranko’s history of significant health problems dates back to his mid-20s, when he

began to experience episodes of what he interpreted to be anxiety attacks. The attacks

occurred several times a year and manifested through shortness of breath, sweating, and an

uncontrollable, racing heartbeat. Sciranko managed the condition with Valium and the antianxiety medication Xanax. 

In 1993, Sciranko began to experience moderate chest pain that correlated with

physical activity and, unlike his anxiety attacks, moderated with rest. Doc. # 45, Exh. 3 at

37. On December 7, 1993, Kirit P. Gosalia, M.D., a board-certified cardiologist and

specialist in internal medicine, diagnosed the pain as indicative of angina pectoris and

coronary artery disease and prescribed Adalat, a calcium channel-blocking drug that is used

to treat both angina and high blood pressure. Id. at 14, 20. Gosalia cannot recall explaining

the diagnoses to Sciranko, but he has a “clinical habit” and “blanket policy” of explaining

his diagnoses and test results to all of his patients. Doc. # 45, Exh. 4 at 8, 32. Sciranko

specifically remembers Gosalia’s explanation of the diagnosis of angina, Doc. # 45, Exh. 3

at 42-43, and he remembers independently researching to learn more about that condition,

id. at 43, but he cannot recall being told of the additional diagnosis of coronary artery

disease, id. at 45. Billing records indicate that Gosalia used a diagnostic code for coronary

artery disease to charge Sciranko’s insurance carrier for six additional visits involving

electrocardiogram testing and other evaluations from February 1994 to January 1996. Doc.

# 35, Exh. E at 1; Doc. # 45, Exh. 4 at 37. All other records of Sciranko’s visits during this

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period have been destroyed pursuant to Gosalia’s record retention policy, and Sciranko did

not receive further care from Gosalia until 2004. Id. at 32. 

Meanwhile, Sciranko started to receive his primary medical care from Sudeep S.

Punia, M.D., a board-certified internist, in May 1999. In a health history form completed and

signed at the time of his first visit, Sciranko explained that his angina was a “serious illness,”

and he circled “yes” in response to a question asking whether he ever had “heart disease.”

Doc. # 35, Exh. D at 1. Punia’s notes indicate that Sciranko had a history of arteriosclerotic

heart disease (“ASHD”), angina, and hypercholesterolemia, and that his prescriptions

included Adalat, aspirin, and Lipitor. Doc. # 45, Exh. 6 at 223. Describing Sciranko’s

treatment plan, Punia wrote “continue past medication” and “watch salt and fat in diet.” Id.

at 224. Punia also indicated an intention to “obtain previous medical records and review”

and require Sciranko to receive education and counseling on his coronary artery condition.

Id. 

Punia examined Sciranko several more times over the course of the next two years.

On March 21, 2000, he performed a complete physical examination and assessed that

Sciranko continued to suffer from ASHD and hypercholesterolemia. Doc. # 45, Exh. 6 at

220. He prescribed Zocor for Sciranko’s cholesterol as a substitute for Lipitor and continued

use of Adalat. From another examination on May 18, 2001, Punia wrote that Sciranko had

“controlled” blood pressure but suffered from swelling in both legs and discomfort in his

upper chest. Id. at 217. He again noted that Sciranko had ASHD and “hyperlipidemia,” a

term often used interchangeably with hypercholesterolemia, and he scheduled for Sciranko

to receive an electrocardiogram. Id. Although normal triglyceride and total cholesterol

levels are each less than 200 milligrams per deciliter, blood tests showed that Sciranko’s

levels were respectively 1489 and 446. Id. at 233. Sciranko was informed of these test

results at 10:15am on May 25, 2001. A handwritten note on the results form states, “watch

fat and cholesterol in diet.” Id. On July 16, 2001, Punia found that Sciranko continued to

suffer anxiety attacks associated with “sweating, heart races, [and elevated] breathing.” Id.

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at 216. Although Sciranko had previously smoked cigarettes for years, he quit in August

2001 and switched to a nicotine patch in September 2001. Doc. # 45, Exh. 3 at 88-90. 

Sciranko argues that there is a factual dispute as to whether Punia ever informed him

of the diagnoses of coronary artery disease and hyperlipidemia between 1999 and 2001.

Although Sciranko cannot recall how Punia became aware of the diagnoses, Sciranko is sure

that his own unawareness of the diagnoses precluded him from informing Punia, and he

recalls that Punia never explained to him that he was diagnosing ASHD, angina, or

hypercholesterolemia. Id. at 54-55, 69-70. Punia has a “clinical habit” of discussing

diagnoses with patients and presumes that he talked with Sciranko about each of the three

heart conditions, but he concedes that it is a “reasonable possibility” that he and Sciranko did

not discuss the conditions “at length” during the course of their visits because Gosalia was

presumed to be providing treatment. Doc. # 45, Exh. 5 at 23, 25-26, 51. Punia nevertheless

testifies that he received his information about each of the three heart conditions from

Sciranko himself. Id. at 15-17, 19-20. 

B. The Insurance Application

On September 26, 2001, Thomas Kearney contacted Sciranko by telephone after

learning that Sciranko was interested in purchasing a life insurance policy with a disability

income rider. Kearney was an independent contractor who sold policies for Fidelity from

approximately 1998 to late 2001 under an agreement with the insurance broker American

Classic Agency (“ACA”). He had approximately eleven total years of prior experience as

an insurance salesperson for a number of different companies. His agreement with ACA

entitled him to leads on potential customers such as Sciranko in exchange for a fee. When

Kearney first started selling for ACA, he received a commission of 65% of the total annual

premium on each policy he sold. ACA paid Kearney 75% of the value of the commission

at the time of the sale and disbursed the remaining 25% after the first nine months of the

policy. By the end of his agreement with ACA in late 2001, Kearney’s commissions had

reached 85% of the total annual premium on each policy sold. The first year of a policy term

was financially significant to Kearney because he received “very little” from

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ACA–approximately 2% of the value of a premium–for policy renewals. Doc. # 45, Exh. 1

at 13. 

The purpose of Kearney’s phone call on September 26 was to make a preliminary

determination as to whether Sciranko was eligible for coverage. Kearney had the impression

from his prior experience that health conditions such as heart attacks, arteriosclerotic heart

disease, unregulated high blood pressure, angina, and unregulated high cholesterol would

likely prevent approval of a life insurance application. A Client Qualification Information

sheet filled out by Kearney during the course of the phone call and based on details provided

by Sciranko indicates that Sciranko did not smoke at the time and that Sciranko had

experienced “controlled” high blood pressure for ten years. Doc. # 49, Exh. B; Doc. # 45,

Exh. 1 at 26-28. Kearney did not ask about Sciranko’s medications during the phone call.

Although Kearney otherwise asked “all [of] the qualifying questions” in the insurance

application, no other conditions were noted. Id. at 27, 29. 

Finding no reason why Sciranko would fail to qualify for coverage on the basis of the

preliminary information obtained on September 26, Kearney visited Sciranko’s home on

October 5, 2001, to help him complete the insurance application. The application asked a

series of questions about Sciranko’s health. It was noted on Page 1 that Sciranko visited

Punia in approximately August 2001 for a “blood test for [high blood pressure].” Id. at 1.

Question 6 asked: 

Has any person proposed to be insured used tobacco in any

form:

(a) within the past 12 months? (If yes, specify type and

date last used in the area below.)

(b) within the past 5 years? (If yes, specify type and date

last used in the area below.)

Doc. # 35, Exh. A at 2. Although Sciranko acknowledges in his deposition that he smoked

until approximately two months prior to the date of his application, “no” was filled in as the

answer to Questions 6(a) and (b). 

Question 7 read in relevant part:

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Within the past 10 years, has any person proposed to be insured

been treated for or diagnosed by a physician or other health care

professional as having: (If Yes, circle applicable condition.)

(a) Any disorder or disease of the blood or circulatory

system (such as: heart disease, palpitations, rheumatic fever,

heart murmur, angina or chest pain, high blood pressure, stroke,

anemia), respiratory system (such as: emphysema, tuberculosis,

asthma, bronchitis), brain or nervous system (such as:

convulsions, epilepsy, fainting spells, mental illness, or

Alzheimer’s disease), urinary tract (such as: kidney or bladder),

reproductive system, stomach, intestines, liver, or gallbladder

(such as: ulcer, colitis), endocrine system (such as: diabetes,

thyroid), or muscles or bones (such as: arthritis, gout, back

problems)?

Id. In columns to the right of the question where blanks for “yes” or “no” could be marked,

the blank next to the word “yes” was filled in. The blank for the word “no” was filled in and

also crossed out with an “X.” Despite the absence of any indication of a history of high

blood pressure, the term “high blood pressure” within the text of the question was also

circled in pen. No markings were made to indicate Sciranko’s history of angina,

hyperlipidemia, and ASHD. 

The relevant portion of the ensuing Question 8 read as follows:

Within the past 5 years, has any person proposed to be insured:

(a) Been in a hospital, clinic, sanatorium, or other medical

facility for operation or advised to have surgery, observation, or

treatment, seen a doctor, or been advised to and not done so?

(b) Had electrocardiogram, X-ray, or other diagnostic tests, or

been advised to and not done so?

(c) Been or is now disabled, or had or now have any other

mental or physical disorder not listed?

Id. Question 8(a) was answered “yes.” The answer to Question 8(b) was indicated as “no”

despite evidence that Sciranko received an electrocardiogram in approximately May 2001.

See Doc. # 45, Exh. 6 at 217. 

In a section for “Additional Information” that is located below Questions 7 and 8, it

was noted that Sciranko has “[high blood pressure]–maintained very well for 10 years with

Adalat 60 mg 1 time a day.” Id. The application closes with a section entitled

“Authorization,” which reads in part, “I have read the questions and answers on this

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application. The statements made in this application are: complete; true; and correctly

recorded.” Id. The application is signed by Sciranko and certified by Kearney. Sciranko

made no subsequent effort to change the recorded answers. 

The parties dispute the events leading up to the completion of the insurance

application. According to Sciranko, he and his wife, Lauren C. Sciranko, sat down at a table

across from Kearney and reviewed the terms of the policy. Once Sciranko confirmed his

interest in applying for coverage, Kearney pulled out the application, read aloud and verbatim

all of relevant questions except for Question 6, and personally marked Sciranko’s articulated

answer to most of the questions. Lauren Sciranko testifies that Kearney neglected to ask

about tobacco consumption under Questions 6(a) and (b), but Thomas Sciranko testifies that

Kearney did in fact ask those questions by orally paraphrasing them. Doc. # 45, Exh. 2 at

55. After Kearney finished reading the questions and marking Sciranko’s answers, he turned

the application over to Sciranko, who promptly provided a signature. The Scirankos did not

review the answers that Kearney recorded. Doc. # 45, Exh. 3 at 27.

Some of the answers noted by Kearney purportedly failed to accurately reflect

Sciranko’s oral answers. Sciranko testifies that the answers to Question 6 incorrectly

indicate that he had not smoked within the 12 months leading up to the date of the

application. He also testifies that he never indicated a history of high blood pressure in

response to Question 7 and that, indeed, he had never even suffered from that condition.

Although the notations pertaining to his use of Adalat were accurate, he took the medication

for angina, not high blood pressure. 

The explanations for the inaccuracies vary. Thomas Sciranko attributes the inaccurate

answer to Question 6 to Kearney’s decision to paraphrase the question rather than read its

text verbatim. He states that Kearney simply asked whether he currently smokes rather than

whether he had smoked in the recent past, so he answered “no” because that was the correct

answer “at that moment.” Doc. # 45, Exh. 3 at 91, 97. Sciranko’s wife, on the other hand,

testifies that Question 6 was incorrectly answered by Kearney himself without any input from

Sciranko. With regard to Question 7, Sciranko cannot recall whether he told Kearney about

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his history of angina or explain why the noted answers to the application lack any reference

to that condition or Sciranko’s treatment with Gosalia. Id. at 28-29. He attributes the

reference to high blood pressure to error by Kearney. Id. at 40. Sciranko’s wife, on the other

hand, testifies that Kearney was in fact told of Sciranko’s angina but simply did not write it

down. Doc. # 45, Exh. 2 at 45-46. Sciranko believes that he did not disclose his Lipitor

prescription because he was not actually taking Lipitor at the time, Doc. # 45, Exh. 3 at 58,

but he cannot explain why his Zocor prescription was also left undisclosed, id. at 67. He

further testifies that he had no knowledge of whether high blood pressure or cholesterol

would affect his ability to obtain insurance from Fidelity. Id. at 140. 

Kearney tells a different story. He testifies that when he sat across from Sciranko and

his wife, he provided them with a separate, blank copy of the insurance application and

instructed them to read each question silently to themselves. After Sciranko finished reading

each question, he stated his answer to Kearney, who in turn accurately wrote the expressed

answer down on his own, official copy of the application. Doc. # 45, Exh. 1 at 34. In

response to Question 7, Sciranko initially stated that he had not suffered from any of the

listed conditions. However, when Kearney pointed out that Sciranko had already disclosed

a history of high blood pressure on Page 1 of the application, Sciranko changed his answer

and indicated that he takes Adalat for high blood pressure. Id. at 35. Kearney recalls that

Sciranko never disclosed his history of angina, hyperlipidemia, ASHD, anxiety attacks, or

examinations with Gosalia. Once all of the questions were answered, Kearney had the

Scirankos review the application and sign it. Sciranko never indicated that he failed to

understand any of the questions presented to him.

After Sciranko completed his application, Kearney arranged on October 8, 2001, for

Marcella Bappe, a nurse with Heritage Labs International, LLC, to visit Sciranko at his home

to collect a urine sample and ask additional questions about his health. The examination was

completed by the nurse on October 10. The form recording the results began with a question

that read:

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Within the past 10 years, have you had any known indication of

or been treated for:

(a) Any disorder or disease of the . . . [b]lood or

circulatory system, such as: chest pain, palpitation; high

blood pressure; rheumatic fever; heart murmur; heart

attack; anemia?

Doc. # 35, Exh. A at 3. This question was answered affirmatively on the ground that

Sciranko suffers from “hypertension diagnosed 1991.” Id. The listed medication for this

condition was “Adalat 60 mg.” Id. Notes on the application also indicate that Sciranko

received an electrocardiogram in 2001 from Punia and that he “[h]ad a checkup, consultation,

illness, injury or surgery” in the past five years. Id. However, the nurse did not note any

other heart examinations, conditions, or treatments, and she indicated that Sciranko had not

used tobacco “within the past 10 years.” Id. Sciranko signed the application, representing

that “[t]o the best of [his] knowledge and belief, the statements made . . . are complete, true

and correctly recorded.” Id. He cannot recall how the application came to be filled out or

explain why it omits reference to his cardiac diagnoses and treatments. Doc. # 45, Exh. 3 at

52-53. Kearney never communicated with the nurse about Sciranko’s physical condition or

any other matter pertaining to his application. Doc. # 45, Exh. 1 at 48-49. 

C. The Terms of the Policy

On December 17, 2001, Fidelity issued Thomas Sciranko a $150,000 term life

insurance policy with a disability income rider that provides $1,500 in monthly benefits in

the event Sciranko becomes unable to substantially perform the essential duties of any

occupation for which he is qualified. Sciranko’s official premium was higher than initially

quoted because the urine sample collected by Bappe on October 10 indicated the presence

of nicotine. The insurance certificate shows that the disability rider became effective on the

date of issuance. 

The policy contains two relevant provisions. First, a “Benefit Limitations” provision

located within the disability rider states, “No disability income will be paid for any disability

which results from . . . [b]odily injury or disease, occurring before the effective date of this

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rider, which was not disclosed on the application.” Doc. # 35, Exh. B at 2. Second, an

“Incontestability” provision within the disability rider states:

We will not contest this rider’s benefit for any Insured or

Covered Dependent based on statements made in an application

after that benefit has been in effect during the lifetime of that

Insured or Covered Dependent for 2 years from:

! The certificate’s Date of Issue if part of the

certificate on that date; or

! The effective date of that Insured’s or Covered

Dependent’s benefit if made a part of the

certificate after the certificate’s Date of Issue.

Doc. # 45, Exh. 7 at 27. 

D. Sciranko’s Disability Claim

Sciranko continued to suffer from his various heart conditions after Fidelity issued the

term life insurance policy. See, e.g., Doc. # 45, Exh. 6 at 210, 213, 267. He underwent a sixvessel aorto-coronary bypass surgery on March 21, 2002, and was informed that his early

“anxiety attacks” were actually mild heart attacks. Id. at 92, 133; Doc. # 45, Exh. 3 at 39.

Punia noted continuing problems with coronary artery disease and hyperlipidemia in 2003.

Doc. # 45, Exh. 6 at 201, 206, 263. On March 26, 2004, Gosalia wrote a letter to Punia

explaining that although Sciranko quit smoking and does not suffer from high blood pressure,

he has a “history of very high cholesterol” and “obvious[] coronary artery disease.” Id. at

160-61. Cardiologist Rajendra Savajiyani, M.D., “strongly advised [Sciranko] to consider

long-term disability” on March 14, 2005, due to his “severe, diffuse, three-vessel coronary

artery disease,” “history of six-vessel aortocoronary bypass surgery,” and “history of

hyperlipidemia.” Id. at 185. Additional bypass surgery was performed on March 24, 2005.

Id. at 175. According to Sciranko, Gosalia recommended that he avoid work and strictly

limit his physical activity because he has “smaller arteries than the average person.” Doc.

# 45, Exh. 3 at 136. Gosalia testifies that Sciranko should be confined to his house “because

of his cardiac condition.” Doc. # 45, Exh. 4 at 54. 

Sciranko filed for disability insurance benefits on April 18, 2005. He explained his

disability as follows:

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Apparently this is something I just found out is hereditary–my

coronary arteries are too small. They clogged up 3 years ago

and I had a 5-way by-pass open heart surgery. Because those

new arteries still fed into the small arteries they backed up and

then clogged up again. I ended up with chest pain again on 3-

11-05 resulting with the need for more surgery. Four stents

were put in on 3-24-05. No more surgery can be done except

for heart transplant.

Doc. # 45, Exh. 6 at 126. In support of the claim, Lauren Sciranko submitted a number of

documents to William R. Barger, a senior claims examiner for Fidelity. The documents

included Thomas Sciranko’s Claimant’s Statement of Disability, contact information for his

treating physicians, Lauren Sciranko’s own summary of her husband’s recent heart surgeries,

hospital billing records, a hospital discharge statement listing Thomas Sciranko’s

medications and treatments, and a signed records release form. 

On May 3, Lauren Sciranko separately submitted a signed Attending Physician’s

Statement from Gosalia indicating that Sciranko is disabled and confined to his house due

to coronary artery disease and hyperlipidemia. Id. at 107-08. Because Gosalia omitted some

necessary information on Sciranko’s medications and the date on which his symptoms first

appeared, Lauren Sciranko independently inserted the missing information and initialed next

to her additions. In accordance with his “general understanding” of Fidelity’s standard

practice, Barger responded in a letter dated May 10 that Fidelity could not accept Gosalia’s

statement as submitted because it was not legible and fully completed by Gosalia himself.

Doc. # 45, Exh. 8 at 50; see also Doc. # 45, Exh. 9 at 52-53. Barger also indicated that the

claim would not be processed until a Claimant’s Statement of Disability and a signed medical

records release form had been submitted. Id. at 109. In retrospect, Barger is not sure why

Sciranko was asked to resubmit those forms after having already submitted them on April

18. Doc. # 45, Exh. 8 at 56. 

Lauren Sciranko resubmitted the signed release form and the disability statement from

her husband again on May 14, 2005. She also resubmitted Gosalia’s initial statement despite

Fidelity’s indication that it was unacceptable. If Fidelity still found the statement deficient,

she explained, the company should call Gosalia for additional information. Lauren

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Sciranko’s letter further indicated that she wished to handle personally her husband’s

disability claim because his heart condition prevents him from safely handling stress. 

Fidelity again rejected the submitted documents in a May 24 letter addressed to

Thomas Sciranko. Barger explained that Gosalia’s original Statement remained illegible and

omitted information that must be supplied by the physician. He also explained that Fidelity

had begun to collect Sciranko’s other medical records to determine whether he qualifies for

payments. Id. at 117. Barger did not call Gosalia, however, because his experience is that

physicians typically do not return calls from insurance companies, and in any event Fidelity

has a standard practice of making sure that physician statements are in writing. Doc. # 45,

Exh. 8 at 51; Doc. # 45, Exh. 9 at 38, 52-53. The purpose of the standard practice is to create

a “paper trail” for reference in the event of a claim dispute. Doc. # 45, Exh. 8 at 51; Doc. #

45, Exh. 9 at 52-53. 

On May 27, 2005, Lauren Sciranko directed a letter of complaint concerning Barger’s

conduct to Russell H. Laws, Fidelity’s Assistant Vice President of Claims and Compliance.

The letter accused Barger of “obviously and purposely ignoring” Lauren Sciranko’s requests

and asserted that Barger had acted improperly by refusing to accept Gosalia’s statement,

refusing to contact Gosalia by phone to resolve any deficiencies in his statement, refusing

to return Lauren Sciranko’s phone calls, and sending correspondence to Thomas Sciranko

despite instructions that Lauren Sciranko alone is handling the claim. Id. at 118. In

accordance with his understanding of an “internal policy” aimed at ensuring Fidelity’s

compliance with federal privacy regulations, Laws responded with a June 17 letter explaining

that Lauren Sciranko must provide power of attorney documentation signed by Thomas

Sciranko in order for Fidelity to address her rather than her husband during the processing

of the claim. Id. at 51. Three days later, Lauren Sciranko submitted a complaint to the

Arizona Department of Insurance, Consumer Affairs Division, repeating the accusations

made against Barger on May 27. 

On June 23, 2005, Thomas Sciranko received another letter from Barger stating that

Fidelity still needed a legible and complete statement from Gosalia. Barger explained that

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Fidelity was in the process of collecting Sciranko’s other medical records, but that if

Sciranko wished to expedite the process he could separately contact Punia to request that he

quickly send his records to Fidelity. Barger contemporaneously sent a blank Employer’s

Statement of Disability form to Thomas Sciranko’s former employer to collect information

concerning the effect of Sciranko’s condition on his ability to work. Lauren Sciranko mailed

Fidelity power-of-attorney documentation and one of her husband’s pay stubs as proof of

employment on June 29, 2005. 

On June 30, 2005, Laws received a notice of Lauren Sciranko’s complaint before the

Arizona Department of Insurance. The notice requested an explanation of Fidelity’s position

on the matter and supporting documentation. Laws responded on July 19, indicating that

Thomas Sciranko’s claim had been delayed because Fidelity had not received an Attending

Physician’s Statement appropriately completed by Gosalia himself. Laws also explained

that, despite Lauren Sciranko’s assertion to the contrary, Fidelity was still in the process of

collecting necessary medical records. Barger’s prior correspondence requesting

documentation of Lauren Sciranko’s power of attorney was explained as a reflection of

standard company policy aimed at ensuring claimant privacy. The Arizona Department of

Insurance apparently decided not to take action against Fidelity after receiving this

explanation. 

Barger sent additional letters addressed to Thomas Sciranko and his former employer

on July 20, 2005. The former repeated that Fidelity still needed to obtain a legible and

complete statement from Gosalia, Punia’s records, and an Employer Statement of Disability

prior to completing its evaluation of the claim. The second letter repeated Fidelity’s initial

request that Sciranko’s former employer complete the statement form provided on June 23.

After receiving Punia’s medical records, Fidelity denied coverage on July 28, 2005.

The stated basis for this decision was that medical records from May 7, 1999, March 21,

2000, and May 18, 2001, indicated that Sciranko had preexisting conditions of ASHD and

hyperlipidemia that were not disclosed on his initial insurance application. Prior to denying

benefits, Fidelity did not seek a legal opinion on the proper disposition of the claim, and it

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did not receive a statement from Sciranko’s former employer or a completed statement from

Gosalia. Doc. # 45, Exh. 9 at 67, 71. Laws testifies that although Fidelity requested those

statements from Sciranko, the company does not have a policy that makes them mandatory

to decide a claim. Id. at 35. Fidelity examiners have discretion to look for preexisting

conditions and decide claims even without an entire record once the proper outcome of a

claim becomes apparent. Id. at 39-40. Claims processing is “never” delayed solely for lack

of an employer’s statement because it is Fidelity’s experience that employers rarely

cooperate anyway. Id. at 64-65. 

Sciranko’s claim was denied despite the incontestability clause in his policy because

neither Laws nor Barger viewed the clause as relevant. Laws believes that incontestability

clauses in Arizona preclude insurance carriers from disputing the validity of a policy after

two years, but not from disputing coverage for particular claims under an admittedly valid

policy. Id. at 40. He obtained this understanding from unspecified Ninth Circuit precedent,

legal summaries produced by the American Counsel of Life Insurers, and an internal

memorandum from Fidelity’s legal department that lists states in which an incontestability

clause will apply to both disputes over the validity of a policy and disputes over the scope

of coverage. Id. at 41-42, 87-88. Because the internal memorandum does not mention

Arizona, Laws inferred that the State permits Fidelity to deny coverage on the basis of a

preexisting condition even after two years from the issuance of the policy. Id. Barger

possessed the same view based on Fidelity’s internal memorandum and training he received

from the company. Doc. # 45, Exh. 8 at 81, 84-85, 91, 93. 

Barger and Laws both possessed a general understanding of the common law duty of

good faith and fair dealing at the time they processed Sciranko’s claim. Barger was “trained

generally” on the duty while employed at Fidelity and understands it to require insurance

carriers to process claims in an “open arm’s length manner.” Id. at 9, 16. Although he

cannot remember many of the details pertaining to how he processed Sciranko’s claim,

Barger generally made efforts to comply with the duty of good faith and fair dealing by

acting in accordance with the Fair Claims Practices Act, responding promptly to customer

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complaints, reviewing claims thoroughly, and comparing case facts with policy language.

Id. at 16. Barger did not have a checklist of the requirements for compliance with Fair

Claims Practices Act in Arizona, but he was trained to follow California’s version of that

Act, and he understands California’s requirements to be the strictest in the country. Id. at 20.

As Barger’s superior at Fidelity, Laws also received substantial training on the duty

of good faith and fair dealing. He understands the duty to require Fidelity to “deal honestly

and fairly with people,” “take a neutral approach to [its] investigations and consider all the

relevant information, both that provided by the insured and . . . discovered in [the]

investigation,” and investigate claims “reasonably promptly.” Doc. # 45, Exh. 9 at 23, 36.

Laws also understands the duty to mean that one “should not needlessly ask for things for the

purpose of either delaying or . . . obstructing the settlement of a claim.” Id. at 24. To ensure

compliance with the duty, Fidelity makes efforts to train its claims examiners, utilize a

quality-review process that requires Laws to review preliminary benefits determinations,

respond to customer communications, request required claim information, follow up with

customers, communicate clearly, conduct customer service performance reviews, and

monitor claims to limit the time of processing to no more than 90 days when possible. Id.

at 20-22, 25-27, 30, 33. 

Sciranko filed this action in response to Fidelity’s denial of coverage. Count I of the

Complaint alleges that Fidelity breached the insurance agreement by declining to provide

disability payments. Count II alleges that Fidelity acted in bad faith by unreasonably denying

Sciranko’s claim, failing to fully and fairly investigate the claim, misrepresenting policy

terms, creating unreasonable requirements for payment, engaging in “overt dishonesty,” and

subjecting Sciranko to “offense, insult and personal abuse.” Doc. # 1 at 8. Fidelity now

moves for summary judgment.

II. Standard of Review

Rule 56(c), Fed. R. Civ. P., provides that summary judgment is proper when “the

pleadings, depositions, answers to interrogatories, and admissions on file, together with

affidavits, if any, show that there is no genuine issue as to any material fact and that the

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moving party is entitled to a judgment as a matter of law.” A “genuine issue” of material fact

will be absent if, “viewing the evidence and inferences which may be drawn therefrom in the

light most favorable to the adverse party, the movant is clearly entitled to prevail as a matter

of law.” Jones v. Halekulani Hotel, Inc., 557 F.2d 1308, 1310 (9th Cir. 1977); see also

Baldwin v. Trailer Inns, Inc., 266 F.3d 1104, 1117 (9th Cir. 2001). The evidence presented

by the parties must be admissible. Fed. R. Civ. P. 56(e). Conclusory and speculative

testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and

to defeat summary judgment. Thornhill Publ’g Co., Inc. v. GTE Corp., 594 F.2d 730, 738

(9th Cir. 1979).

The party seeking summary judgment bears the initial burden of informing the court

of the basis for its motion and identifying those portions of the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits, if any, which

it believes demonstrate the absence of any genuine issue of material fact. See Celotex Corp.

v. Catrett, 477 U.S. 317, 323 (1986). The nature of this responsibility varies, however,

depending on whether the movant or the non-movant would bear the burden of persuasion

at trial with respect to the issue at hand. If the burden of persuasion would be on the

nonmoving party, the party moving for summary judgment may carry its initial burden of

production under Rule 56(c) by introducing “evidence negating an essential element of the

nonmoving party’s case,” or by showing, “after suitable discovery,” that the “nonmoving

party does not have enough evidence of an essential element of its claim or defense to carry

its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210

F.3d 1099, 1105-06 (9th Cir. 2000); High Tech Gays v. Defense Indus. Sec. Clearance

Office, 895 F.2d 563, 574 (9th Cir. 1990). On the other hand, if the burden of persuasion at

trial would be on the party moving for summary judgment, that party may satisfy its initial

burden of production only by showing that it would be “entitle[d] . . . to a directed verdict

if the evidence went uncontroverted at trial.” Houghton v. South, 965 F.2d 1532, 1536 (9th

Cir. 1992); cf. Berry v. Bunnell, 39 F.3d 1056, 1057 (9th Cir. 1994) (“A directed verdict is

proper when the evidence permits only one reasonable conclusion.”). 

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 Federal Rules of Evidence, rather than state rules of evidence, generally govern in

diversity actions. Feldman v. Allstate Ins. Co., 322 F.3d 660, 666 (9th Cir. 2003). However,

a state rule of evidence will govern if it is “intimately bound up” with the state’s “substantive

decisionmaking.” Wray v. Gregory, 61 F.3d 1414, 1417 (9th Cir. 1995). Section 20-1108(A)

satisfies this standard. The statute reflects Arizona’s concern that it would be unfair to bind

an insurance applicant to misstatements on an insurance application if the applicant lacked

a prior opportunity to review and correct those statements. See Marine v. Allstate Ins. Co.,

12 Ariz. App. 229, 230-31, 469 P.2d 121, 122-23 (Ct. App. 1970). The State rule therefore

applies. 

16

Where the moving party has met its initial burden with a properly supported motion,

the party opposing the motion “may not rest upon the mere allegations or denials of his

pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1985). Summary judgment is

appropriate against a party who “fails to make a sufficient showing to establish the existence

of an element essential to that party’s case, and on which that party will bear the burden of

proof at trial.” Celotex Corp., 477 U.S. at 322; Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574, 586, (1986) (nonmovant’s showing of “some metaphysical doubt” as

to material facts insufficient); see alsoCitadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th

Cir. 1994). Summary judgment is not appropriate when the nonmoving party identifies or

produces evidence from which a reasonable juror, drawing all inferences in favor of the

nonmoving party, could return a verdict in the nonmoving party’s favor. United States v.

Shumway, 199 F.3d 1093, 1103-04 (9th Cir. 1999).

III. The Insurance Application is Admissible as Evidence

Sciranko opposes the motion for summary judgment in part by arguing that the

insurance application is inadmissible under A.R.S. § 20-1108(A) because a “true copy” of

the application was not attached to the policy at the time the policy was issued and delivered.

The relevant portion of the statute reads:

No application for the issuance of any life or disability insurance

policy or contract shall be admissible in evidence in any action

relative to such policy or contract, unless a true copy of the

application was attached to or otherwise made a part of the

policy when issued and delivered.1

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The record contains a copy of the insurance policy to which only one page of the insurance

application is attached. See Doc. # 45, Exh. 7. Because the application contained multiple

pages, that first page alone cannot constitute a “true copy” of the application. However,

Sciranko submits no evidence to indicate that the copy of the insurance policy and

application that is contained in Exhibit 7 is the same copy that was delivered to him at the

time of issuance. Kearney also testifies that he hand-delivered to Sciranko a “complete copy

of the Policy with a complete copy of both parts of the application attached thereto” on

November 14, 2001. Doc. # 55, Affidavit of Thomas Kearney at 2. On January 15, 2002,

Kearney also sent via certified mail a “complete copy of the re-issued Policy with complete

[sic] copy of both parts of the application and amendment attached thereto.” Id. at 4. 

Rather than dispute the accuracy of Kearney’s affidavit, Sciranko attempts to

distinguish the “mailing” of a true copy of a policy and application from the statutorily

envisioned “delivery” of the same. However, the distinction is not supported by any case

authority and is nonsensical. Sciranko’s insurance application will be considered as

evidence. 

IV. There is a Genuine Issue of Material Fact as to Whether Fidelity Breached the

Insurance Contract

Fidelity contends that no material facts are genuinely disputed and moves for

summary judgment on the ground that while incontestability clauses are traditionally limited

to prohibiting defenses regarding the validity of a policy more than two years after the date

of issuance, they do not prohibit a defense based on a policy exclusion for preexisting

conditions because that defense only concerns the scope of coverage. For the reasons

explained below, the Motion for Summary Judgment will be denied with respect to Count

I.

A. There is No Genuine Issue of Material Fact as to Whether the Coverage

Exclusion for Undisclosed Preexisting Conditions Applied on its Own

Terms

To determine whether Sciranko was appropriately denied benefits, it first must be

decided whether Fidelity’s coverage exclusion for undisclosed preexisting conditions applied

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on its own terms. The text of the exclusion reads, “No disability income will be paid for any

disability which results from . . . [b]odily injury or disease, occurring before the effective

date of [the disability] rider, which was not disclosed on the application.” Doc. # 35, Exh.

B at 2. Sciranko asserts that this language does not apply because his disability “results

from” heart attacks that he suffered after the issuance of the policy and from his recently

discovered problem of congenitally narrow arteries, rather than undisclosed preexisting

conditions. Doc. # 45 at 8-9; Doc. # 47 at 13. Sciranko also argues that the exclusion does

not apply because he disclosed all preexisting conditions of which he was aware. The

evidence underlying these contentions is insufficient to create a genuine issue of material fact

concerning the applicability of the coverage exclusion. 

1. Sciranko’s Claimed Disability Resulted from his Preexisting

Conditions

The provisions of insurance policies in Arizona must be construed “according to their

plain and ordinary meaning.” Sparks v. Republic Nat’l Life, 132 Ariz. 529, 534, 647 P.2d

1127, 1132 (1982). Language that would be considered ambiguous by an individual “not

trained in law or in the insurance business” is construed against the insurer. Id., 647 P.2d at

1132. While the insured carries the burden to establish coverage under an insuring clause,

the insurer must establish the applicability of any exclusion. Keggi v. Northbrook Prop. &

Cas. Ins. Co., 199 Ariz. 43, 46, 13 P.3d 785, 788 (Ct. App. 2000). 

Neither party argues that the exclusion for preexisting conditions is vague or

ambiguous in its use of the phrase, “results from.” As a verb, “result” means to “arise as a

consequence, effect, or conclusion.” Oxford English Dictionary 1573 (Compact ed. 1991).

The exclusion therefore applies when a claimed disability “arise[s] as a consequence, effect,

or conclusion” from a bodily injury or disease that was occurring before the date of the

policy’s issuance and was not disclosed on the insurance application. 

Because Fidelity denied coverage on the basis of a policy exclusion and is the party

moving for summary judgment, it must show that it would be “entitle[d] . . . to a directed

verdict if the evidence went uncontroverted at trial.” Houghton, 965 F.2d at 1536; see also

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Keggi, 199 Ariz. at 43, 13 P.3d at 788. Fidelity has satisfied this burden. Viewing the

evidence in the light most favorable to Sciranko and drawing all reasonable inferences in his

favor, the only reasonable conclusion is that Sciranko’s claimed disability was a consequence

of his preexisting conditions of ASHD, hyperlipidemia, and angina. Berry, 39 F.3d at 1057.

On March 14, 2005, Savajiyani “strongly advised [Sciranko] to consider long-term disability

due to extremely severe underlying cardiac disease.” Doc. # 45, Exh. 6 at 185 (emphasis

added). Savajiyani clarified the nature of Sciranko’s “disease” by listing diagnoses of

“angina due to severe, diffuse, three-vessel coronary artery disease,” a “history of six-vessel

aortocoronary bypass surgery,” and a “history of hyperlipidemia.” Id. Gosalia’s similar

finding of disability reflected his diagnoses of coronary artery disease and hyperlipidemia.

Id. at 107-08. Punia and Gosalia repeatedly documented the presence of these conditions

prior to the date of Sciranko’s insurance application. 

Because of this evidence, the burden shifts to Sciranko to identify contrary evidence

that, when viewed in the light most favorable to him, could cause a reasonable juror to decide

in his favor. Shumway, 199 F.3d at 1103-04. Sciranko has failed to satisfy this burden. The

argument that heart attacks are the actual cause for the claimed disability simply begs the

question as to why Sciranko experienced heart attacks in the first place. Sciranko, moreover,

cites no evidence to cast doubt on record evidence uniformly showing that his heart attacks

were products of his preexisting conditions. Although the alleged disability may be viewed

as resulting more directly from Sciranko’s heart attacks than the preexisting conditions that

caused those attacks, the causal chain is still sufficiently short to locate the claimed disability

within the terms of the coverage exclusion. Sciranko makes no effort to argue otherwise. 

Sciranko also fails to meet his burden in arguing that he is disabled exclusively

because of congenitally small arteries. No medical record indicates that a physician found

him disabled solely because of that condition rather than ASHD, angina, and hyperlipidemia.

See Doc. # 45, Exh. 6 at 107-08, 185. Even Sciranko’s own allegations operate in significant

tension with the notion that he is disabled purely as a result of congenital arterial deformity.

The Complaint states that Sciranko “became totally disabled” “in about March of 2005.”

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Doc. # 1 at 6. If a non-progressive, congenital condition were the exclusive source of the

disability, it is difficult to see why Sciranko would suddenly become disabled at 45 years of

age, during the particular month in which he happened to receive bypass surgery to

counteract the effects of ASHD and hyperlipidemia. Further undermining Sciranko’s

argument, the statement he provided to Fidelity on April 18, 2005, identified the sources of

his disability as small arteries, “chest pain,” and–in reference to ASHD–repeated surgery for

“clogged” arteries. Doc. # 45, Exh. 6 at 126. That statement clarifies that original artery size

was only one among several contributing causes for the alleged disability. The coverage

exclusion still applies in these circumstances because the presence of multiple causes of

disability does not negate the causal relationship between the disability and each contributing

cause; even if Sciranko’s disability “results from” original artery size, it still also “results

from” his ASHD, hyperlipidemia, and angina. 

The only evidence cited in support of Sciranko’s position is his own deposition

testimony that Gosalia recommended limited physical activity because he has “smaller

arteries than the average person.” Doc. # 45, Exh. 3 at 136. When read in conjunction with

other evidence pertaining to the nature of Sciranko’s disability, it is clear that Gosalia was

not identifying any congenital problem as the exclusive or even primary source of the

claimed disability. Indeed, no cited medical records mention congenital illness. As indicated

above, Gosalia’s final disability assessment only rested on diagnoses of ASHD and

hyperlipidemia. Doc. # 45, Exh. 6 at 107-08. 

Sciranko argues that the dispute over the cause of his claimed disability precludes

summary judgment because it raises a complex medical question the resolution of which

requires expert testimony. Existing expert evidence in the form of assessments from Punia,

Gosalia, and Savajiyani, however, already amply establishes the causal relationship between

the preexisting conditions and the disability. See Doc. # 45, Exh. 6 at 107-08, 185. To the

extent that Sciranko argues that additional expert testimony on causation is nevertheless

required, his position finds no support in Arizona law. Arizona Rule of Evidence 702

provides:

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If scientific, technical, or other specialized knowledge will assist

the trier of fact to understand the evidence or to determine a fact

in issue, a witness qualified as an expert by knowledge, skill,

experience, training, or education, may testify thereto in the

form of an opinion or otherwise. 

Nothing in this Rule requires additional expert testimony in the context of this case. The

California precedent Sciranko relies on to argue otherwise applies California rules of

evidence that are inapposite here. See Whiteley v. Philip Morris, Inc., 117 Cal. App. 4th 635,

699, 11 Cal. Rptr. 3d 807, 860 (Ct. App. 2004); Carson v. Facilities Dev. Co., 36 Cal. 3d

830, 844, 686 P.2d 656, 664 (1984). Cabrera v. Cordis Corp., 134 F.3d 1418 (9th Cir.

1998), is also distinguishable. Unlike that case, in which the plaintiff presented no evidence

of causation to defeat a motion for summary judgment on her medical tort claim, the record

now before the court is replete with evidence of causation between Sciranko’s preexisting

conditions and his disability. Cabrera does not require what would amount to duplicative

expert testimony. Id. 

2. Sciranko Did Not Disclose his Preexisting Conditions Despite his

Awareness of Them

Sciranko’s final argument against the applicability of Fidelity’s coverage exclusion

is that he disclosed his angina to Kearney on October 5, 2001. Although Sciranko admits

that he did not disclose his preexisting ASHD and hyperlipidemia, he appears to contend that

his failure to do so is excused by his lack of awareness of those conditions at the time he

signed the application. 

The court rejects these arguments. An applicant for insurance is “under a duty to

examine answers [noted on his application] to determine if they are accurate and complete.”

Stewart v. Mut. of Omaha Ins. Co., 169 Ariz. 99, 107, 817 P.2d 44, 52 (1991). Even if an

insurance agent makes mistakes in recording the applicant’s answers, the applicant becomes

bound by the answers as recorded if he does not subsequently correct them despite having

the opportunity to do so. Marine, 12 Ariz. App. at 230-31, 469 P.2d at 122-23; Greber v.

Equitable Life Assurance Soc’y of the U.S., 43 Ariz. 1, 28 P.2d 817 (1934); Stewart, 169

Ariz. at 107, 817 P.2d at 52. The insurer is only prohibited from denying coverage on the

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basis of the incorrect answers where its own agent fraudulently recorded them without the

fault, knowledge, or collusion of the applicant and induced the applicant to sign the

application without reviewing it. Smith v. Republic Nat’l Life Ins. Co., 107 Ariz. 112, 117,

483 P.2d 527, 532 (1971). 

a. Although there is a Genuine Dispute Regarding Whether

Sciranko Orally Disclosed his History of Angina, it

is Not Material Because Sciranko Had an Opportunity to

Review his Application and Made no Changes

Fidelity has satisfied its initial burden in showing that its evidence, if uncontroverted

at trial, would only reasonably permit the conclusion that Sciranko was aware of and failed

to disclose his angina. Sciranko and his wife both concede that he was aware of the

condition prior to the date of the insurance application. Doc. # 45, Exh. 3 at 42-43; Doc. #

45, Exh. 2 at 45-46. Sciranko even independently researched the condition to learn more

about it after he received his diagnosis in 1993. Doc. # 45, Exh. 3 at 43. Fidelity also cites

ample evidence that Sciranko failed to disclose the condition to Kearney. The preliminary

questionnaire filled out by Kearney on September 26, 2001, was bereft of any reference to

angina, and there is no testimony indicating that the omission is due to misconduct by

Kearney. Doc. # 49, Exh. B. Kearney testifies that neither Sciranko nor his wife mentioned

angina during the application interview. Doc. # 45, Exh. 1 at 35. Despite uncontroverted

testimony that Kearney never contacted Marcella Bappe regarding Sciranko’s physical

condition, the nurse’s records also omit any reference to angina and, in the absence of any

contrary evidence, strongly suggest that Sciranko repeatedly failed to disclose that condition.

Doc. # 35, Exh. A at 3. 

Whether Sciranko has produced sufficient controverting evidence is a closer question.

Sciranko cannot personally recall whether he told Kearney about his angina, Doc. # 45, Exh.

3 at 28-29, but he argues that the issue is nevertheless genuinely disputed in light of his

wife’s testimony that angina was revealed to Kearney during the application interview. The

relevant portion of his wife’s deposition testimony reads as follows:

[Question by Defense Counsel:] Now, when I read the

application, there’s no disclosure of a 1993 cardiologist

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treatment with Dr. Gosalia, there’s no disclosure of a diagnosis

of angina, and there’s no disclosure that Adalat was being

prescribed for that angina. Do you know why that is?

[Answer by Lauren Sciranko:] Because Mr. Kearney didn’t

write it down.

Q: So you are alleging that you told Mr. Kearney in October of

2001 that all the way back in 1993, your husband was told by a

cardiologist that there was something wrong with his heart, that

it was diagnosed as angina, and that he had prescribed Adalat

for that angina? Is that your testimony?

A: No.

Q: All right. Well, I need to know. Because I asked your

husband this question as to why he didn’t sue Mr. Kearney, and

the lawyer instructs him not to answer that question, and we’ll

let the judge decide that issue. 

But I need to know, since you claim you were in the room at the

time, what are you alleging happened? Are you alleging–we

know one thing for true. None of this, 1993 cardiac treatments

and 1999 cardiac diagnoses, were disclosed on this October

2001 application. Are you alleging you and your husband told

Mr. Kearney all about that, and he just didn’t write it down?

A: Yes.

Doc. # 45, Exh. 2 at 44-45. Citing Chanay v. Chittenden, 115 Ariz. 32, 35, 563 P.2d 287,

290 (1977), and Orme School v. Reeves, 166 Ariz. 301, 311, 802 P.2d 1000, 1010 (1990),

Fidelity objects that this testimony may not create a genuine dispute of material fact because

it is internally contradictory. While federal law, rather than Chanay and Orme School,

governs the standard for summary judgment in federal court, the Ninth Circuit has, like

Arizona, adopted the rule that an individual may not create an issue of fact by strategically

contradicting her own testimony. See Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 267

(9th Cir. 1991) (holding that where “the district court makes a factual determination that the

contradiction was actually a ‘sham,’” the testimony may not preclude the entry of summary

judgment). 

The court is not convinced that Lauren Sciranko’s testimony falls within the rule of

Kennedy. It is admittedly somewhat difficult to reconcile the answers to defense counsel’s

line of questions. Lauren Sciranko explained that the information pertaining to her husband’s

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angina and accompanying medications and treatments was omitted from the application by

Kearney’s mistake, but she also appears to have indicated otherwise in her terse second

answer. It is a stretch to see how defense counsel’s second question materially differed from

the others so as to explain Lauren Sciranko’s unique response. However, there is also scant

basis for concluding that Lauren Sciranko strategically contradicted herself to create a

“sham” issue of fact to avoid summary judgment. Her second answer was impromptu and

entirely unexplained, so it is impossible to divine its rationale, and her answers were

otherwise consistent. The court will therefore treat her testimony as genuinely contrary to

the testimony provided by Kearney.

Fidelity’s uncontroverted evidence that Sciranko failed to disclose angina during his

preliminary interview with Kearney over the telephone on September 26, 2001, and again

during his examination with Marcella Bappe on October 10, 2001, does not undermine the

conclusion that there is a genuine issue of fact. Although that evidence raises serious

questions as to Lauren Sciranko’s credibility, the persuasiveness of her testimony in light of

the contrary evidence is an issue that cannot be decided by the court. 

To conclude that there is a genuine issue of fact, however, is not to say that the

disputed fact is “material” under Rule 56. Even assuming that Sciranko told Kearney about

his history of angina and that Kearney neglected to record that information, Arizona law

permits Fidelity to deny coverage on the ground that the condition was undisclosed because

Sciranko had an opportunity to review the application and signed the application without

making any corrections. Marine, 12 Ariz. App. at 230-31, 469 P.2d at 122-23; Greber, 43

Ariz. 1, 28 P.2d 817. In providing his signature, Sciranko verified that he “read the questions

and answers” and that the “statements made in [the] application are: complete; true; and

correctly recorded.” Doc. # 45, Exh. 6 at 217. Fidelity had no reason to believe that

Sciranko’s application contained any misstatements or omissions after obtaining this

verification. Kearney testifies that he gave Sciranko an opportunity to review the application

at the end of the interview, that Sciranko did review the document, and that Sciranko even

read the verification statement prior to providing his signature. Doc. # 45, Exh. 1 at 40-41,

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94. While Sciranko disputes whether he actually reviewed the application, he never testifies

that Kearney deprived him of an opportunity to do so. Doc. # 45, Exh. 3 at 16, 27. Whether

Sciranko took advantage of an opportunity to review the application cannot be a material

dispute given that the very purpose of the rule in Marine and Greber is to place the burden

of review on the applicant. The absence of evidence that Kearney induced Sciranko not to

review the completed application prior to providing his signature renders inapplicable the

rule in Smith. 107 Ariz. at 117, 483 P.2d at 532. 

b. Sciranko Was Aware of His History of ASHD and

Hyperlipidemia but Did Not Disclose Those Conditions

Even assuming that there is a genuine dispute of material fact pertaining to Sciranko’s

disclosure of angina, there is no genuine dispute that Sciranko both was aware of and failed

to disclose the other preexisting conditions that contributed to his disability. Fidelity proffers

an abundance of evidence to satisfy its burden under Rule 56. Gosalia, who first diagnosed

Sciranko’s ASHD, testifies that he has a “clinical habit” and “blanket policy” of informing

patients of his diagnoses and test results, Doc. # 45, Exh. 4 at 8, 32, and his billing records

reveal that Sciranko made a total of seven visits for electrocardiogram and other testing in

connection with his heart disease between December 1993 and January 1996. Doc. # 35,

Exh. E at 1; Doc. # 45, Exh. 4 at 37. In May 1999, when Sciranko first visited Punia, he

responded “yes” in response to a question asking whether he ever had “heart disease.” Doc.

# 35, Exh. D at 1. Punia’s personal notes from that visit indicate that he was aware of

Sciranko’s history of ASHD, hyperlipidemia, and use of aspirin and Lipitor. Given that

Punia had yet to “obtain previous medical records and review” at the time he made those

notes, the only possible source of his information was Sciranko himself. Doc. # 45, Exh. 6

at 224. Other notes indicate that Sciranko received “coronary artery” “education/counseling”

in May 1999 and that he was “informed” of test results showing extremely high levels of

cholesterol and triglycerides in his blood on May 25, 2001. Doc. # 45, Exh. 6 at 224, 233.

Punia’s records also describe lifestyle recommendations for Sciranko, such as “watch salt and

fat in diet” and “watch fat and cholesterol in diet,” id. at 223-24, and indicate that Sciranko’s

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cholesterol medication was switched from Lipitor to Zocor in March 2000, Doc. # 45, Exh.

6 at 220. Punia testifies that he has a “clinical habit” of discussing diagnoses with patients

and that he received his knowledge of Sciranko’s heart disease and hyperlipidemia from the

patient himself. Doc. # 45, Exh. 5 at 25, 15-17, 19-20.

Sciranko’s countervailing evidence is his testimony that he cannot recall whether

Gosalia informed him of the diagnosis of ASHD and that he has “no idea” how Punia

obtained information about his history of ASHD and hyperlipidemia and accompanying

medications during the office visit in May 1999. Doc. # 45, Exh. 3 at 45, 55. Lauren

Sciranko also testifies that she does not remember her husband receiving coronary artery

education and that Punia never told her husband about the diagnoses of heart disease and

hyperlipidemia. Doc. # 45, Exh. 2 at 69-70. This evidence is insufficient to create a genuine

dispute for several reasons. First, most of the Scirankos’ testimony simply indicates a lack

of memory, not that Mr. Sciranko’s physicians failed to inform him of his conditions, so it

does not contradict the physicians’ testimony. Second, even assuming that Lauren Sciranko

is correct in testifying that Punia never told her husband about the diagnoses of heart disease

and hyperlipidemia, there is still uncontroverted testimony that Sciranko was informed of the

test results showing dangerously high levels of cholesterol and triglycerides in his blood,

received coronary artery education and counseling, and explained to Punia that he has “heart

disease.” The evidence that Punia was aware of Sciranko’s conditions when he completed

his notes from the first office visit in May 1999–without ever reviewing Sciranko’s medical

record–is also uncontroverted. Coupled with undisputed evidence that Sciranko made seven

visits to Gosalia in connection with his heart disease, received multiple electrocardiograms,

and received dietary counseling, these facts would simply make it impossible for any

reasonable juror to believe that Sciranko was unaware of his serious heart conditions at the

time he signed his insurance application. Because Sciranko did not disclose those conditions

and they caused his disability, there can be no genuine dispute that Fidelity’s exclusion for

undisclosed preexisting conditions was properly applied on its own terms. 

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B. There is a Genuine Issue of Material Fact as to Whether Fidelity’s Denial

of Benefits Violated the Incontestability Clause in Sciranko’s Policy

Having concluded that Fidelity properly applied its underlying coverage exclusion for

preexisting conditions, it must now be determined whether Fidelity’s benefits determination

violated the policy’s incontestability clause. Sciranko contends that the clause prohibited the

denial of benefits because more than two years had already passed since the date of issuance.

Fidelity argues that the defense was permitted because it concerned policy scope, and the

incontestability clause only prohibits challenges to policy validity after two years. Summary

judgment cannot be granted on this issue for the reasons explained below. 

1. Sciranko’s Incontestability Clause Prohibits a Denial of Benefits

After Two Years for Mere Neglect to Disclose a Preexisting

Condition

Statutorily mandated terms are typically read into an insurance policy. See, e.g.,

Manuf. Life Ins. Co. v. Capitol Datsun, Inc., 566 F.2d 354, 357 (D.C. Cir. 1977). To the

extent that original policy terms conflict with statutory terms, the trick is to identify the terms

that provide the most generous coverage. Statutory language will govern if contrary

privately contracted language is less favorable to the insured. See, e.g., Nat’l Life & Cas. Ins.

Co. v. Blankenbiller, 89 Ariz. 253, 360 P.2d 1030 (1961). Original policy language will

govern when it provides coverage that is more generous than that which is required by state

law and otherwise comports with public policy. See, e.g., Cannizzo v. Guar. Ins. Co., 245

Cal. App. 2d 70, 73, 53 Cal. Rptr. 657, 659 (Ct. App. 1966); Clement v. Atl. Cas. Ins. Co.,

25 N.J. Super. 96, 103, 95 A.2d 494, 498 (N.J. Super. Ct. Law Div. 1953); Liljestrand v.

State Farm Mut. Auto. Ins. Co., 47 Wash. App. 283, 290, 734 P.2d 945, 949 (Ct. App. 1987).

Arizona courts thus determine the scope of incontestability clauses by considering

applicable statutory baselines and the particular language of the policy at issue. The State’s

statutory minimum for such clauses was originally established by Arizona Code § 61-1017

(1939), which provided as follows:

Benefit certificate requirements.

(a) Each benefit certificate shall provide that . . . 

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The certificate, including any written amendment thereto, and,

at the option of the corporation, the application therefor when

attached to the policy at the time of issuance, constitute the

entire contract between the parties and is incontestable after two

[2] years from the date of issuance or two [2] years from the

date of last reinstatement, except for non-payment of premiums

or assessments.

See Blankenbiller, 89 Ariz. at 254, 360 P.2d at 1031. 

The Arizona Supreme Court twice considered the scope of a disputed incontestability

clause while this statute was in force. First, Posner v. New York Life Insurance Company,

56 Ariz. 202, 106 P.2d 488 (1940), involved a claim for disability benefits that was denied

on the ground that ailments preexisting the policy caused the insured’s disability. The

incontestability clause in the policy read, “This policy shall be incontestable after two years

from its date of issue except for nonpayment of premium.” See Robison v. Brotherhood of

R.R. Trainmen Ins. Dept., Inc., 73 Ariz. 352, 355-56, 241 P.2d 791, 794 (1952). The insured

argued in part that this language precluded the insurer from denying benefits because more

than two years had lapsed since the latest date of issuance. However, the Arizona Supreme

Court found otherwise on the view that the incontestability clause on its terms applied only

to defenses attacking the validity of the policy, rather than those contesting the scope of

coverage. Because the insurer had simply argued that the disability was not covered, the

incontestability clause and underlying statute presented no bar to the defense. Posner, 56

Ariz. at 210, 106 P.2d at 492. 

The Arizona Supreme Court’s second case under the old statute, Robison, involved

material facts that were virtually identical to those in Posner, but held that the policy’s

incontestability clause barred the insurer from disputing both the validity of the policy and

the scope of coverage after two years from the date of issuance. 73 Ariz. at 354-55, 241 P.2d

at 793. The distinguishing feature that justified this unique outcome was the language of the

incontestability clause itself, which provided:

This Certificate will be incontestable and noncancellable by

reason of subsequent condition of health. This Certificate

cannot be cancelled by the Brotherhood except for fraud,

misrepresentation or for other causes provided in the

Constitution and General Rules of the Brotherhood of Railroad

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Trainmen and the Brotherhood of Railroad Trainmen Insurance

Department. Unless this Certificate is cancelled for any such

causes, the acceptance of all renewal premiums when paid on or

before the date when due is guaranteed during the lifetime of the

Member. 

If this Certificate has been in force two years during the lifetime

of the Member, it shall be incontestable as to the accuracy of the

representations contained in the application herefor and as to the

physical condition of the Member on the date hereof, but not as

to other causes provided in the Constitution and General Rules

of the Brotherhood of Railroad Trainmen and the Brotherhood

of Railroad Trainmen Insurance Department.

 Id. at 353-54, 241 P.2d at 792. Unlike the clause in Posner, which was “general in its terms,”

Robison involved “specific clauses which provided that the policy shall be (1) incontestable

and noncancellable by reason of subsequent condition of health, (2) Incontestable after two

years as to the accuracy of the representations contained in the application of the policy, and

(3) Incontestable as to the physical condition of the member on the date of the policy.” Id.

at 355, 241 P.2d at 793. The denial of benefits was therefore impermissible under the plain

terms of the policy itself. 

After Posner and Robison, the Arizona Legislature replaced Arizona Code § 61-1017

with Arizona Revised Statutes § 20-1346 (1954) (amended 1980) to establish a new baseline

of required language for incontestability clauses in the State. The relevant portion of this

statute now reads:

There shall be a provision as follows:

“Time limit on certain defenses: (a) After two years from the

date of issue of this policy no misstatements, except fraudulent

misstatements, made by the applicant in the application for such

policy shall be used to void the policy or to deny a claim for loss

incurred or disability (as defined in the policy) commencing

after the expiration of such two year period.”

“(b) No claim for loss incurred or disability (as defined in the

policy) commencing after two years from the date of issue of

this policy shall be reduced or denied on the ground that a

disease or physical condition not excluded from coverage by

name or specific description effective on the date of loss had

existed prior to the effective date of coverage of this policy.”

A.R.S. § 20-1346(A) (1980). Section 1346(A)(a) has been interpreted to mean that “an

insurer can only void an insurance policy or deny a claim for loss incurred or disability

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originating two years from the date of issuance of the policy if the insurer proves that the

applicant made a fraudulent misstatement in the application for the insurance policy.”

Russell v. Royal Maccabees Life Ins. Co., 193 Ariz. 464, 466, 974 P.2d 443, 445 (Ct. App.

1998). 

A.R.S. § 20-1346(A)(b) has never been directly interpreted. Cases that have

construed identical or nearly identical incontestability statutes from other states are split on

their meaning. Some focus on the plain language of the statute to hold that coverage may not

be denied after two years on the ground that the cause for disability preexisted the issuance

of the policy. See, e.g., Equitable Life Assurance Soc’y of U.S. v. Poe, 143 F.3d 1013, 1017-

20 (6th Cir. 1998) (applying Michigan law); Equitable Life Assurance Soc’y of the U.S. v.

Bell, 27 F.3d 1274, 1282 (7th Cir. 1994) (applying Indiana law); Fischer v. Mass. Cas. Ins.

Co., 458 F. Supp. 939, 943-44 (S.D.N.Y. 1978) (applying New York law); McMackin v.

Great Am. Reserve Ins. Co., 22 Cal. App. 3d 428, 439-40, 99 Cal. Rptr. 227, 234-35 (1971)

(applying California law). Others hold that coverage may be denied after the lapse of the

contestability period despite the statutory language. See, e.g., Mass. Cas. Ins. Co. v. Forman,

516 F.2d 425, 429 (5th Cir. 1975); Estate of Doe v. Paul Revere Ins. Group, 86 Haw. 262,

277-81, 948 P.2d 1103, 1118-22 (1987). The primary justification for these latter cases is

the common law principle that incontestability clauses should not be read to expand the

scope of coverage. 

While the split of authority creates a close question, the most reasonable interpretation

of A.R.S. § 20-1346(A)(b) prohibits Fidelity from denying benefits more than two years after

the issuance of Sciranko’s disability policy for his mere neglect to disclose a preexisting

condition. The statute plainly states that an insurer cannot “reduce[] or den[y]” a claim after

two years “on the ground that a disease or physical condition not excluded from coverage by

name or specific description . . . had existed prior to the effective date of coverage . . . .”

A.R.S. § 20-1346(A)(b). Although the limitation imposed by this section does not apply

when a preexisting disease or physical condition is excluded from coverage “by name or

specific description,” Fidelity’s policy does not identify any of Sciranko’s heart ailments in

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that fashion. The policy exclusion that identifies preexisting conditions as uncovered falls

short of the specificity envisioned by the statute because it concerns a general class of

conditions and fails to identify any particular condition to which the insurance does not

extend. See Bell, 27 F.3d at 1279-80; Yumukoglu v. Provident Life & Accident Ins. Co., 131

F. Supp. 2d 1215, 1223 (D.N.M. 2001); Oglesby v. Penn Mut. Life Ins. Co., 889 F. Supp.

770, 776-77 (D. Del. 1995); Fischer, 458 F. Supp. at 944; Estate of Doe v. Paul Revere Ins.

Group, 86 Haw. 262, 277-78, 948 P.2d 1103, 1118-19 (1997); Garrell v. Good Citizens Mut.

Ben. Ass’n, 204 La. 871, 877-80, 16 So. 2d 463, 465-66 (1943). 

Insofar as A.R.S. § 20-1346(A)(b) conflicts with the general principle that an

incontestability clause should not expand the scope of coverage, the general principle must

yield to the specific language of the statute. This conclusion flows in part from our system’s

hierarchical classification of legal authorities. It is well established that a State may, by

legislative enactment, “freely alter, amend or abolish the common law within its

jurisdiction.” Liberty Warehouse Co. v. Burley Tobacco Growers’ Co-operative Mktg. Ass’n,

276 U.S. 71, 89 (1928); see also Louis Pizitz Dry Goods Co. v. Yeldell, 274 U.S. 112, 116

(1927); Fujioka v. Kam, 55 Haw. 7, 10, 514 P.2d 568, 570 (1973); Vogts v. Guerrette, 142

Colo. 527, 533, 351 P.2d 851, 855 (1960). However uniformly and persuasively the common

law may indicate that incontestability clauses should not expand the scope of insurance

coverage, the Arizona Legislature was free to disregard that precedent in passing A.R.S. §

20-1346(A)(b). 

The preeminence of the plain language of section 20-1346(A)(b) also finds support

in Robison. Much like Sciranko’s policy, the insurance contract in that case contained a

provision that excluded coverage for preexisting conditions. Robison nevertheless held that

the insurer could not deny benefits on the basis of that exclusion because the specific

language of the incontestability clause “in effect nullified” the exclusion after two years. 73

Ariz. at 356, 241 P.2d at 794. The insurer was therefore required to provide coverage for the

insured’s condition even though the condition was not originally covered under the insurance

contract. Given that A.R.S. § 20-1346(A)(b) is comparably specific in prohibiting the denial

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of coverage for preexisting conditions after two years and is incorporated by law into

Sciranko’s policy, it, too, permissibly effects a limited expansion of the scope of coverage

after the contestability period notwithstanding the common law.

This interpretation of section 20-1346(A)(b) is consistent with Posner, which was

decided in light of an old statutory baseline that did not bar insurers from denying coverage

more than two years after the issuance of a policy on the basis of exclusions for preexisting

conditions. Under section 20-1346(A)(b), the outcome is necessarily different. Nothing in

Posner suggests that the Arizona Supreme Court meant to pronounce a categorical rule that,

regardless of underlying statutory requirements and contract language, all incontestability

clauses necessarily pertain exclusively to defenses challenging the validity of an insurance

policy. Indeed, that approach would be contrary to the wide body of state precedent that

looks to the particular language of the disputed clause to determine its unique scope. See

Robison, 73 Ariz. at 355-56, 241 P.2d at 794 (distinguishing Posner based on the terms of

the incontestability clause at issue); Cannizzo, 245 Cal. App. 2d at 73, 53 Cal Rptr. at 659

(permitting departures from statutory language that are favorable to the insured); Clement,

25 N.J. Super. at 103, 95 A.2d at 498 (same); Liljestrand, 47 Wash. App. at 290, 734 P.2d

at 949 (same).

The conclusion that section 20-1346(A)(b) prohibits Fidelity from denying benefits

after the contestability period on the basis of a preexisting is also consistent with Halstead

Consultants, Inc. v. Continental Casualty Co., 181 Ariz. 459, 891 P.2d 926 (Ct. App. 1994),

which held that an incontestability clause founded on A.R.S. § 20-1260 prohibited an insurer

from finding over two years after the issuance of a group life insurance policy that the

insured’s employment status rendered him ineligible for benefits. Halstead relied on the

“traditional proposition” that incontestability clauses bar an insurer from challenging, after

expiration of the contestability period, the validity of an insurance policy, but not the scope

of coverage. 181 Ariz. at 463, 891 P.2d at 930. That reliance could be interpreted to suggest

that Fidelity may not challenge Sciranko’s claim after two years on the basis of the

preexisting nature of his conditions because such a challenge goes to policy scope rather than

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validity. However, the validity-scope distinction was relevant in Halstead only because it

was consistent with the language of the governing statute, which expressly stated that the

“validity of the policy shall not be contested” after the statutory period (emphasis added).

A.R.S. § 20-1260. Unlike section 20-1260, section 20-1346(A)(b) derogates from the

common law limitation of incontestability clauses to validity defenses by explicitly

prohibiting insurance companies from asserting preexistence, an issue of policy scope, as a

defense to coverage after the contestability period. Common law principles pertaining to

incontestability cannot trump the clear language of this statute. See Ry-Tan Constr., Inc. v.

Wash. Elementary Sch. Dist. No. 6, 210 Ariz. 419, 422, 111 P.3d 1019, 1022 (2005)

(explaining that the legislature can modify or abrogate the common law if it clearly expresses

an intent to do so). 

Fidelity relies on Button v. Connecticut General Life Insurance Company, 847 F.2d

584 (9th Cir. 1988), for the proposition that it may deny coverage for a preexisting condition

over two years after the issuance of Sciranko’s policy despite A.R.S. § 20-1346(A)(b).

Because the parties strongly dispute Button’s significance, its facts and holding will be

explained in detail. The insurance policy in Button permitted lifetime payments to the

insured in the event of a disability caused by injury, but only up to 60 months of payments

for a disability caused by sickness. The policy did not provide coverage for either injuries

or sicknesses occurring prior to the date of issuance. Several years after the policy issued,

the insured became disabled by a back injury. The insurer originally classified his claim as

arising out of injury and accordingly set aside a lifetime reserve for benefit payments. Later,

however, the insurer reclassified the claim as arising out of sickness in light of evidence that

the insured suffered from a disease that preexisted the issuance of the policy and that

contributed to his back injury. The reclassification enabled the insurer to terminate benefits

under the policy provision limiting payments for sicknesses to no more than 60 months. 

The insured in Button argued that the termination of benefits was improper for two

reasons. First, he claimed that he should have remained eligible for the lifetime payments

because the exclusive cause of his disability was in fact his injury, not his sickness. Second,

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he argued that, regardless of the cause of his disability, the termination of benefits

contravened his policy’s incontestability clause because the sickness on which the

termination was based preexisted the policy. The incontestability clause stated:

Incontestable. (a) After this policy has been in force for a

period of two years during the lifetime of the Insured (excluding

any period during which the Insured is disabled), it shall become

incontestable as to the statements contained in the application.

(b) No claim for loss incurred or disability (as defined in the

policy) commencing after two years from the Date of Issue of

this policy shall be reduced or denied on the ground that a

disease or physical condition not excluded from coverage by

name or specific description effective on the date of loss had

existed prior to the effective date of coverage of this policy.

 847 F.2d at 587. Button rejected both of the insured’s arguments. After finding that the

preexisting disease contributed to the disability and that the insurer therefore properly

classified the claim as arising out of a sickness, Button surveyed Posner, Robison, and A.R.S.

§ 20-1346 and explained that the incontestability clause did not bar the termination of

benefits. 

Fidelity misconstrues the reasoning behind the holding in Button. Button did not

uphold the termination of benefits in spite of A.R.S. § 20-1346(A)(b), but rather because the

statute on its face presented no barrier to the decision actually made by the insurer. The

critical fact was that the insurer terminated benefits because of the substantive nature of the

condition that created the disability (i.e., sickness, not injury), rather than because of the

temporal context in which the condition arose (i.e., pre- instead of post-issuance of the

policy). 847 F.2d at 589. Although it appears that the insurer theoretically could have

terminated benefits on the ground that the sickness preexisted the issuance of the policy, the

insurer did not take that course, so its action did not run afoul of Robison or A.R.S. § 20-

1346(A)(b), both of which simply address adverse benefits decisions that are based on the

preexisting nature of an insured’s condition. See Button, 847 F.2d at 589 (“[Defendant] does

not argue that Button’s claim is barred because his [disease] predated the policy. [It] merely

contends that the disease, regardless of when it arose, contributed to Button’s disability. The

determining factor here is causation, not the insured’s physical condition on the date of the

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policy.”) (emphasis in original). Button, therefore, does not somehow override or render

irrelevant the language of A.R.S. § 20-1346. 

Button does contain certain language suggesting that benefits may be denied for

preexisting conditions even after the close of the contestability period. See 847 F.2d at 588

(“We believe the better-reasoned view is that the incontestability clause relates to the validity

of the contract and not to the construction of policy provisions.”). However, given the issue

actually contested in Button, that general language is dictum which need not be followed.

See FDIC v. McSweeney, 976 F.2d 532, 535 (9th Cir. 1992) (explaining that a judicial

statement on an uncontested issue is not a holding). The absence of any specific exegesis of

the critical language of section 20-1346(A)(b) also suggests that Button did not rule on the

permissibility of a denial of benefits for preexisting conditions after the close of the

contestability period. The court respectfully disagrees with those cases that have viewed the

dictum in Button as its holding. See, e.g., Peterson v. Equitable Life Assurance Soc’y of the

U.S., 57 F. Supp. 2d 692, 701 (W.D. Wis. 1999); Oglesby, 889 F. Supp. at 776. 

2. The Incontestability Clause Permits a Denial of Benefits After Two

Years in the Case of Fraud, But Fraud Has Not Been Argued on

this Motion

Although an insured’s mere neglect to disclose a preexisting condition in an insurance

application cannot be the basis for denying a claim more than two years after the issuance

of a disability policy, A.R.S. § 20-1346(A)(a) permits a denial of benefits even outside the

two-year contestability period if the insured made “fraudulent misstatements” about his

preexisting conditions in the application. Fidelity’s Answer to the Complaint raises the

affirmative defense of fraud. Doc. # 5 at 4. The current evidence also strongly suggests

fraud in the insurance application. Sciranko’s decision not to seek any disability benefits

within the two-year contestability period even though he received six-vessel aorto-coronary

bypass surgery three months after the issuance of his policy and suffered from all of the heart

ailments that subsequently led him to seek benefits after the two-year period looks like an

attempt to conceal his heart conditions temporarily and to game coverage through a

strategically delayed claim. Nevertheless, A.R.S. § 20-1346 places the burden on the insurer

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to prove fraud by an applicant, Russell, 193 Ariz. at 466, 974 P.2d at 445, and Fidelity’s

Motion does not argue fraud as a ground for summary judgment. Summary judgment

therefore cannot be granted on Count I. 

To the extent that Sciranko opposes the Motion on the ground that Fidelity violated

the incontestability clause regardless of fraud, his argument is unpersuasive. It is true that,

unlike A.R.S. § 20-1346(A)(a), the text of section 20-1346(A)(b) contains no express fraud

exception. Read literally, the absence of such an exception could be interpreted to preclude

after two years a denial of benefits that is based on the fraudulent omission of preexisting

conditions from an insurance application. However, that interpretation is unconvincing. “It

is a well-settled canon of statutory construction that the provisions of a unified statutory

scheme should be read in harmony, leaving no provision inoperative or superfluous or

redundant or contradictory.” Holley v. United States, 124 F.3d 1462, 1468 (Fed. Cir. 1997).

Sections 20-1346(A)(a) and (A)(b) both address the permissibility of a denial of benefits

made after the two-year contestability period. To say that an insurer cannot deny a claim

after two years on the basis of a fraudulent misstatement in an application simply because the

misstatement concerns the insured’s preexisting conditions contradicts the language of the

exception for the fraud defenses in section 20-1346(A)(a), which does not restrict the

availability of the fraud defense based on the subject matter of the fraud. Other courts that

have addressed this issue have found similarly. See, e.g., Kersten v. Minn. Mut. Life Ins. Co.,

608 N.W.2d 869, 875 (Minn. 2000) (“If the insured intentionally withholds information

about a known pre-existing condition, then clause (a)’s fraud exception permits the insurer

to void the policy.”); Paul Revere Life Ins. Co. v. Haas, 137 N.J. 190, 210, 644 A.2d 1098,

1108 (N.J. 1994) (“We hold that the statutory language that precludes a defense based on a

pre-existing disability does not protect insureds who make fraudulent misrepresentations in

their applications.”). 

Even assuming that Fidelity’s defense is governed exclusively by section 20-

1346(A)(b), the fraud exception in section 20-1346(A)(a) should be construed as implicitly

operative in section (A)(b). The express exception in the first section evinces a general

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legislative intent to ensure that incontestability clauses do not operate as shields for fraud.

There is no reason to believe that the Arizona Legislature would be any less concerned with

fraud simply because it happens to concern an insured’s preexisting conditions.

The survival of the defense of fraud after the close of the contestability period also

comports with the privately contracted language of Sciranko’s insurance policy. Although

the policy does not expressly reserve Fidelity’s right to raise that defense outside the

contestability period, neither does it expressly waive that right or otherwise contradict the

fraud exception that is automatically incorporated by A.R.S. § 20-1346(A)(a). A waiver of

the fundamental defense of fraud cannot be inferred on the sole ground that the privately

contracted policy language does not affirmatively preserve Fidelity’s right to deny claims on

the basis of fraud. The defense of fraud is preserved unless specifically waived. See, e.g.,

Mfrs. Hanover Trust v. Yanakas, 7 F.3d 310, 316-17 (2d Cir. 1993) (explaining that waiver

of the defense of fraud must be specific); Shelby Elec. Co. v. Forbes, 205 S.W.3d 448, 455-

56 (Tenn. Ct. App. 2005) (same). 

In summary, the Motion for Summary Judgment will be denied with respect to Count

I. Although there is no genuine dispute of material fact concerning whether the coverage

exclusion for undisclosed preexisting conditions applied on its own terms, Fidelity’s

compliance with the incontestability clause hinges on whether Sciranko fraudulently omitted

his preexisting conditions from the insurance application, and the Motion did not present

argument or evidence on that issue. The fraud defense to Count I is left for trial. 

V. Fidelity Did Not Exhibit Bad Faith in Processing and Denying Sciranko’s Claim

Fidelity alternatively moves for partial summary judgment with respect to Count II

on the ground that it acted reasonably in processing and denying Sciranko’s claim. Arizona

law implies a covenant of good faith and fair dealing “in every contract.” Rawlings v.

Apodaca, 151 Ariz. 149, 153, 726 P.2d 565, 570 (1986). The remedy for breach of the

implied covenant is “ordinarily on the contract itself.” Id. at 158, 726 P.2d at 574. However,

tort recovery may be permitted where the contract “creates a relationship in which the law

implies special duties not imposed on other contractual relationships.” Id., 726 P.2d at 574.

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Insurance contracts fall into this category because they impose on the insurer “some duties

of a fiduciary nature,” including equal consideration, fairness, and honesty. Id. at 155, 726

P.2d at 571. 

To commit the tort of bad faith, an insurer must (1) act unreasonably toward the

insured and (2) either know that it was acting unreasonably or demonstrate such reckless

disregard to the reasonableness of its actions that knowledge of unreasonableness may be

imputed. Trus Joist Corp. v. Safeco Ins. Co. of Am., 153 Ariz. 95, 104, 735 P.2d 125, 134

(1986). The first element of this test is objective and asks whether the insurer acted in a

“manner consistent with the way a reasonable insurer would be expected to act under the

circumstances.” Id., 735 P.2d at 134. The second element is subjective and requires

“consciously unreasonable conduct.” Id., 735 P.2d at 134. The insurer may commit bad

faith not only by intentionally and unreasonably denying a claim, but also by intentionally

processing, evaluating, or paying a claim in an unreasonable manner. Zilisch v. State Farm

Mut. Auto. Ins. Co., 196 Ariz. 234, 237, 995 P.2d 276, 279 (2000). Liability will not attach

if the insured’s claim is “fairly debatable” from an objective standpoint and is subjectively

perceived as such by the insurer. Milhone v. Allstate Ins. Co., 289 F. Supp. 2d 1089, 1095

(D. Ariz. 2003). 

Punitive damages may be recovered on top of compensatory damages if the insured

demonstrates that the insurer not only acted in bad faith, but also with “evil motives.”

Rawlings, 151 Ariz. at 162, 726 P.2d at 578. Such motives entail an intention to injure or

“consciously pursue[] a course of conduct knowing that it create[s] a substantial risk of

significant harm.” Id., 726 P.2d at 578. This rule envisions “conduct involving some

element of outrage similar to that usually found in crime.” Restatement (Second) of Torts

§ 908 cmt. b. 

Sciranko contends that Fidelity exhibited bad faith by engaging in the following

activity:

! Denying benefits on the basis of Sciranko’s preexisting

conditions despite a state statute and an incontestability

clause that prohibited it from doing so. 

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! Misrepresenting policy provisions and terms to Sciranko.

! Choosing not to obtain a complete statement from

Gosalia on the nature and extent of Sciranko’s disability

even after alleging that the statement was important to

the claims process.

! Refusing to consult with Sciranko’s physicians over the

telephone. 

! Relying exclusively on medical records provided by

Punia that did not address heart attacks suffered by

Sciranko in 2003 and 2005. 

! Failing to request medical and employment records until

several weeks after receiving the claim.

! Allowing its employees to adjust claims in Arizona

without providing them with an understanding of the

duty of equal consideration.

Doc. # 47 at 15. In support of these arguments, Sciranko marshals expert testimony from

Mary E. Fuller, the owner of a disability claims consulting service. Fuller opines that

Fidelity violated the duty of good faith and fair dealing by conducting an inadequate

investigation of Sciranko’s medical records and vocational abilities, failing to consider

evidence indicative of permanent disability, prioritizing its financial interests over Sciranko’s

health by declining benefits despite the presence of disability, failing to promptly and

accurately notify Sciranko of its investigation into his preexisting conditions, declining to

make timely payment of benefits, failing to establish procedures to guarantee compliance

with standard industry obligations, misunderstanding the language and meaning of

Sciranko’s policy, and failing to understand the applicable laws of Arizona and the Ninth

Circuit. Doc. # 35, Exh. K. 

Sciranko’s arguments are unpersuasive. Summary judgment will be granted on Count

II of the Complaint because the record shows that Fidelity processed and denied Sciranko’s

claim in an objectively reasonable fashion and because, even assuming that Fidelity acted

unreasonably, there is no evidence to suggest that Fidelity acted in reckless disregard to the

reasonableness of its conduct or subjectively understood its conduct to be unreasonable.

Nissan Fire & Marine Ins. Co., 210 F.3d at 1105-06. 

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A. There is No Genuine Dispute that Fidelity Acted in an Objectively 

Reasonable Fashion

With respect to the first element of the tort of bad faith, Fidelity has proffered

significant evidence that its conduct was objectively reasonable. Barger and Laws both

concluded that the claim should be denied because medical records obtained from Punia

showed that Sciranko’s conditions preexisted the issuance of the policy. This decision

reflected a reasonable assessment of the applicable law. As explained above, Barger and

Laws not only reasonably applied the policy exclusion for undisclosed preexisting

conditions, they correctly applied that exclusion according to its plain terms. The evidence

and federal case authority also establish that Fidelity’s interpretation of the incontestability

clause was reasonable, even though ultimately incorrect. Laws and Barger understood from

both Ninth Circuit precedent and legal summaries produced by the American Counsel of Life

Insurers that incontestability clauses in Arizona only pertain to defenses challenging the

validity of a policy, rather than defenses concerning exclusions under an admittedly valid

policy. Dictum in Button, the only Ninth Circuit authority to address the issue for Arizona,

provided particularly significant support for this view. See 847 F.2d at 588 (“We believe the

better-reasoned view is that the incontestability clause relates to the validity of the contract

and not to the construction of policy provisions.”). The privately contracted language of

Sciranko’s insurance policy also left ample room to discount the relevance of the

incontestability clause because it did not explicitly address the applicability of policy

exclusions after the close of the contestability period. 

The second claim of bad faith, which asserts misrepresentation of policy terms, is

completely unexplained. If the argument is that Fidelity is liable for bad faith because

Kearney misrepresented Sciranko’s preexisting conditions in the insurance application,

Kearney’s conduct cannot warrant relief because the tort of bad faith arises when an insurer

“intentionally denies, fails to process or pay a claim without a reasonable basis.” Noble v.

Nat’l Am. Life Ins. Co., 128 Ariz. 188, 190, 624 P.2d 866, 868 (1981). It is unclear how

Kearney’s purported misrepresentation could have caused Fidelity to deny benefits or fail to

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process the claim. Indeed, if undetected, Kearney’s misrepresentation would have only

increased Sciranko’s chances of obtaining benefits by concealing illnesses that would have

disqualified him from coverage. 

Nor can the evidence be read to indicate that Fidelity acted unreasonably in processing

Sciranko’s claim. The company requested that Gosalia completely fill out his own Physician

Statement because some portions of it were essentially impossible to read and there was no

way of knowing whether Gosalia agreed with Lauren Sciranko’s initialed additions. Without

being able to actually read or ensure the credibility of the Statement, Fidelity had no reason

to credit its contents. The company’s refusal to obtain Gosalia’s complete assessment by

telephone was explained as reflecting a standard practice of creating a paper trail for

reference in the event of a claim dispute. In requiring power-of-attorney documentation prior

to directing its correspondence to Lauren Sciranko instead of Plaintiff, Fidelity simply

followed an internal policy aimed at ensuring compliance with federal privacy regulations.

Sciranko proffers no argument as to how any of these facially valid explanations are

unreasonable. 

Sciranko next faults Fidelity for relying exclusively on medical records provided by

Punia and neglecting to consider evidence of heart attacks suffered in 2003 and 2005. While

it is true that Fidelity only reviewed Punia’s records and did not ultimately obtain a

completed and legible statement from Gosalia, there can be no doubt that the company

nevertheless acted reasonably. From Punia’s records alone, it was obvious that Sciranko had

undisclosed heart conditions that preexisted the issuance of the policy and caused his

disability. Barger and Laws thus had ample basis to believe that the claim for benefits fell

within the terms of the coverage exclusion for preexisting conditions. Because evidence of

heart attacks subsequently suffered in 2003 and 2005 had no logical bearing on the

applicability of the exclusion, there was no need to consider that additional evidence. 

Sciranko also argues that Fidelity acted unreasonably by failing to request medical and

employment records until several weeks after receiving the claim. The argument is again

unavailing because the evidence uniformly establishes that the delays were reasonable in the

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circumstances. The claim was filed on April 18, 2005. Fidelity’s first responded on May 10,

2005, with a letter explaining that Gosalia’s statement was unacceptable because it was

illegible and incomplete. Sciranko nevertheless refused to obtain a completed statement and

instead resubmitted the original on May 14. By May 24, Fidelity had started to collect

Sciranko’s medical records. Doc. # 45, Exh. 6 at 117. On June 23, 2005, Fidelity was still

without a completed statement from Gosalia or records from Punia. Fidelity sent out the

request for a statement from Sciranko’s former employer at this time, but the employer never

responded. Fidelity then denied coverage on July 28, 2005. 

There is no basis for concluding that the delay involved in the claim processing was

either unjustified or unreasonably lengthy. The delay was caused in substantial part by the

non-responsiveness of Sciranko and third parties to Fidelity’s requests. Even the

approximate extent of the delay for which Fidelity was responsible did not by any means

constitute an unreasonable length of time. Cf. Carlton v. St. Paul Mercury Ins. Co., 30 Cal.

App. 4th 1450, 1459, 36 Cal. Rptr. 2d 229, 233-34 (Ct. App. 1994) (finding a delay of four

months between the notice of claim and payment to be sufficiently reasonable to warrant

summary judgment against a claim of bad-faith delay). 

Sciranko next asserts that Fidelity acted unreasonably by allowing its employees to

adjust claims in Arizona without providing them with an understanding of the duty of “equal

consideration.” Under Arizona law, an insurer is required to “give equal consideration in all

matters to the insured’s interests.” Taylor v. State Farm Mut. Auto. Ins. Co., 185 Ariz. 174,

176, 913 P.2d 1092, 1094 (1996). This duty prohibits the insurer from “gain[ing] an unfair

advantage of its insured through conduct that invades the insured’s right to honest and fair

treatment.” Zilisch, 196 Ariz. at 237-38, 995 P.2d at 280. 

The court rejects this argument, which Sciranko rests on Barger’s mere unfamiliarity

with the legal meaning of the term “equal consideration” during his deposition. Doc. # 45,

Exh. 8 at 17-18. Regardless of whether Barger is familiar with that technical term, it is

abundantly clear that he understood its substantive import and made efforts to act

accordingly. It is also clear that Fidelity made substantial efforts to instruct its claims

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examiners on the importance of fair and expeditious claims review. Barger, for example,

testifies that he always made efforts to act in accordance with the Fair Claims Practices Act,

respond promptly to customer complaints, review claims thoroughly, and compare case facts

with policy language. Doc. # 45, Exh. 8 at 16. Laws similarly made substantial efforts to

train Fidelity’s claims examiners to process claims in a thorough and fair manner. See supra

at 15, ln. 19-24. Fidelity cannot be liable for bad faith simply because Barger does not

understand some legal terminology used by Plaintiff’s counsel during a deposition.

Finally, it is noted that Fuller’s testimony fails to create a genuine dispute of material

fact. Having conceded a complete unawareness of relevant Arizona and Ninth Circuit law,

Doc. # 35, Exh. K at 2-4, she could not competently opine that Fidelity failed to “know and

understand the applicable laws of the controlling jurisdiction and to administer their insureds’

claims accordingly,” Doc. # 45, Exh. 10 at 18. Upon scrutiny, she retracted her initial

testimony that Fidelity acted unreasonably by evaluating claims without providing

underwriting guidelines to its staff because Fidelity did in fact utilize such guidelines. Doc.

# 35, Exh. K at 7. Fuller’s testimony also demonstrates no awareness of the specific

explanations for the claim handling that were articulated by Barger and Laws, and it utterly

disregards the fact that the policy exclusion for undisclosed preexisting conditions rendered

superfluous an exhaustive review of the nature and effect of Sciranko’s disability. 

B. Even Assuming that Fidelity Acted Unreasonably, There is No Evidence

that Fidelity Acted in a Consciously Unreasonable Manner

Sciranko asserts that the second requirement for bad faith has been satisfied by

Kearney’s misrepresentations in the application, Fidelity’s decision not to consult Gosalia’s

records prior to denying benefits, and Fidelity’s violation of the incontestability clause and

A.R.S. § 20-1346. No reasonable juror could agree. There is simply no evidence that

Fidelity’s agents acted recklessly with regard to the reasonableness of the processing and

denial of Sciranko’s claim, or that they otherwise subjectively understood their conduct to

be unreasonable. Cf. Milhone, 289 F. Supp. 2d at 1102 (granting summary judgment against

a bad-faith claim under Arizona law). Fidelity has shown that its agents consistently acted

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in good faith reliance on reasonable company policies while processing Sciranko’s claim.

See Doc. # 45, Exh. 8 at 50-51; Doc. # 45, Exh. 2 at 35, 39-40, 52-53, 64-65. 

For these reasons, the motion for summary judgment will be granted with respect to

Count II of the Complaint. Sciranko is accordingly not entitled to compensatory or punitive

damages for bad faith.

IT IS THEREFORE ORDERED that the Motion for Summary Judgment (Doc. # 34)

is DENIED in part and GRANTED in part. The Motion is DENIED with respect to Count

I of the Complaint (Breach of Contract) and GRANTED with respect to Count II of the

Complaint (Bad Faith). 

DATED this 3rd day of August 2007.

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