Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-01505/USCOURTS-caed-2_06-cv-01505-0/pdf.json

Parties Involved:
Baltimore Life Insurance Company
Defendant
Antoinette Jones
Plaintiff

Document Text:

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1

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

ANTOINETTE JONES,

NO. CIV.S-06-1505 LKK/KJM

Plaintiff,

v.

 O R D E R

BALTIMORE LIFE INSURANCE

COMPANY aka BALTIMORE LINE, 

and DOES 1-10,

Defendants.

 /

Plaintiff, Antoinette Jones, brings suit against defendant,

Baltimore Life Insurance Company, for breach of contract and the

implied covenant of good faith and fair dealing. The dispute

revolves around Effie Allen’s life insurance policy, issued by

defendant under which plaintiff is the named beneficiary. Pending

before the court is defendant’s motion for summary judgment. For

the reasons discussed herein, the motion is denied in part and

granted in part.

////

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26 Undisputed unless otherwise noted. 1

2

I.

FACTS1

A. Effie Allen’s Life Insurances Policy

On or about November 7, 2001, Ms. Allen applied for a life

insurance policy with Baltimore Life in the amount of $15,000.

Def.’s SUF ¶ 1. Defendant issued Policy No. A1014655 as applied

for on December 5, 2001. Def.’s SUF ¶ 2. Plaintiff was the named

policy owner. See Ex. B, Schulster Decl. in support of Def.’s Mot.

for Summ. J. (“Schulster Decl.”). 

Several provisions of the insurance contract are relevant for

the resolution of the pending motion. First, the policy states

that the date of issuance was December 5, 2001. See Ex. B,

Schuster Decl. The contract provides:

This Policy Is A Contract

This Policy is a contract. In entering into this contract,

we relied on the accuracy of the statements made in the

application. In the absence of fraud, these statements are

considered representations and not warranties. We can

contest this policy and use statements made in the

application in defense of a claim if the application has a

material misstatement and a copy of it was attached to this

policy when it was issued. 

Def.’s SUF ¶ 3. Second, the contract also provides for a

contestability period: 

Contesting This Policy

We will not contest this policy after it has been in effect

while the Insured is living for two years from the policy

date. 

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Def.’s SUF ¶ 3. Third, the contract also sets forth the procedure

for reinstating the policy. If any premium is not paid when due,

“the policy will continue in effect for 31 days. This is called

the grace period.” Ex. B, Schuster Decl. However,

If any premium remains unpaid after the grace period, you may

request reinstatement of this policy. You must do this

within five years from the date due of the first unpaid

premium. 

You’ll have to provide evidence satisfactory to us that the

Insured’s insurability has not changed since the policy was

issued. You’ll also have to pay all unpaid premiums plus

interest at the annual rate of 6%. Any policy debt will be

reinstated if not repaid. 

Ex. B, Schuster Decl. 

It is undisputed that in the fall of 2002, Ms. Allen missed

making “some” payments. See Antoinette Jones Declaration in

Support of Opp’n to Mot. for Summ. J. ¶ 5 (“Jones Decl.”).

According to defendant, the policy officially “lapsed” for

nonpayment on November 4, 2002. Def.’s SUF 4. Plaintiff disputes

the use of the word “lapse” as the word is not contained in the

policy itself. See Pl.’s Response to Def’s SUF ¶ 4. 

B. Ms. Allen’s Application for Reinstatement 

On April 20, 2003, Ms. Allen applied for reinstatement of the

policy by completing an application for reinstatement. Def.’s SUF

¶ 5. The application included the following two questions: 

In the past two (2) years, have you or any person(s) insured

under this policy had any illness involving the heart or

respiratory systems or a diagnosis of cancer?

Within the past two (2) years, have you or any person(s)

insured under this policy had any disease not mentioned

above? 

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Def.’s SUF ¶ 6.

It is undisputed that Ms. Allen answered “no” to both

questions. Above the signature line, the application stated:

It is further agreed that if the policy is reinstated, such

reinstatement will be conditioned upon the correctness of the

answers to the above questions. 

Def.’s SUF ¶ 6. Defendant accepted the application and on May 5,

2003, the policy was reinstated.

Almost one year later, on April 18, 2004, Ms. Allen died.

Her death certificate listed the causes of death as sepsis,

pneumonia, and chronic obstructive lung disease. See Certificate

of Death, Ex. D, Schuster Decl. Ms. Allen was 76. Id.

C. The Events Surrounding Plaintiff’s Claim Pursuant to the

Policy 

On April 23, 2004, defendant received an Insurance Assignment

from the Frisbie-Warren & Carrol Mortuary, Inc. in the amount of

$4,243.78 to be deducted from the proceeds of the Policy. Def.’s

SUF ¶ 12. Upon receipt of the Insurance Assignment request,

defendant sent a letter to the plaintiff, dated May 3, 2004. The

letter stated, in part: 

This policy was issued December 5, 2001 and contains a twoyear constestability clause. Because the policy lapsed and

was reinstated effective May 5, 2003, the two year

contestability period again becomes effective. Based on the

date of the reinstatement and the date of death of the

insured, this claim has fallen within that period. 

Ex. F, Schuster Decl. The letter went on to explain that an

investigation would be performed and requested that plaintiff

submit a “Claimant’s Statement, including the names and addresses

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of Ms. Allen’s physician and any hospitals and doctors visited

within the last 5 years.” Id.

Plaintiff submitted the requested information and defendant

commenced an investigation. On July 6, 2004 defendant received

medical records from Dameron Hospital in Stockton, California. The

records pertained to two separate visits that Ms. Allen made to the

hospital. 

The first visit occurred on September 11, 2002 and the records

reflect that Ms. Allen’s chief complaint was “weakness.” Under

a section marked “history of present illness” the records state

that Ms. Allen had a history of diabetes, renal insufficiency,

hypertension, and peripheral vascular disease. See Ex. I, Schuster

Decl. Ms. Allen was discharged eight days later. Her “principal

diagnoses” was listed as “dehydration with hypernatremia.” Id. 

Ms. Allen’s second visit to the hospital occurred on January

7, 2003. This time Ms. Allen’s chief complaint is listed as “right

hip pain.” Ex. J, Schuster Decl. Under the section marked “past

medical history” the record states: “significant for hypertension,

she also has a recent history of CVA [cardiovascular accident] a

couple of months ago with some degree of dementia and used a

feeding tube because of her stroke.” Id. The “principal

diagnosis” was listed as “hip fracture.” Id. Ms. Allen remained

in the hospital until January 13, 2003. Id.

D. Defendant’s Denial of Plaintiff’s Claim

After reviewing Ms. Allen’s hospital records, defendant

determined that Ms. Allen has made material misrepresentations on

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Plaintiff objects to Dr. Fiscina’s conclusions on hearsay 2

grounds. Plaintiff’s objection is well taken. As discussed in the

analysis section of this order, there is no declaration from Dr.

Fiscina himself. Rather, Dr. Fiscina’s conclusions are found as

part of Ms. Schuster’s declaration. Ms. Schuster merely states

that Dr. Fiscina was consulted and that Dr. Fiscina “confirmed that

a stroke is considered a disease.” Schuster Decl. ¶ 17. 

Accordingly, Dr. Fiscina’s testimony is inadmissable hearsay. 

6

her application for reinstatement. This decision was based on the

opinion of defendant’s medical director, Dr. Sal Fiscina, who

reviewed Ms. Allen’s medical records and concluded that a stroke

is considered a disease that should have been reported on the

application for reinstatement. Def.’s SUF ¶ 26. 

2

Defendant’s Claims Department also sought the opinion of the

Underwriting Department, which reviewed the medical records and

concluded that based on Baltimore Life's underwriting standards,

Ms. Allen's undisclosed medical history was material and that if

it had been disclosed on the Application for Reinstatement, the

policy would not have been reinstated. Def.’s SUF ¶ 27. Plaintiff

objects to this “fact” on the grounds that defendant fails to

disclose what constitutes the “underwriting standards.” 

In a letter dated August 16, 2004, defendant informed

plaintiff of its decision to rescind the policy based on these

material misrepresentations. Def.’s ¶ SUF 29. The letter

explained that the policy would not have been reinstated if Ms.

Allen had accurately answered the medical questions on the

application for reinstatement. Enclosed with the letter was a

check in the amount of $2,171.80. With respect to the check, the

letter stated: 

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The obligation of the Baltimore Life Insurance Company is

limited to the refund of all premiums since the date of

reinstatement. A check in the amount of $2,171.80

representing the premiums paid into this policy since

reinstatement is enclosed.

The depositing or cashing of this check will release The

Baltimore Life Insurance Company from paying this claim. 

If you disagree with this determination you may submit

additional information as well as your comments and views of

ths issue in writing to the Baltimore Life Insurance Company.

We will then examine pertinent documents and your issues. Or

you may contact the: California Department of Insurance.

Ex. K, Schuster Decl. 

On August 24, 2004, plaintiff endorsed and cashed the check.

Def. ¶ SUF 33. 

E. Events following Defendant’s Denial of Plaintiff’s Claim 

In addition to cashing the check, plaintiff followed up with

defendant. On September 16, 2004, plaintiff emailed defendant

requesting copies of Ms. Allen’s original application and

application for reinstatement. Defendant forwarded the requested

documents to plaintiff. Def.’s SUF ¶¶ 34-35. 

On or about October 18, 2004, plaintiff submitted a service

questionnaire asserting that Ms. Allen did not suffer from chronic

obstructive pulmonary disease ("COPD") for years as indicated on

her death certificate, but was only diagnosed on October 15, 2003.

On November 11, 2004, defendant sent plaintiff a service

questionnaire in response to additional concerns that Plaintiff

expressed about the policy. This was followed by letters dated

December 3, 2004, and December 23, 2004, requesting that plaintiff

submit the service questionnaire. Def.’s SUF 40.

On December 23, 2004, plaintiff returned the service

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questionnaire. In her second service questionnaire, plaintiff

focused on Ms. Allen's responses to the medical questions on the

application for reinstatement. Plaintiff maintained that Ms. Allen

did not require oxygen until her final hospital visit. She also

disputed that Ms. Allen suffered from COPD for years as indicated

on her death certificate. In support of her appeal, plaintiff

submitted a letter from Ms. Allen's physician, Dr. Elma Cara, dated

November 29, 2004. In her letter, Dr. Cara noted that Ms. Allen

had a history of diabetes mellitus II, renal insufficiency, CVA,

aspiration pneumonia, hypertension and hyponatremia. The letter

also stated that Ms. Allen was diagnosed with COPD on October 15,

2004. See Ex. S, Schuster Decl. 

Based on the additional information provided by plaintiff,

defendant reevaluated its decision to rescind the policy. The

Claims Department again consulted with Dr. Fiscina, to ascertain

whether: 1) renal insufficiency was a disease and 2) whether renal

insufficiency constituted renal failure. Dr. Fiscina opined that

renal insufficiency was a disease and that renal insufficiency did

not constitute renal failure. Def.’s SUF ¶ 45. Dr. Fiscina also

again confirmed that a stroke is a disease of the blood vessels in

the brain. Def.’s SUF ¶ 46. The statements of Dr. Fiscina, for

the reasons previously noted, are hearsay. Accordingly, these

statements will not be admissible for the truth of the matter

asserted. 

In a letter dated February 22, 2005, defendant informed

plaintiff that it was upholding its original decision to rescind

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 Although the state court complaint did not include a claim 3

for damages in excess of $75,000.00, plaintiff’s counsel

represented to defendant that plaintiff was seeking in excess of

$75,000.00 in damages. 

9

the policy. The letter stated, “if we had known the full extent

of Ms. Allen’s medical history, we would not have approved the

reinstatement of her policy.” Ex. V, Schuster Decl. 

During the discovery phase of this lawsuit, defendant 

discovered additional medical records that revealed that Ms. Allen

visited the hospital on October 29, 2002 as well. At that time,

she was diagnosed with hyponatremia. See Ex. C, Mendoza Decl. She

remained in the hospital until November 1, 2002. Her secondary

diagnoses included, among other things, renal insufficiency and

cerebrovascular accident. 

F. Plaintiff’s Complaint 

Plaintiff brought suit in state court for breach of contract

and the duty of good faith and fair dealing. Plaintiff alleges

that she and Ms. Allen performed according to the terms of the

policy agreement and that defendant breached the agreement when it

failed to pay plaintiff “the sums that are required pursuant to the

terms of the contract.” Compl. ¶ 12.

Defendant removed the case to this court based on diversity

jurisdiction. Plaintiff does not dispute or challenge the

removal. 

3

II.

Standard for Motions For Summary Judgment 

Summary judgment is appropriate when it is demonstrated that

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10

there exists no genuine issue as to any material fact, and that the

moving party is entitled to judgment as a matter of law. Fed. R.

Civ. P. 56(c); See also Adickes v. S.H. Kress & Co., 398 U.S. 144,

157 (1970); Secor Limited v. Cetus Corp., 51 F.3d 848, 853 (9th

Cir. 1995).

Under summary judgment practice, the moving party

[A]lways bears the initial responsibility of

informing the district 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 a

genuine issue of material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). "[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the 'pleadings, depositions, answers to

interrogatories, and admissions on file.'" Id. Indeed, summary

judgment should be entered, after adequate time for discovery and

upon motion, against a party who fails to make a showing sufficient

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. See id. at 322. "[A] complete failure of proof concerning

an essential element of the nonmoving party's case necessarily

renders all other facts immaterial." Id. In such a circumstance,

summary judgment should be granted, "so long as whatever is before

the district court demonstrates that the standard for entry of

summary judgment, as set forth in Rule 56(c), is satisfied." Id.

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at 323.

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

586 (1986); See also First Nat'l Bank of Ariz. v. Cities Serv. Co.,

391 U.S. 253, 288-89 (1968); Secor Limited, 51 F.3d at 853. 

In attempting to establish the existence of this factual

dispute, the opposing party may not rely upon the denials of its

pleadings, but is required to tender evidence of specific facts in

the form of affidavits, and/or admissible discovery material, in

support of its contention that the dispute exists. Fed. R. Civ.

P. 56(e); Matsushita, 475 U.S. at 586 n.11; See also First Nat'l

Bank, 391 U.S. at 289; Rand v. Rowland, 154 F.3d 952, 954 (9th Cir.

1998). The opposing party must demonstrate that the fact in

contention is material, i.e., a fact that might affect the outcome

of the suit under the governing law, Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986); Owens v. Local No. 169, Assoc. of

Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th Cir. 1992)

(quoting T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n,

809 F.2d 626, 630 (9th Cir. 1987), and that the dispute is genuine,

i.e., the evidence is such that a reasonable jury could return a

verdict for the nonmoving party, Anderson, 477 U.S. 248-49; see

also Cline v. Industrial Maintenance Engineering & Contracting Co.,

200 F.3d 1223, 1228 (9th Cir. 1999).

In the endeavor to establish the existence of a factual

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dispute, the opposing party need not establish a material issue of

fact conclusively in its favor. It is sufficient that "the claimed

factual dispute be shown to require a jury or judge to resolve the

parties' differing versions of the truth at trial." First Nat'l

Bank, 391 U.S. at 290; See also T.W. Elec. Serv., 809 F.2d at 631.

Thus, the "purpose of summary judgment is to 'pierce the pleadings

and to assess the proof in order to see whether there is a genuine

need for trial.'" Matsushita, 475 U.S. at 587 (quoting Fed. R.

Civ. P. 56(e) advisory committee's note on 1963 amendments); see

also International Union of Bricklayers & Allied Craftsman Local

Union No. 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (9th Cir.

1985).

In resolving the summary judgment motion, the court examines

the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any. Rule

56(c); See also In re Citric Acid Litigation, 191 F.3d 1090, 1093

(9th Cir. 1999). The evidence of the opposing party is to be

believed, see Anderson, 477 U.S. at 255, and all reasonable

inferences that may be drawn from the facts placed before the court

must be drawn in favor of the opposing party, see Matsushita, 475

U.S. at 587 (citing United States v. Diebold, Inc., 369 U.S. 654,

655 (1962) (per curiam)). Nevertheless, inferences are not drawn

out of the air, and it is the opposing party's obligation to

produce a factual predicate from which the inference may be drawn.

See Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244-45

(E.D. Cal. 1985), aff'd, 810 F.2d 898, 902 (9th Cir. 1987).

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Plaintiff contends that the contract provided for a two year 4

contestability period and that two year period expired on December

5, 2003, several months before defendant began its investigation.

13

Finally, to demonstrate a genuine issue, the opposing party

"must do more than simply show that there is some metaphysical

doubt as to the material facts. . . . Where the record taken as a

whole could not lead a rational trier of fact to find for the

nonmoving party, there is no 'genuine issue for trial.'"

Matsushita, 475 U.S. at 587 (citation omitted).

III.

Analysis

Defendant’s motion is granted in part and denied in part. The

court denies defendant’s motion with respect to plaintiff’s breach

of contract claim and breach of the implied covenant of good faith

and fair dealing. The court grants defendant’s motion with respect

to plaintiff’s claim for punitive damages. 

A. Plaintiff’s Claims for Breach of Contract and Implied

Covenant of Good Faith and Fair Dealing

For the reasons explained herein, defendant fails to meet its

initial burden of showing that there is sufficient evidence to

support a finding of material misrepresentation and accord and

satisfaction. 

1. Material Misrepresentation 

The gravemen of defendant’s argument is that Ms. Allen made

a material misrepresentation on her application for reinstatement.

When defendant discovered the misrepresentation, it was entitled

to rescind the contract, rendering the policy void ab initio.4

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 The contract states “we [defendant] will not contest this policy

after it has been in effect while the Insured is living for two

years from the policy date. However we can end the policy whenever

a premium is not paid within the grace period . . .” See Def.’s SUF

¶ 3. The problem with plaintiff’s position is that defendant’s

actions were in keeping with the provisions of section 10113.5 of

the California Insurance Code, which states: 

An individual life insurance policy, upon reinstatement, may

be contested on account of fraud or misrepresentation of

facts material to the reinstatement only for the same period

following reinstatement, and with the same conditions and

exceptions, as the policy provides with respect to

contestability after original issuance.

Cal. Ins. Code § 10113.5. As the code suggests, defendant had two

years from the date of reinstatement to contest the policy. See

also North American Co. for Life and Health Ins. v. Rypins, 29

F. Supp. 2d 619, 623 (N.D. Cal. 1998)(finding that “under the terms

of the policy and § 10113.5, the [insurance] Company had two years

from the date of the reinstatement to discover any fraud or

misrepresentation.”) Accordingly, plaintiff’s argument regarding

the period of contestability is unavailing. 

14

Defendant argues that Ms. Allen materially misrepresented her

medical conditions when she answered “no” to the questions on the

application for reinstatement. 

The fundamental flaw in defendant’s position is that the

evidence relied upon by defendant does not support a finding that,

as a matter of law, Ms. Allen made a misrepresentation on her

application for reinstatement. As defendant concedes in its brief,

recession is an affirmative defense. Therefore, at the summary

judgment stage, defendant must make a showing sufficient for the

court to hold that no reasonable trier of fact could find other

than for the moving party. Calderone v. United States, 799 F.2d

254, 259 (6th Cir.1986) (quoting W. Schwarzer, Summary Judgment

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Under the Federal Rules: Defining Genuine Issues of Material Fact,

99 F.R.D. 465, 487-88 (1984)). This means that the defendant must

"establish beyond peradventure all of the essential elements of the

. . . defense to warrant judgment in his favor." Fontenot v.

Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986). 

Once defendant meets its initial burden of presenting evidence

which, if uncontradicted, would entitle it to a directed verdict

at trial, the burden shifts to the non-moving party to present

specific facts showing that such contradiction is possible.

British Airways Bd. v. Boeing Co., 585 F.2d 946, 951 (9th Cir.

1978). As the Ninth Circuit explains: 

A summary judgment is neither a method of avoiding the

necessity for proving one's case nor a clever procedural

gambit whereby a claimant can shift to an adversary the

burden of proof on one or more issues. 

United States v. Dibble, 429 F.2d 598, 601 (9th Cir. 1970). 

For the reasons discussed herein, defendant fails to meet its

initial burden of establishing that the evidence sufficiently

demonstrates that it is entitled to judgment as a matter of law.

Because defendant does not meet its initial burden, it is not

incumbent on plaintiff to set forth evidence suggesting that there

are disputed facts. 

a. Applicable Law Regarding Material Misrepresentations

Under California law, material misrepresentations on an

insurance application are grounds for the insurance company to

rescind the policy. Imperial Casualty & Indemnity Co. v.

Sogomonian, 198 Cal. App. 3d 169, 179 (1988), quoting Thompson v.

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Occidental Life Ins. Co., 9 Cal. 3d 904, 916 (1973). “False

representation or a concealment of fact whether intentional or

unintentional, which is material to the risk, vitiates the policy.”

Telford v. New York Life Ins. Co., 9 Cal.2d 103, 105 (1937). “The

presence of an intent to deceive is not essential.” Id. 

At the summary judgment stage, a motion for a finding of

rescission may be “properly granted for the insurer where the only

reasonable inference to be drawn from the undisputed evidence

presented is that the false negative answers and omissions of [the

applicant] were material to [the insurer's] decision to provide

insurance coverage.” West Coast Life Ins. Co. v. Ward, 132 Cal.

App. 4th 181, 187-8 (2005) (internal citations omitted). 

In short, the court must determine whether Ms. Allen made a

misrepresentation and whether that misrepresentation was material.

b. Whether Ms. Allen Made a Misrepresentation 

Defendant fails to establish the first factor, namely, that

Ms. Allen made a misrepresentation on her application for

reinstatement. 

As previously noted, the application for reinstatement

included the following two questions: 

In the past two (2) years, have you or any person(s) insured

under this policy had any illness involving the heart or

respiratory systems or a diagnosis of cancer?

Within the past two (2) years, have you or any person(s)

insured under this policy had any disease not mentioned

above? 

Def.’s SUF ¶ 6. It is undisputed that Ms. Allen answered “no” to

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both questions. 

Defendant argues that answering “no” was false in light of Ms.

Allen’s medical records. Defendant maintains that Ms. Allen’s

medical records from the two years preceding her application for

reinstatement demonstrate that Ms. Allen had a renal insufficiency

and a history of cerebrovascular accidents (CVAs), dementia, and

had to use a feeding tube because of a stroke. Defendant contends

that renal insufficiency and strokes are considered diseases and

thus, were reportable. 

In reviewing the medical records and in drawing all reasonable

inferences in favor of plaintiff, it is apparent that defendant

mischaracterizes the records. The medical records do not

demonstrate that Ms. Allen misrepresented her medical condition.

It is undisputed that Ms. Allen visited Dameron Hospital on

three separate occasions during the two years prior to her

application for reinstatement. On her first visit, Ms. Allen

complained of “weakness” and her principal diagnosis was

“dehydration with hypernatermia.” See Ex. I, Schuster Decl. Ms.

Allen’s discharge summary also listed six “secondary diagnoses,”

including probable multi-infarct dementia, and “probable recent CVA

with CT scan of the head evidence of bilateral lacunar infarcts at

the internal capsule/basal ganglion region and left parietal

region.” Id. Under a section marked “history of present illness”

the record states that Ms. Allen has a history of “renal

insufficiency.” 

On her second visit, Ms. Allen was diagnosed with

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hyponatremia. Seven secondary diagnoses were also listed, these

included, inter alia, dehydration, renal insufficiency and a

history of hypertension. See Ex. C, Mendoza Decl. The record is

silent as to Ms. Allen’s chief complaint upon being admitted. 

On her third visit, the records reflect that Ms. Allen’s chief

complaint was right hip pain. She was diagnosed with a hip

fracture. Her secondary diagnoses were listed as: “chronic renal

insufficiency, old cerebrovascular accident, diabetes type II,

hypertension.” See Ex. J, Schuster Decl. 

In sum, the records clearly reflect that Ms. Allen was

diagnosed with hypernatremia, hyponatremia and a fractured hip.

Had the application for reinstatement asked about these conditions,

or asked if Ms. Allen had been hospitalized in the previous two

years, clearly answering “no” would have been a misrepresentation.

However, the questions were far more specific and asked

specifically about diseases. 

Although the records do suggest that at some point in time Ms.

Allen may have suffered a stroke, and may have a history of renal

insufficiency, mere mention of these ailments does not constitute

grounds for recession. In other words, the records do not

conclusively establish these were diseases for which Ms. Allen was

diagnosed two years prior to her application for reinstatement.

Rather, these ailments where simply noted in her record. A mere

mention of certain ailments, without more, is insufficient evidence

that Ms. Allen had diseases that she should have disclosed. 

For example, the records reflect that Ms. Allen may have a

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 Defendant failed to provide the court with a copy of Ms. 5

Allen’s initial application. 

19

history of renal insufficiency. That she had a history of this

ailment does not therefore mean that she was diagnosed with a

disease during the two years prior to her application for

reinstatement. Indeed, it is possible that Ms. Allen was in fact

diagnosed with renal insufficiency before she even applied for life

insurance and that she reported as much on her initial

application. Based on the medical records before the court, there 5

is simply no way for the court to know when – or if – Ms. Allen was

ever actually diagnosed with renal insufficiency. In short,

defendant makes an unsupported inferential leap when it concludes

that because Ms. Allen’s medical record mentions the words “renal

insufficiency,” and “CVA” Ms. Allen made a misrepresentation on her

application for reinstatement. 

Moreover, other than Dr. Fiscina’s testimony, defendant fails

to explain how or why renal insufficiency and strokes are

considered diseases and thus, were reportable. There are no

declarations from experts, for example, explaining what renal

insufficiency is and whether or not it constitutes a disease.

Similarly, there is no expert testimony that Ms. Allen did in fact

suffer a stroke and that a stroke constitutes the type of disease

that Ms. Allen should have reported. 

Even assuming for the moment that Ms. Allen should have

reported that at some point in time she had a stroke, it is clear

that Ms. Allen had “no present knowledge of the facts sought, or

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failed to appreciate the significance of information related to

him” therefore making recision of the contract inappropriate.

Thompson v. Occidental Life Ins. Co., 9 Cal. 3d 904, 916 (1973).

“(T)he failure to mention in an application for insurance the

existence of a condition of which the applicant has no knowledge

or appreciation is not misrepresentation affecting the validity of

the policy.” MacDonald v. California-Western States Life Ins. Co.,

203 Cal. App. 2d 440, 448 (1962). 

Defendant’s position is anchored by the opinion testimony of

Dr. Fiscina. According to Ms. Antoinette Schuster, Vice President

of Insurance Services at Baltimore Life, Dr. Fiscina reviewed Ms.

Allen’s medical records and determined that a stroke is considered

a disease and thus, should have been disclosed by Ms. Allen on her

application for reinstatement. See Schuster Decl. ¶¶ 17, 31. Dr.

Fiscina also determined that renal insufficiency constitutes a

disease that should have been reported. Id. ¶ 30. 

It is clear from Ms. Schuster’s declaration that she was not

personally involved in reviewing Ms. Allen’s records and instead

relied on statements made by Dr. Fiscina. Rather than set forth

facts which would be admissible at trial, the declaration of Ms.

Schuster contains inadmissable hearsay, namely, the statements of

Dr. Fiscina. Accordingly, the statements of Dr. Fiscina must be

disregarded. See Block v. City of Los Angeles, 253 F.3d 410, 419

(9th Cir. 2001).

In its reply brief, defendant sought to “avoid any hearsay

objections” Def.’s Reply Br. At 15, and included a new declaration

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of Dr. Fiscina himself. Attached to the declaration is Dr.

Fiscina’s curriculum vitae. The court must disregard this new

declaration. It is improper for a moving party to introduce new

facts or different legal arguments in the reply brief than those

presented in the moving papers. See Lujan v. National Wildlife

Federation, 497 U.S. 871, 894-95(1990). See also Black v. TIC Inv.

Corp., 900 F.2d 112, 116 (7th Cir. 1990) (where new evidence is

presented in a reply to a motion for summary judgment, the district

court should not consider the new evidence without giving other

party time to respond).

For these reasons, defendant has failed to offer sufficient

proof to establish that its decision to rescind the policy was

supported by the evidence. The records do not support a finding

that Ms. Allen made a misrepresentation on her application for

reinstatement. In short, the court cannot conclude that the “only

reasonable inference to be drawn from the undisputed evidence

presented is that the false negative answers and omissions of [the

applicant] were material to [the insurer's] decision to provide

insurance coverage.” West Coast Life Ins. Co., 132 Cal. App.4th

at 187-8.

Defendant is similarly not entitled to judgment on plaintiff’s

claim for breach of the implied covenant of good faith and fair

dealing. Defendant argues that the evidence establishes that

defendant’s decision to rescind the policy was reasonable based on

Ms. Allen’s misrepresentations. Therefore, defendant argues, there

was no contract and there can be no claim for a breach of covenant

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Neither party asserts that section (c) applies, and an 6

independent review of the statute suggests that it does not apply.

22

of good faith and fair dealing. As previously explained, defendant

has failed to establish that Ms. Allen actually made a

misrepresentation. 

2. Accord and Satisfaction

Defendant also argues that there is a separate ground to grant

summary judgment, namely, that there was accord and satisfaction

of plaintiff’s claim. 

a. The Law of Accord and Satisfaction 

Defendant asserts that under the California Uniform Commercial

Code § 3311, it is not liable to plaintiff because an accord and

satisfaction of her claim was reached upon her cashing of the

check. Section 3311 provides, in pertinent part:

(a) If a person against whom a claim is asserted proves

that 

(1) that person in good faith tendered an instrument to

the claimant as full satisfaction of the claim, (2) the

amount of the claim was unliquidated or subject to a

bona fide dispute, and (3) the claimant obtained payment

of the instrument, the following subdivisions apply.

(b) Unless subdivision (c) applies, the claim is 6

discharged if the person against whom the claim is

asserted proves that the instrument or an accompanying

written communication contained a conspicuous statement

to the effect that the instrument was tendered as full

satisfaction of the claim.

Cal. Com. Code § 3311. Based on § 3311, courts have found that an

accord and satisfaction of a claim is reached where: (1) there is

a conspicuous statement indicating that the check is tendered in

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full and final satisfaction of the claim; (2) it is undisputed that

a bona fide dispute exists as to the amount owed to the claimant;

(3) the check is tendered in good faith; (4) the check is cashed

by the claimant. Woolridge v. J.F.L. Elec., Inc., 96 Cal. App. 4th

Supp. 52, 60-61 (2002). The statute is a codification of the common

law doctrine of accord and satisfaction, see Cal. Com. Code § 3311,

Official Comment 3, and so where the code is ambiguous, courts look

to common law for clarification. See Hull & Sharma, Satisfaction

Not Guaranteed: California’s Conflicting Law on the Use of Accord

and Satisfaction Checks, 33 Loyola L.A. L. Rev. 1, 25 (1999).

The question of whether an accord and satisfaction to a claim

was reached is a question of fact. Bii Fin. Co. V. U-States

Forwarding Servs. Corp., 95 Cal. App. 4th 111, 126 (2002). Because

the doctrine of accord and satisfaction operates as an affirmative

defense, the burden of proof rests on the defendant. Rabinowitz

v. Kandel, 1 Cal. App. 3d 961, 965 (1969). Therefore, in order to

meet its initial burden for summary judgment, defendant must

provide admissible evidence so that a reasonable finder of fact

would determine that all of the elements of accord and satisfaction

are met. See Aguilar v. Atlantic Richfield Co., 25 Cal. 4th 826,

850 (2001).

b. The Elements

Two of the four elements are easily disposed of. First, it

is clear that there is a bona fide dispute. A bona fide dispute

is an honest dispute between the parties, based on disagreement

regarding the validity or fairness of the contract, not based

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simply on the “mere pretense” of the debtor attempting to avoid a

payment which he clearly owes. Berger v. Lane, 190 Cal. 443 (1923).

The test is whether the dispute is honest or fraudulent. Potter v.

Pacific Coast Lumber, 37 Cal. 2d 592,597(1952). In the case at

bar, it is clear that there is an honest disagreement between the

parties as to the amount owed to plaintiff by defendant. Plaintiff

claims that $15,000 (the amount of the policy) is owed, Compl. ¶

10, while defendant denies owing the full benefit of the policy,

Answer ¶ 10. Plaintiff has failed to produce any evidence that

establishes that there is any dispute as to this element.

Second, it is undisputed that plaintiff endorsed and cashed

the check on or about August 24, 2004, Def.’s SUF ¶ 33, thus

satisfying the fourth element of accord and satisfaction. The

remaining two elements require closer examination. 

i. Conspicuous Statement

In order to satisfy § 3311, the language indicating that the

check is tendered in full and final settlement of the claim must

be conspicuous. See Cal. Com. Code § 3311(b). 

The official comments to § 3311 provide that a statement is

conspicuous if “it is so written that a reasonable person against

whom it is to operate ought to have noticed it.” Cal. Com. Code §

3311, Official Comment 4. Per the plain language of the statute,

this statement need not be on the check itself, but may be

contained in an accompanying document. See Cal. Com. Code §

3311(b), Potter, 37 Cal. 2d at 592.

In addition to being noticeable, the language must have some

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level of clarity: the plain language of the statute provides that

the statement must be “to the effect that” the payment is tendered

in final satisfaction of the claim. Cal. Com. Code § 3311(b). In

order to satisfy this requirement, the statement must be

“sufficiently explicit and unequivocal in its terms as to impose

the condition that it could be accepted only as payment in full and

not otherwise.” Dietl v. Heisler, 188 Cal. App. 2d 358, 365 (1961).

Courts have interpreted the following language as being

sufficiently conspicuous: “full and final settlement,” Directors

Guild of Am. v. Harmony Pictures, Inc., 32 F. Supp. 2d 1184, 1186-

1187 (D. Cal. 1998); “in full settlement of account stated below,”

Potter, 37 Cal. 2d at 598 (ruling based on common law); “intended

as full satisfaction of the disputed account,” Biaggi v. Sawyer,

75 Cal. App. 2d 105, 114 (Cal. 1951)(ruling based on § 1526); “for

full and final settlement of your injury,” and “for the total loss

of your vehicle,” Woolridge, 96 Cal. App. 4th Supp. at 55.

Even where the language is clear, the actions of the parties

are to be considered in determining whether the debtor intended an

accord and satisfaction. Berger v. Lane, 190 Cal. 443, 452 (1923).

Statements, declarations, and actions “must be of such a character

as to express in a clear manner the intention of the parties [to

effect an accord and satisfaction].” Id.; See also Creighton v.

Gregory, 142 Cal. 34 (1902).

In the case at bar, the letter received by plaintiff stated

the following: 

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The obligation of The Baltimore Life Insurance

Company is limited to the refund of all premiums since

the date of this reinstatement. A check in the amount

of $2,171.80 representing the premiums paid into this

policy since reinstatement is enclosed. The depositing

or cashing of this check will release The Baltimore Life

Insurance Company from paying this claim. 

If you disagree with this determination you may

submit additional information as well as your comments

and views of ths issue in writing to the Baltimore Life

Insurance Company. We will then examine pertinent

documents and your issues. Or you may contact the:

California Department of Insurance.

Ex. K, Schuster Decl. (emphasis added).

It is undisputed that plaintiff cashed the check. It is also

undisputed that after cashing the check, defendant continued to

respond to and investigate plaintiff’s claim. See Ex. S, Schuster

Decl. 

The wording of the letter, and the actions of defendant do not

conclusively establish that there was an offer for accord and

satisfaction. First, the statement in the letter was not

sufficiently conspicuous. Unlike other statements that have been

found conspicuous (such as “full and final settlement,” Harmony

Pictures, Inc.,32 F. Supp. 2d at 1186-1187; “in full settlement of

account stated below,” Potter, 32 Cal. 2d. at 598; “intended as

full satisfaction of the disputed account,” Biaggi, 75 Cal. App.

2d at 114; “for full and final settlement of your injury,”

Woolridge, 96 Cal. App. 4th Supp. at 55), the letter here simply

stated: “The depositing or cashing of this check will release The

Baltimore Life Insurance Company from paying this claim.” The

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letter then went on to state, that if “you disagree with this

determination you may submit additional information as well as your

comments and views of ths issue in writing to the Baltimore Life

Insurance Company.” Ex. K, Schuster Decl. In drawing all

reasonable inferences in plaintiff’s favor, it cannot be said that

this statement is sufficiently conspicuous.

Even if the wording was clear, the actions of the parties

suggest that the depositing of the check did not, in fact, release

defendant. See Berger, 190 Cal. at 452. As previously noted,

defendant continued to respond to plaintiff’s requests and

continued to investigate plaintiff’s claim. For example, in

November and December of 2004, defendant sent plaintiff a service

questionnaire regarding the Ms. Allen’s medical conditions, as well

as letters requesting return of the questionnaire, see Ex. Q,

Schuster Decl. In February 2005, defendant reevaluated its

decision to rescind the policy, see Ex. T, Schuster Decl.

The ambiguous language in the letter, taken together with the

actions of defendant, do not establish that defendant offered an

accord that was sufficiently conspicuous to satisfy the requirement

of § 3311. Defendant fails to meet its initial burden of setting

forth sufficient facts that entitles defendant to judgment as a

matter of law. Because defendant does not meet its initial burden,

it is not incumbent on plaintiff to set forth evidence suggesting

that there are disputed facts. 

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ii. Check offered in good faith

In order to constitute a valid accord and satisfaction, the

check must be offered in good faith. Woolridge, 96 Cal. App. 4th

Supp. at 60-61. The official comments to § 3311 define good faith

as (1) “honesty in fact” and (2) “observance of reasonable

commercial standards of fair dealing.” Cal. Com. Code § 3311

Official Comment 4. The official comments explain that where the

claimant is necessitous and clearly covered by the policy, an offer

disproportionately small in comparison to the claimant’s injuries

and amount of the policy does not meet the good faith requirement.

See id.

The case law, however, sheds little additional light on what

constitutes a good faith offer. In Wooldridge, for example, the

court concluded that a good faith offer existed when the parties

had previously agreed on the amount of the offer. See Wooldridge,

96 Cal. App. 4 Supp. at 60-61. Here, however, no such agreement th

was reached by the parties. Simply stated, it is not clear that

the offer of $2,171.80 representing repayment of decedent’s

premiums was a good faith offer of settlement for the $15,000

policy. 

That said, the court need not resolve this question. As

previously noted, defendant’s inability to meet its burden with

respect to the first element (that there was a conspicuous

statement) prevents this court from entering summary judgment in

defendant’s favor. For these reasons, defendant’s motion for

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summary judgment based on the affirmative defense of accord and

satisfaction is denied.

B. Punitive Damages 

Defendant also moves for summary judgment on plaintiff’s claim

for punitive damages. For the reasons discussed herein,

defendant’s motion is granted.

A finding that a defendant violated the duty of good faith and

fair dealing does not automatically support an award of punitive

damages. Silberg v. California Life Ins. Co., 113 Cal. Rptr. 711,

719 (1974). There must be clear and convincing evidence that the

defendant is guilty of oppression, fraud or malice. Cal. Civ. Code

§ 3294 (a).

“Malice” under Civil Code § 3294 “means conduct which is

intended by the defendant to cause injury to the plaintiff or

despicable conduct which is carried on by the defendant with a

willful and conscious disregard of the rights or safety of others.”

Cal. Civ. Code, § 3294 (c)(1). “'Oppression' means despicable

conduct that subjects a person to cruel and unjust hardship in

conscious disregard of that person's rights.... ‘Fraud’ means an

intentional misrepresentation, deceit, or concealment of a material

fact known to the defendant with the intention on the part of the

defendant of thereby depriving a person of property or legal rights

or otherwise causing injury.” Cal. Civ. Code, § 3294(c)(2) & (3).

Defendant argues that even if it acted unreasonably in

attempting to rescind the policy, there is no clear and convincing

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evidence that defendant acted with malice, oppression or fraud.

The court agrees.

Plaintiff fails to set forth any evidence that disputes

defendant’s position that even if it did act unreasonably, there

is no evidence of malice, oppression or fraud. In plaintiff’s

opposition brief, plaintiff merely states that defendant

consciously disregarded plaintiff’s rights and accordingly should

be punished. While this may be true, plaintiff fails to cite to

any admissible evidence in support of her position. Accordingly,

summary judgment must be entered for defendant.

IV.

Conclusion

1. Defendant’s Motion for Summary Judgment is DENIED in

part and GRANTED in part. 

IT IS SO ORDERED. 

DATED: June 11, 2007.

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