Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-92-06171/USCOURTS-ca10-92-06171-0/pdf.json

Parties Involved:
A. John Geiger
Appellant
New York Life Insurance Company
Appellee

Document Text:

FIL ", .J UNITED STATES COURT OF APPEAL8tJniteci States Co~~t<?f Appeal~ 

'i'enth C1rcu1t 

FOR THE TENTH CIRCUIT 

A. JOHN GEIGER, 

Plaintiff-Appellant, 

v. 

NEW YORK LIFE INSURANCE COMPANY, 

Defendant-Appellee. 

FEBO l 1993 

ROBERT L. HOECKER 

Clerk 

No. 92-6171 

(D.C. No. CV-91-1472-C) 

(W.D. Okla.) 

ORDER AND JUDGMENT* 

Before LOGAN and MOORE, Circuit Judges, and BELOT,** District 

Judge. 

**Honorable Monti L . Belot, District Judge, United States District 

Court for the District of Kansas, sitting by designation. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

* 

The case is therefore ordered 

This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 92-6171 Document: 010110165521 Date Filed: 02/01/1993 Page: 1 
In this diversity action, plaintiff appeals from the district 

court's order denying his motion for partial summary judgment and 

granting defendant's motion for summary judgment . Plaintiff 

asserted two claims under Oklahoma law: 1) a breach of contract 

cause of action based upon defendant's failure to pay benefits 

under a disability insurance policy; and 2) a tort cause of action 

alleging defendant acted in bad faith in denying the disability 

claim. The district court concluded that defendant was entitled 

to rescind the disability policy because plaintiff had 

misrepresented his income on the insurance application and that 

defendant had not acted in bad faith. 

This court reviews a district court's summary judgment 

decision de novo, Applied Genetics Int'l, Inc. v. First Affiliated 

Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990), viewing the 

record in the light most favorable to the nonmoving party, 

Deepwater Invs., Ltd. v. Jackson Hole Ski Cor:p., 938 F.2d 1105, 

1110 (10th Cir. 1991) . Summary judgment is appropriate only if 

there is no genuinely disputed material issue of fact and the 

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

Fed. R. Civ. P. 56(c) . On the other hand, Rule 56 precludes 

summary judgment if there is evidence .before the district court 

"such that a reasonable jury could return a verdict for the 

nonmoving party." Anderson v. Liberty Lobby, Inc . , 477 U.S . 242, 

248 , 91 L.Ed.2d 202, 106 S. Ct. 2505 (1986). Upon consideration 

of the record and the parties' arguments on appeal, we affirm the 

district court's decision. 

2 

Appellate Case: 92-6171 Document: 010110165521 Date Filed: 02/01/1993 Page: 2 
The following facts are undisputed: Plaintiff applied for 

and obtained a disability insurance policy from defendant on 

November 5, 1990 . Plaintiff's former wife, who was one of 

defendant's agents, assisted him in completing the application. 

Plaintiff misrepresented several facts on the application, 

including his income for the previous two years. He asserted that 

his 1988 earned income was $58,000 and his 1989 earned income was 

$55,000. In fact, plaintiff's 1988 income was only $13,326 . 38, 

while his 1989 income was $10,731.71. Plaintiff knew, at the time 

he signed the application, that the income information was false . 

Defendant would not have issued a disability policy to anyone 

who earned less than $16,000 annually. Further, in order to 

qualify for the amount of benefits offered by the policy plaintiff 

purchased, an individual would have to make at least $52,00 0 a 

year. 

One month after defendant issued the policy, plaintiff 

suffered a stroke. He subsequently filed a "Notice of Claim" for 

disability benefits on January 2, 1991, and a "Proof of Claim" on 

February 26, 1991. The parties corresponded from January through 

July 1991 concerning this claim. In August, plaintiff, having not 

received payment of any disability benefits, commenced this action 

in Oklahoma state court. Defendant subsequently removed the 

action to federal court. Following plaintiff's deposition, 

conducted in January 1992, defendant, on February 24, 1992, 

rescinded the policy and tendered to plaintiff a check 

representing the premiums paid on the policy, plus interest . 

3 

Appellate Case: 92-6171 Document: 010110165521 Date Filed: 02/01/1993 Page: 3 
On appeal, plaintiff first argues that defendant was not 

entitled to rescission because, at the time it issued the policy, 

defendant had knowledge, imputed to it from defendant's agent, of 

plaintiff's true income. The general rule is that "knowledge 

obtained by an agent of an insurer while acting within the scope 

of his authority is imputed to the insurer." Mutual Life Ins. Co . 

v. Bohlman, 328 F.2d 289, 294 (10th Cir. 1964 ) (applying Oklahoma 

law) . The purpose of this general rule is to allow an i nnocent 

third party to presume that the agent will perform his duty and 

report to the insurer all the facts that affect its interests. 

Id. This general rule does not apply, however, "when the third 

party knows there is no foundation for the ordinary presumption 

when he is acquainted with circumstances plainly indicating that 

the agent will not advise his principal as [the rule] is 

intended to protect those who exercise good faith, and not as a 

shield for unfair dealing." Id. An agent's knowledge, therefore, 

will not be imputed to the insurer if the applicant knows, or 

should know, that the agent is not going to transmit the correct 

information to the insurer and that the insurer is being deceived. 

See id. at 295; Motors Ins. Cor:p. v . Freeman, 304 P.2d 328, 

330 - 31 (Okla. 1956). 

In this case, the parties do not dispute that plaintiff's 

application contained inaccurate income information. At h i s 

deposition, plaintiff indicated that, although his former wife 

filled out the application, he watched h e r make the entries. He 

further testified that he was aware that the income figures 

4 

Appellate Case: 92-6171 Document: 010110165521 Date Filed: 02/01/1993 Page: 4 
included in the application were inaccurate when he signed the 

application. 

Plaintiff argues that, despite these undisputed facts, a 

reasonable jury might still believe that he was unaware that 

defendant would be deceived by this false information . Even in 

light of those undisputed facts, the record does not contain 

sufficient evidence to enable a reasonable jury to find in favor 

of plaintiff on this issue. Summary judgment for defendant on the 

issue of rescission, therefore, was appropriate. Anderson v . 

Liberty Lobby, Inc . , 477 U.S. at 251 . 

Plaintiff nonetheless argues that defendant is estopped from, 

and has waived its right to, rescind the insurance policy because 

defendant continued to accept plaintiff's monthly premium payments 

until February 1992. In order to rescind an insurance policy, 

Oklahoma law requires that the insurer act promptly, after 

acquiring knowledge of facts supporting rescission, to notify the 

insured of its intention to rescind the policy and to tender the 

return of the unearned premiums the insurer has received. Okla. 

Stat. tit. 15, § 235; see also Great Am. Reserve Ins. Co . v . 

Strain, 377 P.2d 583, 587 - 88 {Okla. 1962). Retention of premiums 

prior to the insurer's acquiring actual knowle dge of facts 

supporting rescission, however, does not waive an insurer's right 

to rescind the policy. See United States Casualty Co . v . Jackson, 

46 P.2d 939, 942 {Okla. 1935). 

An insurer will be entitled to rescind a policy if an 

applicant makes a material misrepresentation in his insurance 

application which is fraudul ent, or material to the risk accepted 

5 

Appellate Case: 92-6171 Document: 010110165521 Date Filed: 02/01/1993 Page: 5 
by the insurer, or if the insurer, in good faith, would not have 

issued the policy if it had known the true facts. Dennis v. 

William Penn Life Assurance Co., 714 F. Supp. 1580, 1582 {W.D. 

Okla. 1989) {citing Okla. Stat. tit. 36, § 3609). The insurer must 

establish, among other things, that the applicant made those 

misrepresentations knowing at the time that they were false. Id. 

Plaintiff argues that defendant possessed sufficient facts to 

rescind the insurance policy in April 1991, when it received 

copies of plaintiff's tax returns for the years in question. 

Because defendant, nonetheless, waited until February 1992 to 

rescind the policy, plaintiff contends it waived its right to do 

so. 

Although defendant did possess information, in April 1991, 

indicating a discrepancy existed between the income figures 

plaintiff reported on his tax returns and the figures he included 

on the insurance application, defendant did not possess facts 

indicating plaintiff knowingly made those misstatements until he 

admitted doing so during his deposition in January 1992. 

Defendant rescinded the policy and tendered the return of the 

premiums within a reasonable time after that deposition. The fact 

that defendant rescinded the policy during the course of 

litigation is not determinative. See Jackson, 46 P.2d at 942 

{when insurer obtains knowledge of facts supporting rescission 

during course of litigation, tender of return of premiums during 

pendency of legal action not unreasonable). 

Lastly, plaintiff asserts that the district court erred in 

granting defendant summary judgment on the bad faith tort claim. 

6 

Appellate Case: 92-6171 Document: 010110165521 Date Filed: 02/01/1993 Page: 6 
Where, as here, however, the insured does not have a valid claim 

for benefits under the policy, a bad faith claim will not lie. 

See Dennis, 714 F. Supp. at 1584. The district court, therefore, 

did not err in granting defendant summary judgment on the tort 

claim. 

Plaintiff's remaining arguments lack merit. The judgment of 

the United States District Court for the Western District of 

Oklahoma is, therefore, AFFIRMED. 

The mandate shall issue forthwith. 

Entered for the Court 

Monti L. Belot 

District Judge 

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