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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________ 

No. 11-1350

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MICHAEL SADEL,

 Appellant

v.

BERKSHIRE LIFE INSURANCE COMPANY OF AMERICA; 

THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA 

_____________

Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil No. 2-09-cv-00612)

District Judge: Honorable Mitchell S. Goldberg

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Submitted Under Third Circuit LAR 34.1(a)

March 19, 2012

Before: RENDELL, FISHER and CHAGARES, Circuit Judges.

(Opinion Filed: March 30, 2012) 

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OPINION OF THE COURT 

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RENDELL, Circuit Judge.

Plaintiff Michael Sadel sued the Berkshire Life Insurance Company of America 

and its parent company, The Guardian Life Insurance Company of America, alleging bad 

faith and breach of contract in connection with Berkshire’s failure to pay benefits under 
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two individual disability insurance policies. The insurers counterclaimed for rescission 

of the policies, arguing that Sadel’s policy applications contained fraudulent statements. 

The District Court granted summary judgment to the insurers, rescinded the policies, and 

ordered the insurers to refund the premiums Sadel paid. Sadel filed this timely appeal. 

For the following reasons, we will affirm.

I.

Sadel is a licensed pharmacist who owned two pharmacies in North Philadelphia. 

In 2002, he began seeing Linda May, a licensed clinical social worker, for treatment for 

abuse of prescription narcotics, including Percocet, Oxy Contin, Vicodin, Xanax, and 

Soma. In addition to meeting individually with May, Sadel also attended group sessions 

for patients with substance abuse problems. These sessions continued through February 

2006.

In January 2005, Sadel purchased a disability insurance policy from Berkshire Life 

Insurance Company of America. Sadel did not disclose his past drug use, treatment for 

drug use, or treatment for various mental or emotional disorders to Berkshire’s agent, 

who completed the policy application on his behalf. Thereafter, Sadel signed an 

application that read: “Those parties who sign below, agree that . . . All of the statements 

that are part of the application . . . are correctly recorded, and are complete and true to the 

best of the knowledge and belief of those persons who made them.”

Berkshire issued Sadel’s disability insurance policy on February 5, 2005. The 

policy contains an incontestable provision that states: “This policy will be incontestable 

as to the statements, except fraudulent statements, contained in the application after it has 
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been in force for a period of two years during your lifetime.” The policy also contained a 

Future Increase Rider Option that permitted Sadel to apply for an additional disability 

insurance policy at a later time. In February 2007, Sadel exercised his option to purchase 

the Future Increase Option policy. That policy contained an inconstestable provision 

similar to the one in the initial disability insurance policy.

In January 2007, Sadel lost several fingers on his left hand during an armed 

robbery at one of his pharmacies. Concerned that medications might cause him to relapse 

into addiction, Sadel disclosed to emergency room workers at Thomas Jefferson Hospital

that he had taken unprescribed narcotics in the past. After the incident, Sadel resumed 

his individual counseling sessions with May. Her notes from one subsequent session 

indicate that Sadel told her he lied on his application for the disability insurance policy. 

Sadel eventually returned to work at his two pharmacies, but he stopped working

after an incident in June 2007 in which a customer approached him from behind and said 

“stick ’em up.” Sadel put his pharmacies up for sale, and, on August 16, 2007, notified 

Berkshire of his intent to claim disability benefits under his initial and Future Increase 

Option policies.

In response to Sadel’s notification, Berkshire sent Sadel several forms, including a 

“Claim Form” and an “Attending Physician’s Statement.” A Berkshire claims adjuster 

also obtained Sadel’s medical records from Thomas Jefferson Hospital, which reflected 

Sadel’s history of dependency on prescription drugs. After a considerable delay,

Berkshire also received a report and chart prepared by May that indicated she began 

treating Sadel for narcotics use in September 2002 and that she had frequently met with 
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Sadel between 2002 and January 18, 2005, the date he signed his initial disability 

insurance application. Berkshire notified Sadel that it had found inconsistencies in his 

application and was still reviewing the validity of the policies. Between 2007 and 2009,

Berkshire requested several additional documents from Sadel. At the time Sadel filed 

suit, Berkshire was awaiting additional documentation and information to complete 

Sadel’s claim form.

Sadel sued Berkshire and Guardian Life, its parent company, in the Philadelphia 

Court of Common Pleas in 2009, alleging bad faith and breach of contract and seeking 

money damages for the unpaid disability income benefits. The insurers removed the case 

to the district court for the Eastern District of Pennsylvania and counterclaimed for

rescission of the two policies, alleging that Sadel made fraudulent statements on his 

disability insurance applications. The District Court granted summary judgment to 

Berkshire and Guardian, and dismissed Sadel’s claims of bad faith and breach of 

contract. It rescinded both disability insurance policies and ordered Berkshire to refund 

the $7,648.20 in premiums Sadel had paid. Sadel filed this timely appeal. 

II.

We have jurisdiction over this appeal under 28 U.S.C. § 1291 and exercise plenary 

review over the District Court’s decision to grant summary judgment. McLeod v. 

Hartford Life & Accident Ins. Co., 372 F.3d 618, 623 (3d Cir. 2004). “[S]ummary 

judgment may be entered on a rescission claim when, based upon the evidence produced 

in discovery, the only reasonable inference a fact finder could draw is that the applicant’s 

answers were knowingly false, or made in bad faith.” Nw. Mut. Life Ins. Co. v. Babayan, 
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430 F.3d 121, 132 (3d Cir. 2005). We agree with the opinion of the District Court on 

each of the following three issues Sadel raises on appeal.

A.

First, like the District Court, we reject Sadel’s argument that an insurer that 

contests a disability insurance policy beyond the contestability period must satisfy a 

“higher burden” than ordinarily applies in common-law fraud cases. The contestability 

period for the initial and Future Increase Option policies expired on February 5, 2007, 

over two years before Berkshire filed its rescission counterclaim. Berkshire argued that, 

despite the expiration of the contestability period, rescission was justified in this case 

because Sadel procured the policies through fraud. Relying on cases involving 

incontestability provisions in life insurance policies, Sadel contends that, rather than 

simply satisfying the common-law, “clear and convincing evidence” standard for fraud,

Berkshire was required to establish that (1) the insured’s conduct involved serious 

deception, along the lines of using an imposter to establish eligibility for a policy; and 

(2) the deception could not be detected through the normal investigation process. 

His argument is meritless. Pennsylvania law requires insurers to include 

incontestability provisions in disability policies, and requires insurers to use language 

equivalent to, or more favorable to the insured than, the following: “After three 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 three year period.” 40 Pa. Stat. Ann. § 753(A)(2)(a)
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(emphasis added). That language clearly allows insurers to use fraudulent misstatements 

to void a policy after the contestability period expires and does not suggest any special, 

higher burden for establishing fraud beyond that date.

By contrast, Pennsylvania law prescribes a different incontestability provision for 

life insurance policies, which does not contain any explicit fraud exception and 

specifically states that “provisions relative to disability benefits” may be excepted from 

the incontestability requirement for life insurance. See 40 Pa. Stat. Ann. § 510(c)

(requiring life insurance policies to include “[a] provision that the policy shall be 

incontestable after it has been in force, during the lifetime of the insured, two years from 

its date of issue, except for nonpayment of premiums; and that, at the option of the 

company, provisions relative to disability benefits . . . may also be excepted”). Thus, to 

the extent the cases Sadel cites, which all involve life insurance policies, suggest a higher 

burden for establishing fraud beyond the contestability period, they do not shed any light 

on this case. 

We find no support for Sadel’s “higher burden” standard and, accordingly, agree 

with the District Court that the well settled standard for voiding an insurance policy under 

Pennsylvania law during the contestability period, that “an insurer has the burden of 

proving, by clear and convincing evidence, the following three factors: (1) the insured 

made a false representation; (2) the insured knew the representation was false when it 

was made or the insured made the representation in bad faith; and (3) the representation 

was material to the risk being insured,” Northwestern Mutual, 430 F.3d at 129 (footnote 

omitted), also applies in this case.
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B.

Second, we agree with the District Court that Berkshire satisfied that standard. On 

appeal, Sadel does not argue that the findings of the District Court were incorrect.1 

Instead, he continues to try to explain away his fraudulent statements, arguing that he was 

doing well when he filled out the initial disability insurance application and his drug 

abuse was a small matter he dealt with in a matter of weeks. As the District Court 

properly found, those excuses do not change the fact that Sadel knowingly provided false 

information on his insurance application. We therefore agree with the District Court that

Berkshire established each element necessary to rescind both disability insurance 

policies. 

C.

Third, we agree with the District Court that Sadel has presented no evidence to 

support his claim that Berkshire acted in bad faith in investigating his claim or refusing to 

pay benefits. “[I]n order to recover on a bad faith claim, the insured must prove: (1) that 

the insurer did not have a reasonable basis for denying benefits under the policy; and (2) 

that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying 

the claim.” Northwestern Mutual, 430 F.3d at 137. 

 

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The District Court found that each element for rescission was met, as follows: (1) Sadel 

did not dispute that the answers in his application were false; (2) Sadel admitted that he 

knowingly provided false answers; and (3) Berkshire’s underwriting guidelines state that 

a policy will not be issued to anyone who abuses controlled substances within five years 

of the application date and an underwriter for Berkshire confirmed in his deposition that 

the company would not issue a policy to anyone who disclosed a history of drug abuse 

within the past five years. 
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Sadel’s primary bad-faith theory was that Berkshire unreasonably delayed the 

adjustment of his claim. But, as the District Court found, the undisputed evidence 

suggests that the adjustment delay was attributable to Sadel and May, not Berkshire: 

Sadel took four months to return the initial claim form, and May did not respond to 

Berkshire’s requests for information until another four months after that. Sadel also 

failed to provide Berkshire with information it requested as to his financial condition and 

his claim that he was “totally disabled” under the policy.

Furthermore, we agree with the District Court that, because Sadel knowingly 

provided fraudulent misrepresentations on his disability insurance applications and 

subsequent documents, he cannot establish bad faith on the grounds that Berkshire lacked 

a reasonable basis to deny him benefits. 

III.

Accordingly, and for essentially the reasons set forth in the District Court’s 

opinion, we will affirm the judgment of the District Court.