Opinion ID: 171865
Heading Depth: 1
Heading Rank: 9

Heading: The Fourth Element

Text: In order to satisfy the fourth element of the Hollinger standard, WCLI must demonstrate it was not chargeable with the knowledge Butts heli-skied. 560 P.2d at 827. Colorado has yet to adopt a test for determining when an insurer is chargeable with knowledge of an undisclosed material fact. The parties agree, however, and the district court concluded, the Colorado Supreme Court would endorse the following standard: an insurer is chargeable with knowledge of undisclosed information only where it had sufficient information that would have put a prudent man on notice and would have caused him to start an inquiry which would have uncovered the truth. Major Oil Corp. v. Equitable Life Assurance Soc'y, 457 F.2d 596, 604-05 (10th Cir.1972). Butts gave a negative response to Question 5, indicating he did not engage in any hazardous activities. Later, however, in response to the question of what he did for recreation and exercise in his spare time during his phone interview with Chu, Butts stated he enjoyed skiing and golfing. In response to Chu's question about hazardous activities, Butts stated only that he was involved in scuba diving and private aviation as a pilot. WCLI's underwriter, Youngquist, interpreted Butts's response that he participated in skiing in his spare time, to mean he engaged in resort skiing. Youngquist had only worked for WCLI for about a month, and was unaware the underwriting manual treated the various kinds of skiing differently, with heli-skiing, but not resort skiing, meriting an increase in the insured's premium. He did not consult the manual during the course of underwriting Butts's Policy. Defendants contend that based on Butts's disclosure that he skied, WCLI had a duty to conduct an investigation into the nature of Butts's skiing precisely because of the six classes of skiing identified for differing treatment in the underwriting manual. A reasonably prudent insurer, they argue, would have been put on notice to conduct further investigation into the type of skiing in which Butts engaged. In deciding to insure Butts, Youngquist had before him: (1) Butts's negative response to Question 5, (2) Butts's report to Chu stating the only hazardous activities in which he engaged were scuba diving and private aviation, and (3) Butts's report to Chu stating he also enjoy[ed] skiing and golfing in his spare time. Thus, even if Youngquist had been aware of the classifications in the underwriting manual, such awareness would not have sufficed to put a prudent underwriter on notice he should further investigate a situation where an applicant reports recreational skiing and denies engaging in any hazardous activities. As the district court explained, [i]f such were the burden of a prudent insurance company, then it would seem that any report of a generally lowhazard recreational activity  e.g., wrestling, juggling, or fishing  would require the insurer to investigate the myriad possible `extreme' variants thereof. Cf. Am. Eagle Fire Ins. Co. of N.Y. v. Peoples Compress Co., 156 F.2d 663, 667 (10th Cir.1946) (stating honesty, good faith, and fair dealings require [an insured] to communicate [facts material to the risk] to his insurer.). Accordingly, courts have generally found insurance companies chargeable with knowledge of an undisclosed fact only where it has knowledge of evidence indicating the applicant was not truthful in answering the particular application question at issue. See Major Oil Corp., 457 F.2d at 598-604 (concluding insurer was chargeable with knowledge of applicant's alcohol problem where another insurance company considering the applicant informed the insurer of the applicant's ongoing alcohol problem and a report by the Medical Information Bureau received by the insurer prior to issuance of the policy revealed the insured had a drinking habit); Columbian Nat. Life Ins. Co. v. Rodgers, 116 F.2d 705, 708 (10th Cir.1940) (concluding insurer was chargeable with knowledge that applicant had previously been declined insurance despite applicant's answer to the contrary where it had in its possession documentation indicating that the applicant had either been declined or had been rated differently from the established rates, or that some other unusual circumstances were involved.). Here, WCLI had no such evidence. Butts twice informed WCLI he did not engage in hazardous activities. Contrary to Defendants' assertions, Butts's statement he engaged in the recreational activities of skiing and golfing does not constitute evidence or raise a red flag as to his lack of truthfulness in answering the hazardous activities question, as recreational resort skiing is not considered a hazardous activity. See Barciak v. United of Omaha Life Ins. Co., 777 F.Supp. 839, 843 (D.Colo.1991) (concluding insurer was not chargeable with knowledge of applicant's heart condition where applicant did not disclose he received medical care for chest pain, extensive medical tests, and had been referred to a cardiologist, but in a subsequent phone interview stated he had seen a doctor for a headache and received a variety of tests, including a chest x-ray and EKG, and the doctor's diagnosis was unknown.). We therefore affirm the district court's conclusion that WCLI has met the Hollinger elements as a matter of law entitling it to summary judgment on its claim for rescission of the Butts Policy.