Opinion ID: 77943
Heading Depth: 2
Heading Rank: 1

Heading: MEGA's Rescission Claim

Text: MEGA contends that the district court erred in granting Mr. Pieniozek's motion for summary judgment on its rescission claim. Under Alabama Code § 27-14-7(a), misrepresentations and incorrect statements do not prevent recovery under, an insurance policy unless: (1) Fraudulent; (2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or (3) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract at the premium rate as applied for, or would not have issued a policy or contract in as large an amount or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise. Ala.Code § 27-14-7(a) (LexisNexis 1998). MEGA seeks rescission under (a)(3), arguing that it would have reduced the coverage available to Mrs. Pieniozek had she provided her correct income. [3] The district court held that, in order to be eligible for rescission or reduction of coverage under (a)(3), MEGA must provide what it has not provided, namely, a rational basis for how its risk varied with Mrs. Pieniozek's income. . . . (R.1-46 at 11). The court found that such a rational basis was conspicuously absent, and held that MEGA had not presented a prima facie case on this issue, and granted summary judgment in favor of Mr. Pieniozek. (R.1-46 at 11-12.) We review a district court's grant of summary judgment de novo. Holloman v. MailWell Corp., 443 F.3d 832, 836 (11th Cir.2006). Summary judgment is appropriate when the evidence, viewed in the light most favorable to the nonmoving party, presents no genuine issue of material fact and compels judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A district court's interpretation of a state statute is reviewed de novo. Blasland, Bouck & Lee, Inc. v. City of N. Miami, 283 F.3d 1286, 1294 (11th Cir. 2002). Alabama decisions involving (a)(3) do not mention a rational basis requirement. To avoid summary judgment under (a)(3), an insurer need only have presented evidence that the [insured] made the misrepresentation, and that [it] would not have issued the [] policy had it known the actual facts. Allstate. Ins. Co. v. Swann, 27 F.3d 1539, 1544 (11th Cir.1994). An insurance company does not normally have a duty to inquire further to verify that an applicant has told it the truth. Old S. Life Ins. Co. v. Spann, 472 So.2d 987, 989 (Ala.1985). The Alabama Supreme Court holds that, in order for an underwriting policy to be in good faith under. (a)(3) and eligible for rescission, the policy in question need only be universally applied. [T]he only question [with regard to section 27-14-7(a)(3)] is the good faith of the insurer in refusing to issue the policy . Because the practice of not issuing a policy to anyone employed less than 30 hours per week appears to be universally applied by [the insurer], and thus not susceptible to a badfaith [sic] implementation, we hold that § 27-14-7 provides a ground for rescission. . . . Henson v. Celtic Life Ins. Co., 621 So.2d 1268, 1275 (Ala.1993). Mr. Pieniozek argues that the district court was correct in holding that (a)(3) impliedly requires that the insurer's basis for rescission under (a)(3) be rational. MEGA contends that the statute and related case law contain no such requirement. We are cited no authority that supports the district court's holding that (a)(3) requires that an insurer have a rational basis for the underwriting policy at issue. Rather, (a)(3) contains only a good faith requirement. Mr. Pieniozek argues that summary judgment in his favor should be affirmed because MEGA can point to no document with its name on it that articulates a policy of tying coverage to an applicant's income. In fact, nothing in the MEGA Agent Guide mentions an income multiplier. MEGA counters that it has advanced sufficient evidence, through deposition and affidavit testimony, that it did have such a policy, even if it could not point to a specific document with MEGA written on it. We conclude that MEGA advanced sufficient evidence to survive summary judgment on the issue of whether it would, have declined, in good faith, to issue the policy to Mrs. Pieniozek if it had known her true income. In her deposition, Charmaine Hopkins, MEGA's Chief Underwriter, pointed to documents from Canada Life Reinsurance (the Canada Life guidelines), and testified that they were used as underwriting guidelines for MEGA. The Canada Life guidelines state that an income of $35,000 may be multiplied [by thirty] to arrive at a ballpark figure for maximum amount of personal insurance. (R.1-35 Ex. Y.) Hopkins also testified that Chesapeake Life is MEGA's sister company, and it is MEGA policy to follow Chesapeake Life's underwriting guidelines (the Chesapeake guidelines). (R.2-30 at 88-89.) The Chesapeake guidelines do not have mandatory language: The following financial guide is intended to assist you in determining maximum coverage. Please refer to the guide often as it will provide a means of anticipating the Underwriting Requirements for all large amount cases you write. (R.2-30 Ex. 7 at 2.) For Mrs. Pieniozek's income range, the Chesapeake guidelines provide that she would have qualified for coverage in the amount of up to fifteen times her income, which is half the amount allowed by the Canada Life guidelines. Waliagha, the agent, testified, If your income [is] $100,000 a year, I can write the policy on you between seven to 15 times to cover your income. (R.1-35 Ex. X at 88.) And, he testified that he advised Mrs. Pieniozek that her income disqualified her from the $1 million policy that she requested. MEGA, contends that it is entitled to summary judgment on this issue. We disagree. Existence of an underwriting policy is a question on which MEGA bears the burden of proof. While MEGA has advanced sufficient evidence to avoid summary judgment against it, we hold that a reasonable fact-finder could determine that MEGA did not have a policy limiting coverage to 15 times an applicant's annual income. The fact that MEGA can point to no document bearing its name, coupled with the fact that it identifies two different documents from different insurance companies in attempting to establish its underwriting guidelines, undermines the testimony that MEGA had underwriting guidelines which were universally applied. We can envision a rational basis for tying the amount of coverage to annual income, but this does not end the inquiry. Certainly, the issue of whether there is a rational basis for an insurance company's underwriting policy, while not dispositive, is relevant evidence in a factual determination of whether the underwriting policy existed in the first place, and MEGA's summary judgment motion was not supported by testimony articulating a rational basis for the policy. These circumstances, considered collectively, mean that a factfinder must decide whether MEGA had such a policy, and whether it would have, in good faith, declined to issue the policy or reduced the amount of Mrs. Pieniozek's coverage if it had known her true income.