Court Opinion

ID: 950936
Source: CourtListenerOpinion
Date Created: 2013-06-28 19:11:37.743862+00
Date Added: 2024-06-11T09:09:07.966795
License: Public Domain

United States Court of Appeals
                        For the First Circuit

Nos. 12-2227, 12-2228

                  PRUCO LIFE INSURANCE COMPANY,

                         Plaintiff, Appellee,

                                  v.

WILMINGTON TRUST COMPANY, Trustee under the Paul E. L'Archevesque
Special Revocable Trust-2006; JAY L'ARCHEVESQUE, Co-Trustee under
     the Paul E. L'Archevesque Special Revocable Trust-2006,

                        Defendants, Appellants.

          APPEALS FROM THE UNITED STATES DISTRICT COURT
                 FOR THE DISTRICT OF RHODE ISLAND

          [Hon. William E. Smith, U.S. District Judge]

                                Before

                       Lynch, Chief Judge,
              Torruella and Howard, Circuit Judges.

     F. Warren Jacoby, with whom Cozen O'Connor, Mary Cavanagh
Dunn, and Blish & Cavanagh LLP were on brief, for appellant
Wilmington Trust Company.
     Robert M. Duffy, with whom Stacey P. Nakasian and Duffy &
Sweeney, Ltd. were on brief, for appellant Jay L'Archevesque.
     Laurie E. Foster, with whom Allyson N. Ho, Morgan, Lewis &
Bockius LLP, Robert C. Shindell, Angela L. Carr, and Taylor Duane
Barton & Gilman, LLP were on brief, for appellee.

                             June 28, 2013
          LYNCH, Chief Judge.   Wilmington Trust Company and Jay

L'Archevesque, co-trustees of the Paul E. L'Archevesque Special

Revocable Trust-2006, challenge the district court's grant of

summary judgment to Pruco Life Insurance Company on Pruco's claim

for a judgment of mutual rescission of a life insurance policy,

owned by the trust, on the life of Paul L'Archevesque.

          This case turns on a limited set of material facts. Pruco

sought rescission of the policy after it discovered that the policy

application had contained material misrepresentations about the

health of the insured.   It tendered to Wilmington a check in the

amount of the policy premiums paid (plus interest), along with a

letter clearly stating that the purpose of the check was to effect

rescission of the policy.   Under the trust agreement, Wilmington

had ceded decisionmaking authority to Coventry Capital I LLC, a

premium financing company, which was acting as the servicing agent

for a bank that had taken a security interest in the policy.

Wilmington accordingly forwarded the check and the letter to

Coventry, and after three weeks of investigation and consultation

with in-house counsel, Coventry sent the check back to Wilmington

with instructions to cash it.     Wilmington did so.     At no time

before or since has anyone attempted to return the money to Pruco.

          Under these circumstances, the district court concluded

that, as a matter of law, a mutual rescission had taken place, and

Pruco was entitled to a judgment declaring the policy void ab

                                -2-
initio.      In an effort to avoid this conclusion, Wilmington and Jay

L'Archevesque raise a series of arguments that attempt to obscure

the relevant facts.         We reject these arguments and affirm the

district court's judgment.

                                         I.

              In the fall of 2005, on the advice of his accountant,

Paul       L'Archevesque   met    with     an   insurance      broker,    Vincent

Passananti,      to   discuss    purchasing     a   life    insurance    policy.

Passananti explained to Paul1 that he could purchase this insurance

using non-recourse premium financing: Paul would take a loan to pay

the premiums, and when the loan matured he could sell the policy on

the open market, using the proceeds to pay off the loan and

retaining any excess proceeds for himself. Paul testified that his

intention was to sell the policy after about two years.

              To obtain the loan, Passananti submitted Paul's medical

records to Coventry, a company with which Passananti had a contract

to produce premium financing transactions.                 At least one of these

records noted that Paul had been experiencing some memory loss.

After conducting its own medical underwriting, Coventry approved

the premium financing on January 4, 2006, and arranged for a loan

through LaSalle Bank.

       1
       Since Jay and Paul L'Archevesque share the same last name,
this opinion will refer to them by their first names.

                                         -3-
           Later that month, Paul created two trusts that would be

used to take out the premium finance loan and eventually hold the

life insurance policy.      The first was the Paul E. L'Archevesque

Special Trust-2006, of which Jay was the sole trustee.          The second

was the Paul E. L'Archevesque Special Revocable Trust-2006, of

which the first trust was the settlor and Jay and Wilmington were

co-trustees.    Wilmington is a professional trust company that acts

as   trustee   for   approximately    800    trusts   in   connection   with

Coventry's premium finance loans.           The two trusts and Wilmington

then entered into a supplement to the trust agreement, which

provided, inter alia, that Wilmington would create a sub-trust to

enter into the loan agreement with LaSalle.

           The sub-trust agreement provided that Jay and Wilmington

would perform their duties as trustees at the direction of LaSalle

or its designees for the duration of the loan.                The note and

security agreement between the sub-trust and LaSalle stated that

Coventry would act as LaSalle's servicing agent and confirmed that

Jay and Wilmington would follow Coventry's instructions until

LaSalle decided otherwise.      Further, Jay and Paul each signed a

power of attorney designating Coventry as his attorney-in-fact for

purposes of, respectively, the sub-trust and the life insurance

policy.

           Meanwhile, Passananti began making inquiries on Paul's

behalf to a number of life insurance companies, including Pruco.

                                     -4-
He sent an informal inquiry to Pruco on January 24, 2006. Pursuant

to a HIPAA authorization signed by Paul, Passananti also gathered

and sent Paul's medical records to Pruco and other insurers.            The

parties vigorously contest which medical records were sent to Pruco

and when.    It is at least common ground, however, that at no time

before or during its underwriting process did Pruco receive a copy

of an earlier letter from a neurologist to Paul's primary care

doctor, dated January 11, 2006, which stated that the neurologist

believed Paul had "[p]robable mild Alzheimer's disease" and that

Paul had been given a medication, Razadyne ER, used to treat

Alzheimer's disease. It is uncontested that Paul actually received

this medication.     Further, the inquiry Passananti sent to Pruco

included a medical exam report that also did not mention memory

loss   or   Alzheimer's   disease.     While   the   records   that   Pruco

undisputedly received did show that Paul had at times complained of

depression and dizziness, they did not reflect any probable or

actual diagnoses that Pruco would consider "materially adverse"

health conditions.    Alzheimer's disease or other forms of dementia

would have been considered material.

            Based on the information it had received, Pruco issued a

tentative offer of life insurance, subject to the receipt of

additional items, including a formal application.        On February 16,

2006, Paul, through Passananti, submitted an application to Pruco

for a $10 million life insurance policy (an amount that was later

                                     -5-
increased to $15 million).      The application contained a number of

yes-or-no questions about the insured's medical history; Paul

instructed Passananti to "mark 'No' on everything." The parties do

not   dispute   that    some    of   these    "no"    answers     constituted

misrepresentations.      Specifically,       Paul    answered   "no"   to   the

question of whether he had "been diagnosed with or treated for

. . . any disorder of the brain or nervous system," even though he

had recently complained of memory problems and received a diagnosis

of "[p]robable mild Alzheimer's disease" along with medication to

treat that condition.      He also answered "no" to the question of

whether he was "currently taking any prescription medications,"

even though he had been given the Razadyne.

           On March 7, 2006, Pruco issued a $15 million policy on

Paul's life.       The policy was issued to Jay as trustee of the

Special Trust-2006.      Wilmington, as co-trustee of the Special

Revocable Trust-2006, was added as an owner and beneficiary of the

policy on March 21, 2006. LaSalle then took a security interest in

the policy as collateral for its premium finance loan.

           Approximately a year and a half later, in the fall of

2007, Pruco received an inquiry from Coventry relating to the

policy. This inquiry suggested to Pruco that Paul intended to sell

the policy, which raised the underwriting manager's suspicion that

"something else was going on" with Paul's health.                 Pruco then

ordered   Paul's    updated    medical     records,    which    revealed    the

                                     -6-
previously      undisclosed     information      about   Paul's   memory      loss,

"[p]robable mild Alzheimer's" diagnosis, and Razadyne prescription.

After reviewing the records, Pruco concluded that Paul had made

material   misrepresentations        about     his   health    and     that    these

misrepresentations constituted grounds for rescinding the policy.

             On February 5, 2008, Pruco sent Wilmington a letter and

a check for $845,964.60. Pruco also copied the letter to Paul, and

Jay   learned    about    the   letter    from    conversations      with     Paul's

financial advisors.       The letter stated, in pertinent part:

             We   recently   received   information   about
             [Paul]'s   medical   history   that  was   not
             disclosed on the application for insurance
             dated February 16, 2006 . . . .     If we had
             known this information at the time of
             application, we would not have issued the
             Policy. We are writing to inform you that the
             Policy is not in force and is void as of the
             Policy's contract date of March 7, 2006. We
             have enclosed with this letter [Pruco]'s check
             . . . payable to you in the amount of
             $845,964.60 as the return of the total amount
             of premiums, including interest, paid under
             the Policy.

The letter went on to detail the representations Paul had made in

the application that were contradicted by the recently obtained

medical records, and it stated that Pruco was accordingly entitled

"to    rescind      the    Policy        on    the   grounds      of     material

misrepresentation."

             As soon as it received the rescission letter, Wilmington

forwarded both the letter and the check to Coventry along with a

request for instructions.         Coventry's in-house counsel then began

                                         -7-
assessing the situation, including by contacting Passananti and Jay

and by deliberating with another Coventry attorney and Coventry's

Chief       Executive   Officer.   Coventry     also   already     had   in    its

possession various medical records of Paul's that it had received

in the course of its underwriting process for the premium finance

loan.        Coventry's corporate representative testified that the

company did not assume the truth of the statements in Pruco's

letter when deciding whether to agree to rescission, but rather

relied on the assessment of its in-house counsel.

               On February 27, 2008, Coventry returned the check to

Wilmington       with   instructions   to    deposit   it.   The    next      day,

Wilmington deposited the check into the account of the Special

Revocable Trust-2006, then wired the funds from that account to

LaSalle Bank.       At no time did Coventry, Wilmington, or Jay inform

Pruco that the Special Revocable Trust-2006 did not agree to

rescission or did not intend to accept rescission by depositing the

check.2

                                       II.

               Pruco filed a complaint in the Rhode Island federal

district court on February 29, 2008, invoking the court's diversity

jurisdiction.       The complaint sought rescission of the policy and a

        2
       Wilmington and Jay later made such an assertion in their
pleadings in this litigation, but there is no record evidence to
indicate that either of them made any such statement to Pruco
contemporaneously with the receipt, investigation, or cashing of
the premium refund check.

                                       -8-
declaration that the policy was void ab initio, on the basis that

Paul had made material misstatements in his application, which

induced Pruco to issue the policy.                   Pruco later amended its

complaint to add a claim for a declaration that mutual rescission

had been effectuated by Wilmington's acceptance of the returned

premiums, as well as a claim for rescission for lack of an

insurable       interest,      based   on    the   allegation   that    the   true

beneficiary of the policy was a third-party investor with no

insurable interest in Paul's life.                 The first amended complaint

named       Wilmington   and    Paul   as     defendants;   Pruco   amended   its

complaint a second time to name Jay as a defendant.                    Paul later

filed a motion to dismiss the claims as to him on the ground that

he was not an owner or beneficiary of the policy.                   The district

court granted this motion on May 19, 2009.

               After discovery, the parties cross-moved for summary

judgment.3       On September 7, 2012, the district court issued an

opinion and order granting summary judgment to Pruco on its claim

for mutual rescission and denying Wilmington's and Jay's motions

for summary judgment.            Citing the seminal Rhode Island case on

mutual rescission, Klanian v. New York Life Insurance Co., 26 A.2d
608 (R.I. 1942), the district court determined that the undisputed

        3
       In its motion for summary judgment, Pruco offered to
stipulate to the dismissal of its claim for rescission based on
lack of an insurable interest.      In its ruling on the summary
judgment motions, the district court did dismiss this count, and no
party challenges that ruling on appeal.

                                            -9-
facts    compelled   the    conclusion   that    a   mutual   rescission    had

occurred as a matter of law. Pruco had tendered the premium refund

check with a letter explicitly stating that the check was for the

purpose of rescission, using language common in mutual rescission

cases.    Coventry had considered the offer for three weeks and then

directed Wilmington to cash the check, and Wilmington did so.

After cashing the check, no party had expressed any intention not

to rescind, and there had never been an offer to return the refund

to Pruco.

            In the face of these facts, the district court held that

Wilmington's and Jay's mere assertions of their subjective intent

not to rescind were immaterial.            The court also rejected the

argument that any agreement to rescind was invalid because Pruco

had, it was alleged, obtained the rescission by fraud.                      The

undisputed facts demonstrated that Coventry, a sophisticated party

in the insurance industry, had independently assessed the situation

and consulted with counsel, and had not assumed the truth of the

statements in Pruco's letter.       As such, there was no genuine issue

of material fact as to whether Coventry had relied at all, let

alone justifiably relied, on Pruco's alleged misrepresentations.

            Judgment   on    the   district     court's   order   entered   on

September 10, 2012, and Wilmington and Jay each timely appealed.

Their appeals are consolidated before us.

                                    -10-
                                   III.

            Summary judgment is appropriate where "the movant shows

that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law."             Fed. R. Civ.

P. 56(a).   We review a district court's grant of summary judgment

de novo, "drawing all reasonable inferences in favor of the

non-moving party while ignoring 'conclusory allegations, improbable

inferences, and unsupported speculation.'" Sutliffe v. Epping Sch.

Dist., 584 F.3d 314, 325 (1st Cir. 2009) (quoting Sullivan v. City

of Springfield, 561 F.3d 7, 14 (1st Cir. 2009)).             We may affirm on

any basis apparent in the record.         Id.    On an appeal from cross-

motions for summary judgment, the standard does not change; we view

each motion separately and draw all reasonable inferences in favor

of the respective non-moving party.       See OneBeacon Am. Ins. Co. v.

Commercial Union Assurance Co. of Can., 684 F.3d 237, 241 (1st Cir.

2012).

            On appeal, Wilmington and Jay offer different but often

overlapping    arguments   for   overturning       the   district    court's

decision.     Wilmington   first   argues       that   the   district   court

misinterpreted Rhode Island law and improperly relied on out-of-

state law regarding the standard for mutual rescission.              It then

argues that there are genuine issues of material fact concerning

whether Pruco made material misrepresentations in its rescission

                                   -11-
letter,   which   should   have    precluded   summary   judgment.4   Jay

likewise argues that there are genuine issues of material fact for

trial, but he frames his argument as addressing Pruco's allegedly

"bad faith" conduct, which Jay contends should equitably bar Pruco

from obtaining a rescission.        We take each argument in turn.

A.         Rhode Island Mutual Rescission Law

           "Rescission is . . . [an] abrogation or undoing of [a

contract] from the beginning.        It seeks to create a situation the

same as if no contract ever had existed."        Dooley v. Stillson, 128
A. 217, 218 (R.I. 1925).          In Klanian, the Rhode Island Supreme

Court stated that "[m]utual rescission rests upon intention; it

depends both upon the acts of the parties and the intention with

which those acts are done."       26 A.2d at 613.   While the question of

intention to rescind is "ordinarily a question for the jury, . . .

it may become a question for the court where the facts are admitted

or clearly established."      Id.      Here, the facts surrounding the

cashing of the premium refund check were undisputed, with the only

difference among the parties being the appropriate inferences to

draw from those facts.

     4
        Wilmington also argues, in the alternative, that any
rescission was based on a mutual mistake of fact that renders the
agreement voidable. This argument appears to be premised on the
unsupported theory that Pruco itself was mistaken as to the alleged
falsity of the statements in the rescission letter. Besides being
unrelated to record evidence and making little sense, this argument
would fail for the same reasons explained below as to Wilmington's
assertion that Pruco deliberately made misrepresentations in the
rescission letter.

                                    -12-
            As in Klanian, the insurance company here sent a letter

to the policyholder clearly stating its intent to rescind the

policy and including a check tendering the premiums paid, with

interest.     See id. at 609-10.     As in Klanian, the recipient here

cashed the check.      See id. at 610.     The Klanian court stated that

these facts raised a "reasonable inference" of mutual rescission.

Id. at 613.    The difference between Klanian and this case is that,

in   the   former,   the   policyholder    was   illiterate   and   did   not

understand the contents of the letter or the notation on the

tendered check.      Id. at 610.   When he learned what the letter said,

he immediately dictated a response letter to the insurer stating

that he had not intended to agree to rescission and offering to

return the refunded premiums.        Id.   Days later, his counsel sent

the insurer a check in the amount of the premiums.              Id.   Under

these circumstances, the court determined that there was a jury

question as to the policyholder's intent to rescind.           Id. at 613.

            Wilmington argues that Klanian stands for the proposition

that, if a party has an unexpressed, subjective intent not to

rescind, then that intent can defeat a claim of mutual rescission.

This is not an accurate reading.       Indeed, the Klanian court stated

that, were it not for Klanian's prompt letter and attempt to return

the refund, there would have been "merit in the [insurer]'s

contention that there was nothing to go to the jury and that [the

insurer] was entitled to a direction of a verdict as a matter of

                                    -13-
law."   Id.; see also Reccko v. Criss Cadillac Co., 551 A.2d 20, 21-

22 (R.I. 1988) (finding jury issue on intent to rescind where

plaintiff had sent letter to defendant stating that she was making

an "offer in mitigation of damages" that should not "be interpreted

as a[] . . . rescission").        The Klanian court also specifically

distinguished Klanian's situation from those in other cases holding

that a mutual rescission had occurred based on the tender and

cashing of a refund check, on the grounds that the other cases had

involved policyholders who waited a significant amount of time

before cashing the check and thereafter offered no evidence to

overcome the inference of an intent to rescind.             See 26 A.2d at

612-13 (citing Kincaid v. N.Y. Life Ins. Co., 66 F.2d 268 (5th Cir.

1933); Warren v. N.Y. Life Ins. Co., 58 P.2d 1175 (N.M. 1936);

Peterson v. N.Y. Life Ins. Co., 240 N.W. 659 (Minn. 1932)).

Klanian never suggests that a party's unexpressed intentions,

evidenced   by   nothing   more   than    that   party's   bare,   post   hoc

assertions, can overcome the inference of mutual rescission.              Cf.

Newport Plaza Assocs. v. Durfee Attleboro Bank (In re Newport Plaza

Assocs.), 985 F.2d 640, 643-44, 646 (1st Cir. 1993) (noting that,

under Rhode Island law, "[c]ontracts ordinarily depend on objective

indicia of consent, not on a party's subjective expectations").

            Here, of course, Wilmington did not take any actions

either before or after it cashed Pruco's refund check to indicate

                                   -14-
that it did not intend to agree to rescission.5             Wilmington does

not point to any record evidence showing that it ever expressed any

dissent to Coventry or to Pruco.   Nor does it present any evidence

to support a finding that Coventry had any intent other than to

agree to rescission when it instructed Wilmington to cash the

check.   Cf. Dooley, 128 A. at 218 ("An implied rescission is as

effective as an express one.").    To this day, Wilmington has never

attempted to return the premiums to Pruco.                 These facts are

undisputed, and Wilmington's bare assertions are not enough to

overcome the reasonable inference that a mutual rescission took

place.

          The   out-of-state   cases    cited   by   the    district   court

support this result, and none of them are in conflict with Rhode

Island law.   In fact, the case at which Wilmington aims the brunt

of its attack -- Avemco Insurance Co. v. Northern Colorado Air

Charter, Inc., 38 P.3d 555 (Colo. 2002) -- cites Klanian for the

very proposition that "in order to overcome the inference of

rescission, the insured must offer evidence, beyond a subjective

intent not to rescind, to rebut the acts of the insurer and the

     5
       That Wilmington was taking instructions from Coventry does
not change the situation. It is undisputed that Wilmington had
agreed to act at Coventry's direction for all matters relating to
the policy for as long as the premium finance loan was outstanding.
The fact that Coventry directed Wilmington to act in a manner that
Wilmington now claims was against its preferences has no effect on
the rescission analysis.

                                 -15-
insured."      Id. at 563.   Wilmington's argument that the district

court ignored Rhode Island law is without merit.

B.          Relevance of Pruco's Alleged Misrepresentations

            Wilmington next argues that, even if cashing the refund

check raises an inference of an agreement to rescind, there were

genuine issues of material fact that should have precluded the

conclusion, at the summary judgment stage, that such an agreement

was   valid.      Specifically,   Wilmington          argues   that    there    were

material       factual    disputes    as         to     whether       Pruco     made

misrepresentations in its rescission letter concerning what Pruco

knew about Paul's medical condition and the extent to which Pruco

had relied on the statements in Paul's application.                     Wilmington

suggests that Pruco made these misrepresentations in order to

fraudulently     induce   rescission;       if    so,   Wilmington      says,    the

agreement to rescind is voidable.

            As the district court correctly concluded, regardless of

whether the statements in the letter were accurate as to Pruco's

knowledge of Paul's medical condition, the undisputed facts reveal

that Coventry did not rely on these statements in reaching its

decision to consent to rescission.               Coventry is a sophisticated

entity that had the advice of in-house counsel on this matter. The

decisionmaking process involved Coventry's CEO.                   Coventry had

possession of Paul's medical records and had performed its own

underwriting, so it had no need to rely on Pruco's characterization

                                     -16-
of   the   records;   indeed,    Coventry's      representative     explicitly

testified that it did not assume the truth of Pruco's statements.

Coventry    contacted    Passananti    for     additional   information6    and

considered its options for approximately three weeks. Based on all

of   its   information   and    advice,      Coventry   decided   to   instruct

Wilmington to cash the check, and Wilmington was obligated to

follow that direction.

             Under these circumstances, any dispute about the truth of

Pruco's statements in the letter cannot be considered material to

the outcome of this case.       No reasonable jury could have concluded

that Coventry relied, let alone justifiably relied, on Pruco's

statements in reaching its decision to instruct Wilmington to cash

the check.

             Nor is the issue of Pruco's reliance on the statements in

Paul's application material to the outcome here.                  Wilmington's

argument goes to Pruco's cause of action for unilateral rescission,

      6
       We reject the argument, advanced by both Wilmington and Jay,
that Passananti was acting as an "agent" of Pruco (and thus,
presumably, that he should be treated as part of the alleged
fraud).    The record is clear that Passananti had contractual
relationships with both Pruco and Coventry but was an employee of
neither. Further, Passananti's non-exclusive contract with Pruco
only granted him the authority to "solicit, procure and submit
applications for Policies," along with limited related duties; he
was specifically barred from, inter alia, "mak[ing] representations
as an agent of [Pruco] in any manner or for any purpose except as
specifically authorized" by the contract. Neither Wilmington nor
Jay points to any record evidence showing that Passananti made any
statements to Coventry at Pruco's direction or request, or that any
statements Passananti made were "specifically authorized" by his
Pruco contract.

                                      -17-
which included an allegation that Pruco had relied on the truth of

the statements in the application when deciding whether to issue

the policy.     Pruco's cause of action for mutual rescission did not

contain, nor was it required to contain, such an allegation.                The

district court resolved the case on the mutual rescission count, as

do we.

            Wilmington attempts to argue -- although not very clearly

-- that Pruco could not have obtained a mutual rescission if it was

not entitled to a unilateral rescission. But in Klanian, the Rhode

Island Supreme Court noted that the question of whether a party to

a contract has a valid right to rescind is relevant only "in the

case   of   a   unilateral   rescission   claimed   as    of   right   by   the

rescinding party," not "in a case of mutual rescission."               26 A.2d

at 613. The court expressly rejected the argument that there could

not have been a mutual rescission because the terms of the policy

would have prevented unilateral rescission (specifically, because

the contestable period had expired).        See id.

            This   reasoning   alone   supports     the   district     court's

decision, without needing to address the merits of Wilmington's

factual allegations. Even if the facts here are disputed, they are

not material.       Once Coventry and Wilmington took the steps to

effect a mutual rescission, Pruco's independent right to rescind

ceased to be legally relevant.

                                   -18-
C.         "Bad Faith"

           Jay argues that there were genuine issues of material

fact for trial regarding whether Pruco's offer to rescind was made

in bad faith, and that if Pruco did act in bad faith, it would have

been equitably barred from obtaining the remedy of rescission.      He

asserts that the district court erred in finding these arguments

irrelevant to the rescission analysis.     We agree with the district

court.

           First, many of Jay's arguments nominally based on "bad

faith"   are   functionally   identical   to   Wilmington's   arguments

concerning whether Pruco had a right to unilateral rescission.

Regardless of the label Jay places on these arguments, the result

is the same.   As we have explained, the uncontested evidence shows

that Coventry did not rely on the statements in the rescission

letter when it considered whether to agree to rescission.        Thus,

even if Jay were correct that there was a genuine factual dispute

as to whether Pruco acted in bad faith by making the statements in

the letter -- and we express no opinion on that point -- the

dispute would not be material. The same goes for Jay's allegations

that Pruco acted in bad faith by asserting that it had a right to

unilateral rescission. Whether or not Pruco believed in good faith

that it had such a right, the question is not material where mutual

rescission occurred as a matter of law.

                                 -19-
               Second, Jay offers no Rhode Island law supporting his

theory that an insurer acts in "bad faith," and that any agreed-

upon mutual rescission is therefore void, if the insurer offers to

rescind an insurance contract when the insurer (allegedly) could

not have obtained unilateral rescission.           The only authority Jay

cites for this proposition is a Minnesota case, based on Minnesota

precedent, which has never been cited by a Rhode Island court. See

Kilty v. Mut. of Omaha Ins. Co., 178 N.W.2d 734 (Minn. 1970).             And

in any event, the case is distinguishable. In Kilty, the Minnesota

court noted that there was no evidence of misrepresentation in

connection with the insured's application, which raised a factual

question as to whether the insurer had "procur[ed] consent to the

rescission" by fraud or bad faith.         Id. at 736.   Here, by contrast,

Paul       undisputedly   misrepresented   his   medical   history   in   his

application, and Coventry's agreement to the mutual rescission was

not induced by any of the allegedly bad-faith statements in the

rescission letter.7         Even if the Rhode Island courts were to

require an insurer to have a good-faith basis for believing that it

       7
       Moreover, the insurance company in Kilty did not seek a
declaration of rescission before the insured had made a claim for
benefits. See 178 N.W.2d at 736. Here, Pruco began investigating
the possibility of rescission not when a claim was made on the
policy, but when it received information suggesting that the policy
was designed to be sold on the open market. As Pruco's counsel
explained at oral argument, life insurance policies are more
valuable on the market when the insured has health problems,
because that means the buyer will likely recoup its investment
sooner.

                                    -20-
could obtain a unilateral rescission in order to make an offer for

mutual rescission (and we do not assume they would), no reasonable

jury could have concluded in this case that Pruco lacked even an

arguable   basis   for   seeking   rescission   of   the   policy.   Paul

admittedly made misrepresentations about his being diagnosed with

and treated for a degenerative brain disease, and the medical

records that Pruco received omitted any documentation of this fact.

           Jay's   reliance   on   general   principles    of   equity   is

unavailing under these circumstances. The implied covenant of good

faith and fair dealing and the "clean hands" doctrine simply are

not relevant here. Where it was Paul who originally misrepresented

his medical history in order to obtain a $15 million life insurance

policy, Jay cannot be heard to complain that Pruco came to court

with unclean hands.8

           Finally, Jay argues that there is a genuine dispute of

material fact concerning whether Pruco acted in bad faith because

it did not attach Paul's application to the original policy, and

thus would not have been entitled to rescind based on any statement

in the application.      There are at least three problems with this

     8
       Jay's argument based on Rhode Island statutory law is also
misplaced. As Jay himself admits, the statute he relies on, R.I.
Gen. Laws § 27-4-10, does not apply to claims for rescission made
by the insurer while the insured is alive. See Prudential Ins. Co.
of Am. v. Tanenbaum, 167 A. 147, 149-50 (R.I. 1933). Paul was
still alive when Pruco filed the instant suit. The fact that Pruco
sought rescission while Paul was alive, rather than after his
death, certainly is not evidence of bad faith.

                                   -21-
argument.     First, Jay admitted in his answer to Pruco's second

amended complaint that the application was attached to the policy.9

"A party's assertion of fact in a pleading is a judicial admission

by   which   it   normally   is   bound    throughout   the   course   of   the

proceeding."      Schott Motorcycle Supply, Inc. v. Am. Honda Motor

Co., 976 F.2d 58, 61 (1st Cir. 1992) (quoting Bellefonte Re Ins.

Co. v. Argonaut Ins. Co., 757 F.2d 523, 528 (2d Cir. 1985))

(internal quotation marks omitted).             Second, Jay states that

Coventry is in possession of the original policy, so Coventry would

have had an opportunity during its three-week investigation to find

out whether the application was attached to the policy and to

decide what, if any, weight to give that fact in reaching its

decision to agree to rescission.              Third, as explained above,

Klanian   forecloses the argument that, in order for a mutual

rescission to be effective, a policy must by its terms authorize a

unilateral rescission.       See 26 A.2d at 613.         Thus, even if the

first two problems were not present, Jay's argument would be

legally irrelevant.

                                     IV.

             The judgment of the district court is affirmed.

      9
       Jay argues in his reply brief that his reference to an
"application" in his answer did not refer to the particular
application he now contends was absent. This is a strained reading
of the pleadings, and regardless, his general argument fails for
the additional reasons explained in the text.

                                     -22-