Court Opinion

ID: 4925338
Source: CourtListenerOpinion
Date Created: 2021-09-23 21:47:59.147487+00
Date Added: 2024-06-11T08:14:18.414664
License: Public Domain

Madsen, J.
(dissenting) — I respectfully dissent. In an effort to protect beneficiaries and to give effect to this state’s *19"twisting” regulations, the majority undermines this state’s law of estoppel and its public policy regarding misrepresentations. In this process, it rewrites the insurance policies at issue to provide coverage where none exists. To achieve this result, the majority relies on two New York cases which have heretofore been followed almost exclusively by only the New York courts. See Tannenbaum v. Provident Mut. Life Ins. Co., 41 N.Y.2d 1087, 364 N.E.2d 1122, 396 N.Y.S.2d 351 (1977); Trainor v. John Hancock Mut. Life Ins. Co., 54 N.Y.2d 213, 429 N.E.2d 739 (1981).
I recognize the importance of this state’s prohibition of twisting practices in insurance transactions, as set forth in RCW 48.30.180, and of the protection from such practices provided in WAC 284-23-400 through -485. If the court were confronted with a situation where the insurers failed to comply with the replacement provisions through no fault of the insureds, it might be appropriate to permit the innocent insureds to assert estoppel given the importance of providing consumers with complete information regarding the consequences of replacing life insurance. However, the court is not here presented with such a situation. In both cases, the insureds made misrepresentations and this contributed to the insurers’ failure to comply with the replacement regulations.
Despite this court’s longstanding adherence to the principles that equitable estoppel is not favored and is available only to blameless parties, the majority applies estoppel here, apparently because of the importance of the replacement regulations. As my dissent illustrates, other remedies are available to insured parties with unclean hands in the face of an agent’s violation of these regulations. An insured can sue an insurer for negligence or for violation of the Consumer Protection Act, as the Court of Appeals’ opinion in Strother v. Capitol Bankers Life Ins. Co., 68 Wn. App. 224, 842 P.2d 504 (1992), review granted, 121 Wn.2d 1008 (1993) illustrates. Both remedies recognize the importance of the replacement regulations without doing damage to existing Washington law.
*20The majority here engages in twisting of its own by allowing beneficiaries of two "less than innocent” parties to assert estoppel. While I recognize the public policy in favor of enforcing the replacement regulations, I agree with the dissent in Tannenbaum that "one of the most basic of all public policies is the policy against permitting . . . persons from profiting from their own wrong . . .. [E]stoppel . . . should not be invoked to enforce a fraud”. Tannenbaum, at 1090 (Jasen, J., dissenting).
Without discussing this important competing policy concern, the majority adopts the Tannenbaum and Trainor holdings and concludes that both insurers are estopped from denying nonexistent coverage with scarcely a mention of Washington’s long-held doctrine that only a party with "clean hands” may assert estoppel. See Kirk v. Moe, 114 Wn.2d 550, 557, 789 P.2d 84 (1990); Mutual of Enumclaw Ins. Co. v. Cox, 110 Wn.2d 643, 650, 757 P.2d 499 (1988); Puget Sound Bank v. Richardson, 54 Wn. App. 295, 297, 773 P.2d 429 (1989); Ward v. Richards & Rossano, Inc., 51 Wn. App. 423, 434, 754 P.2d 120, review denied, 111 Wn.2d 1019 (1988); In re Estate of McKiddy, 47 Wn. App. 774, 780, 737 P.2d 317 (1987); Atlas Bldg. Supply Co. v. First Indep. Bank, 15 Wn. App. 367, 373, 550 P.2d 26 (1976); Christman v. General Constr. Co., 2 Wn. App. 364, 365, 467 P.2d 867, review denied, 78 Wn.2d 994 (1970).
A prominent insurance law treatise elaborates on this principle: " '[E]stoppeT involves a preclusion from asserting rights which otherwise might have existed, through an innocent and deleterious change of position of an innocent party in reliance on misleading representations or conduct of the party estopped”. 16B John A. Appleman & Jean Appleman, Insurance § 9081, at 499 (1981).
Equitable estoppel is not favored, and the party asserting estoppel must prove each of its elements by clear, cogent, and convincing evidence. Robinson v. Seattle, 119 Wn.2d 34, 82, 830 P.2d 318, cert. denied, 113 S. Ct. 676 (1992); Mercer v. State, 48 Wn. App. 496, 500, 739 P.2d 703, review denied, 108 Wn.2d 1037 (1987). Instead of holding estoppel in disfavor, *21the majority applies it despite the failure of either insured to satisfy its elements. The majority allows the beneficiaries here to assert estoppel despite its recognition that "[ejstoppel focuses on the justified reliance of the party asserting it, . . . but in order to create an estoppel, it is necessary that the party claiming to have been influenced . . . lacked knowledge of the true facts . . .”. Majority, at 15.
Washington law has long held that after receiving a policy with a copy of the signed application attached, the insured has a duty to examine it to ascertain whether the answers have been correctly recorded. Hein v. Family Life Ins. Co., 60 Wn.2d 91, 96-97, 376 P.2d 152 (1962), cited in Lundmark v. Mutual of Omaha Ins. Co., 80 Wn.2d 804, 807, 498 P.2d 867 (1972); Williams v. Metropolitan Life Ins. Co., 10 Wn. App. 600, 605, 519 P.2d 1310 (1974); Brown v. Jackson Nat’l Life Ins. Co., 48 Wn. App. 268, 274, 738 P.2d 701, review denied, 109 Wn.2d 1004 (1987); Strother, at 230. If the insured discovers a false statement, he or she must bring it to the attention of the insurance company. If the insured does not do this, he or she ratifies the answers. Hein, at 97; Brown, at 274. Here, both insureds received policies with copies of their signed applications attached, and neither informed their insurers about the false answers contained therein.
The requirements of estoppel are particularly interesting in light of the facts in Ellis. The record in Ellis includes insurance agent Crowley’s declaration that he informed Dr. Ellis that all contestability provisions in the William Penn policy, including the suicide exclusion, would be in effect for 2 years. Also part of the record is Mrs. Ellis’ declaration that her husband had experienced depression and "was a physician who dealt with depression in his patients and was knowledgeable about the possible consequences of the condition. He also expressed to me in a discussion about an acquaintance, that being depressed was not just the blues but meant that the person was contemplating suicide”. Clerk’s Papers, at 315-16.
Thus, the record shows that the insured was a physician who had experienced depression, understood that depression *22could lead to suicide, and was told that the suicide exclusion in his new life insurance policy would be in effect for 2 years. Despite Mr. Crowley’s apparent shortcomings in complying with the applicable insurance regulations, it does not appear that Dr. Ellis lacked knowledge of the true facts or justifiably relied on a belief that the William Penn policy covered early suicides.
Stated another way, parties seeking to invoke equitable estoppel must, at a minimum, make a showing of blamelessness or reasonable conduct under the circumstances or they are without standing to assert estoppel as a defense. Stohr v. Randle, 81 Wn.2d 881, 885, 505 P.2d 1281 (1973), cited in Richardson, 54 Wn. App. at 297. Here, Dr. Ellis’ conduct was neither blameless nor reasonable. His insurance application stated that he was not seeking replacement insurance, even though the record demonstrates clearly that this was his purpose. Mrs. Ellis described the couple’s practice of replacing life insurance policies in her declaration: "Being careful consumers, we generally replaced each term policy after two or three years in order to take advantage of the lower premiums offered in the beginning of the term, whether or not we intended to increase the coverage”. Clerk’s Papers, at 314. Moreover, the majority writes that "Respondent Crowley’s testimony that he verbally informed Dr. Ellis of the differences between the old and new policies establishes that Mr. Crowley 'knew or should have known’ that replacement insurance was involved in the transaction”. Majority, at 14. The same conversation should have led Dr. Ellis, presumably a person of some intelligence, to a similar understanding. Accordingly, he was neither blameless in stating in his insurance application that his new policy was not replacement insurance nor reasonable, given the facts cited earlier, in applying for and accepting insurance with a suicide exclusion.
In allowing Mrs. Ellis recovery under the William Penn policy despite this exclusion, the majority also overlooks Washington law stating that estoppel cannot be invoked to create liability for risks not covered by a contract. Saunders *23v. Lloyd’s of London, 113 Wn.2d 330, 335-36, 779 P.2d 249 (1989); Carew, Shaw & Bernasconi v. General Cas. Co. of Am., 189 Wash. 329, 336, 65 P.2d 689 (1937). Suicide clearly is a risk of loss under a life insurance contract. IB John A. Appleman & Jean Appleman, Insurance § 499, at 381 (1981); Buist M. Anderson, Life Insurance § 17.4, at 502 (1991). Statutes in force in most states, including Washington, permit an insurer to exclude from the risks assumed under a life insurance policy suicide committed within the first 1 or 2 policy years, but these statutes also require that suicide committed after this short period be fully covered. Life Insurance § 17.4, at 503; see RCW 48.23.260. This temporary exclusion is an attempt to limit insurance costs:
Obviously, if the insurer is required to and does pay in full for early suicides, these claims must be reflected in the cost of life insurance to all. No mortal underwriter is able to sort out and to decline all those applicants who intend to commit suicide shortly after receiving their policies. However, underwriting experience over the years has shown that those who intend to commit suicide will, in few instances, wait so long as one or two years to carry out this intent. Hence, the practice has developed of providing in a life insurance policy for a reduced benefit (usually the policy "reserve” or the premiums paid, but in some cases a percentage of the face amount) in the event the insured does commit suicide within the first year or so.
Life Insurance § 17.4, at 502-03. Thus, the 2-year suicide exclusion in the William Penn policy was a risk of loss borne by the insured, Dr. Ellis. Estoppel cannot now operate to bring this excluded risk within the coverage of the policy. See Alverson v. Minnesota Mut. Life Ins. Co., 287 S.C. 432, 434, 339 S.E.2d 140 (Ct. App. 1985); McCoy v. Northwestern Mut. Relief Ass’n, 92 Wis. 577, 585, 66 N.W. 697 (1896). The majority allows a party who misrepresented that a new policy was replacement insurance to rely solely on the insurer’s resulting failure to comply with replacement regulations as grounds for rewriting an insurance policy to cover a risk of loss that the party knew was excluded. This result cannot stand.
The majority’s application of estoppel is even more surprising in light of the facts in Strother. In Strother, the *24insured’s misrepresentations on his insurance application were blatantly fraudulent: Dr. Strother stated that he had not participated in mountain climbing in the past 3 years despite the fact that "[m]ountain climbing was his life”. See Answer to Pet. for Review, at 2. It also stated that the Capitol insurance was not intended to be a replacement policy, even though Dr. Strother then had a $250,000 policy with MONY that he canceled after signing the Capitol application. The application also indicated only that Dr. Strother had a $40,000 policy with MONY and did not disclose the $250,000 policy. The resulting Capitol policy did not insure Dr. Strother for the risks of mountain climbing.
The majority now contends that such coverage effectively exists, however, because Capitol did not comply with the replacement regulations. It thus allows Dr. Strother’s beneficiary to estop Capitol from denying coverage despite Dr. Strother’s misrepresentations.
Estoppel is an equitable doctrine, and one cannot base a claim for an estoppel on acts induced by his own acts, especially on those induced by his own fraud or false representations. Pennsylvania Cas. Co. v. Simopoulos, 235 Va. 460, 465, 369 S.E.2d 166 (1988). In Simopoulos, the insured wrongfully procured insurance by his false answers to application questions, and thus could not estop the insurer from relying on these misrepresentations to deny coverage because of insurer error. Simopoulos, at 464. "Because Simopoulos had unclean hands, he had no standing in equity to interpose a plea of estoppel.” Simopoulos, at 465. The Nebraska Supreme Court reached a similar conclusion in Chappelear v. Grange & Farmers Ins. Co., 190 Neb. 589, 592, 210 N.W.2d 921 (1973) (quoting In re Sanitary & Imp. Dist. 75, 182 Neb. 63, 72, 152 N.W.2d 111 (1967): " 'A party may not properly base a claim of estoppel in his favor on his own wrongful act or dereliction of duty, or fraud committed or participated in by him, or on acts or omissions induced by his own conduct, concealment, or representations.’ ”). Here, Dr. Strother’s fraudulent statements that he had not climbed mountains in the past 3 years and that the Capitol *25insurance was not replacement insurance certainly contributed to the lack of coverage for the activity that killed him.
"Whether he perpetrated these fraudulent statements or not, Dr. Strother is bound by the material misrepresentations made in his insurance application, as are his beneficiaries. Given his deception about his mountain climbing activities, his beneficiaries cannot now complain about an insurance policy that provides no coverage for death resulting from mountain climbing. To hold that Capitol is estopped from even mentioning Dr. Strother’s misrepresentations cannot stand; to uphold such an application of equitable estoppel is to pervert the purposes of the doctrine. I would hold that neither Dr. Ellis nor Dr. Strother possessed the clean hands needed to allow their beneficiaries to assert the defense of estoppel in this case.
My resolution does not leave these beneficiaries without a remedy, however. Had the insureds appealed the dismissals of their Consumer Protection Act claims, the act would be one possible source of recovery. See Strother, at 240-45. However, both insureds did appeal and request review of their negligence claims. In Ellis, the Court of Appeals dismissed Mrs. Ellis’ negligence claim because she had failed to raise a material issue of fact regarding the proximate cause element of her negligence theory. The court found her declaration insufficient to support a negligence claim in part because "[t]here was never any specific discussion of the suicide exclusion or of his [Dr. Ellis’] reaction to it”. Charlotte E. Ellis v. William Penn Life Assur. Co. of Am. d.b.a. William Penn Life Ins. Co. of New York & John W. Crowley & Jane Doe Crowley, J.W. Crowley Inc., Court of Appeals cause 28451-7-1 (Dec. 22, 1992). Since Mrs. Ellis’ claim is based on the absence of proper notification concerning the suicide exclusion, it is not surprising that her declaration contains no reference to a specific discussion of the exclusion. I would hold Mrs. Ellis’ declaration sufficient to raise an issue of fact regarding proximate cause and remand this case to the trier of fact for a consideration of her negligence claim.
*26In Strother, the Court of Appeals remanded for a determination of proximate cause by the trier of fact. See Strother, at 246. In each of these cases I would remand and let a jury determine whether proximate cause exists and whether the insurers’ negligence was mitigated by the acts of the insureds in this case. The errors made by the insurers in this case can be amply addressed under a negligence theory and negligence gives the Plaintiffs in this case a potential remedy without throwing the law of this state into disarray.
Brachtenbach and Guy, JJ., concur with Madsen, J.
Reconsideration denied at November 8, 1994.