The United States District Court for the District of Connecticut recently rescinded a $15 million life insurance policy following the insured’s death where the insurer discovered material misrepresentations in the insured’s policy application. Northwestern Mutual Life Ins. Co. v. Gil, et al., No. 3:07-CV-303 (D. Conn. Feb. 5, 2009).
The insurer issued a $15 million life insurance policy to its insured. As part of the process to obtain the policy, the insured completed an application, a medical questionnaire, and a separate non-medical questionnaire. Although it was alleged that the application forms were completed by the insured’s physician and insurance agent, it was undisputed that the forms were signed by the insured. The insured, who had a history of mental illness and illicit drug use, signed an application that contained misrepresentations about his prescription and illicit drug use, his mental health treatment and his family health history. When the insured was murdered and the insurer learned of the misrepresentations, the insurer refused to pay benefits to the insured’s widow and brought suit to rescind the policy.
The insurer argued that the policy should be rescinded because the insured made material misrepresentations in the policy application. In opposition to rescission and in support of her counterclaims for breach of contract, bad faith, negligence and breach of fiduciary duty, the beneficiary asserted that: (1) the misrepresentations were not attributable to the insured because the application forms were completed by the insurance agent and his sole disclosed treating physician; (2) Connecticut’s law with respect to the materiality of a misrepresentation was outdated; and (3) the insurer had notice of the misrepresentations through the agent, a social acquaintance of the insured who had used certain illicit drugs with the insured and knew that the insured was undergoing marital counseling at some point prior to the time at which he made his application.
In permitting the insurer to rescind the policy, the court held that even if the insured did not complete the application forms himself, he had a duty to read the forms and their contents are imputed to him if he negligently fails to do so. Because the insured, who had knowledge of his own mental health history, and his prescription and illicit drug use, received the application materials, he ratified their contents.
While the beneficiary argued that the misrepresentations bore no relation to the ultimate cause of death (homicide), the court upheld longstanding Connecticut precedent holding that matters of special inquiry, “such as questions requiring a ‘yes’ or ‘no’ answer, are conclusively deemed material.”
Finally, the court also held that the insurer could not be charged with knowledge of the falsity of the insured’s answers because it had no way of learning of the falsity of his statements.