In Jackson v. Farmers New World Life Ins. Co., the United States District Court for the Eastern District of Oklahoma ruled that the insurer did not act in bad faith or breach its contractual duty when it rescinded a $150,000 non-smokers life insurance policy after discovering that the insured was, in fact, a smoker.
The insured filled out the life insurance policy for non-smokers with Farmers New World Life Insurance Co. in 2006 but after his death Farmers discovered, during the course of its investigation, that the insured had been a habitual smoker up until the day he died in April 2007. Farmers subsequently rescinded the policy and refunded the total amount of premiums to Mrs. Jackson, the insured’s widow.
Jackson sued Farmers for breach of contract and bad faith and Farmers moved for summary judgment. Jackson argued that it had not been established that her husband intended to deceive the insurance company but the Court disagreed and found that there were “no serious factual disputes” about the falsity or materiality of the insured’s denial of smoking. Furthermore, it was also undisputed that Farmers would not have issued the policy if the truth were known since it was a policy for non-smokers only.
As to Jackson’s suggestion that her husband may have quit when he signed the policy, and that it is a question of fact for the jury to decide, the Court rejected the argument and noted that even if the insured had quit smoking when he applied, he had been a smoker in the past five years and knew that he was applying for a policy for non-smokers only. After determining that the facts were undisputed in the case, the Court ruled that the only reasonable inference to be drawn from them was that the insured intended to deceive the insurer.