Boston Mutual v. NY Islanderes

• Court: Court of Appeals for the First Circuit
• Decided: January 20, 1999
• Docket: 98-1456
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 98-1456



                 BOSTON MUTUAL INSURANCE COMPANY,



                       Plaintiff, Appellee,



                                v.



              NEW YORK ISLANDERS HOCKEY CLUB, L.P.,



                      Defendant, Appellant,



                                v.



         BLUMENCRANZ, KLEPPER, WILKINS & DUBOFSKY, LTD.,

                      d/b/a BWD GROUP, LTD.,



                 Third-Party Defendant, Appellee.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



         [Hon. Douglas P. Woodlock, U.S. District Judge]


Before



                    Boudin, Lynch and Lipez,

                                

                        Circuit Judges.


Ted Poretz with whom Steven D. Guggenheim, Alyson M. Weiss,

Wende S. Ascher, Richards & O'Neil, LLP, Charles M. Campo, Jr., and

Kassler & Feuer, P.C. were on brief for New York Islanders Hockey

Club, L.P.

     Alan G. Miller with whom Thomas M. Elcock and Morrison,

Mahoney & Miller were on brief for Boston Mutual Insurance Company.

     Barbara A. Sheehan with whom Michael T. Walsh, Maura Bleichert

Lee and Walsh & Sheehan, LLP were on brief for Blumencranz,

Klepper, Wilkins & Dubofsky, Ltd. 


January 19, 1999


BOUDIN, Circuit Judge.  On or about November 14, 1994,

the New York Islanders Hockey Club (the "Islanders") submitted an

application to Boston Mutual Insurance Company ("Boston Mutual")

and various Lloyd's of London underwriters to insure its star

player, Brett Lindros, for temporary total disability as part of

the National Hockey League's group insurance plan.  The Islanders

failed to disclose in the application that, before becoming a

member of the team, Lindros had sustained three concussions within

a span of a little more than a year, that he had received medical

treatment for each of these head injuries, and that he had

experienced headaches and dizziness from these episodes.    

  The facts as to Lindros's history of head injuries are

uncontested.  In September 1992, Lindros suffered head trauma while

trying out for the Canadian National team.  He experienced

temporary impaired vision and a nagging headache for most of the

day.  Dr. Paul Thorne, a physician for that team, examined Lindros,

finding that the left side of his visual field was "abnormal."  Dr.

Thorne read a CT scan of Lindros's brain to show signs of brain

edema, although he later revised his interpretation of the CT scan

to normal after obtaining the radiologist's expert judgment.  Dr.

Thorne discussed with Lindros's father the risks of reinjury and

told Lindros to refrain from full-contact hockey for a week.

  Sometime in November 1992, Lindros sustained a second

head injury while playing for the Kingston Frontenacs.  In the heat

of a game, after his helmet had fallen off, he was body-checked by

an opposing player and his head banged against the boards.  After

the game, Lindros complained of impaired vision.  On the suggestion

of his mother, who is a nurse, Lindros visited Kingston Hospital. 

After being examined by medical staff in the emergency room, he was

instructed to avoid physical contact for seven days.  This incident

is documented by Dr. Thorne accordingly: "Nov[ember] 92--dizzy, hit

l[eft] temple, l[eft] homonymous hemianopsia 30-60 minutes."

  Lindros suffered a third blow to the head while playing

for Team Canada in Norway in November 1993, when he was again

"taken into the boards."  Feeling "disoriented" and "fuzzy," he

left the game but later returned to play.  Afterward, he was

diagnosed by a hospital therapist with "concussive head injury from

contact [with] boards/dasher."  MRI and EEG tests two weeks later

revealed no abnormalities, and Dr. Thorne authorized Lindros to

play in an upcoming tournament but warned Lindros that "the risks

still, despite [his recovery], of further concussion is slightly

higher," and that in his view "the more concussions he has, there

is a risk of permanent brain damage when that happens."

  The Boston Mutual application, which the Islanders

completed in 1994 to secure coverage for Lindros, posed a series of

medical questions in two different parts; it specified that part I

was to be completed "by" the player and a designated club official

and part II "by" the player and club physician.  The part I

questions asked inter alia what the club knew about past injuries

to the player (directing that the club, its physician and trainer

"must be consulted") and was to be signed by someone on behalf of

the club; part II asked detailed medical questions and was to be

personally signed by the player and club physician.  In fact, the

team trainer, Edward Tyburski, answered all of the questions on the

application without first consulting the club physician, Dr. Gerald

Cordani, or Lindros himself.  Lindros and Dr. Cordani simply signed

the relevant forms in the appropriate places, as requested by the

Islanders, apparently without verifying the accuracy of the

answers, as the trainer had requested them to do.

  The completed application did not disclose any of

Lindros's three prior concussions even though a number of

questions--if answered accurately--called for such disclosures.  In

particular, question (5)(b) of part I asked whether the club knew

if Lindros had experienced any pain or discomfort for which he

sought medical advice or treatment within the previous year; the

form asked for details if the applicant answered in the

affirmative.  The Islanders's answer noted only Lindros's January

1994 knee sprain.  The club's own physical examination of Lindros

in September 1994 had apprised it of at least one of his prior

concussions.

  Similarly, none of Lindros's concussion-related

examinations were revealed by Lindros or the club doctor in

response to question 4(a) of part II, which asked if Lindros had

undergone a nonroutine examination by a physician within the past

three years (only the knee injuries were disclosed in response). 

Although question 5(g) of part II inquired as to whether Lindros

had ever had any known indication of or been treated for dizziness

or headache, the application answered "no."  There were other

seemingly inaccurate answers but the district court declined to

rely upon them, saying that they had not been timely identified as

errors.

  Lindros retired at the end of 1995 after suffering three

more serious concussions in short succession while playing as an

Islander.  Shortly thereafter, the Islanders filed a claim under

the insurance policy, seeking to recover approximately $4.3

million--the bulk of Lindros's salary for the period remaining in

his 5-year contract term.  According to the policy, once a

deductible is met and an insured player misses 30 consecutive

regular season games due to a disability, the policy reimburses the

team for 80 percent of the player's salary during his disability. 

The claim was denied by the insurers on the ground that the

Islanders failed to reveal relevant information on their insurance

application by omitting Lindros's history of prior head injuries. 

  Boston Mutual then commenced this action to rescind the

policy.  The Islanders counterclaimed for payment under the policy

and impleaded third-party defendant Blumencranz, Klepper, Wilkins

& Dubofsky, Ltd. ("BWD"), the National Hockey League's insurance

broker that administers the insurance program.  The Islanders

alleged, inter alia, that BWD as agent breached its duty of care,

assertedly owed to the Islanders, by failing to forward to Boston

Mutual Lindros's 1994 team physical which indicated that he had had

at least one concussion.

    After discovery, Boston Mutual and BWD moved for summary

judgment.  The district court granted the motions.  It rejected

recovery under the policy, holding that the Islanders intended to

deceive the underwriters and, alternatively, that the Islanders's

misstatements had the effect of increasing the insurers' risk of

loss.  On the Islanders's claim against BWD, the court said that

BWD's failure to verify the accuracy of the application or submit

documentary materials on the Islanders's behalf did not breach any

putative duty of care.  The Islanders now appeal.

  We review the district court's entry of summary judgment

de novo, viewing the evidence in the light most favorable to the

Islanders. See Iglesias v. Mutual Life Ins. Co. of New York, 156

F.3d 237, 239 (1st Cir. 1998).  The policy at issue is governed by

Massachusetts law, which permits an insurance company to avoid a

policy based on the misrepresentation of the insured, if "such

misrepresentation or warranty is made with actual intent to

deceive, or . . . the matter misrepresented . . . increased the

risk of loss."  Mass. Gen. Laws ch. 175,  186.  If either prong of

the test is satisfied, an insurer may rescind a policy.

     The application did contain misrepresentations:  as

already described, it failed to reveal the three head injuries that

occurred in 1992 and 1993 even though disclosure was clearly called

for by several of the questions.  Whether the false answers were

given with actual "intent to deceive" or the false answers

"increased the risk of loss" are more difficult questions.  We

begin with the district court's determination that actual intent to

deceive was established as a matter of law.

     In resolving the issue, our first problem is to decide

what is meant by the phrase "actual intent to deceive" as used in

the Massachusetts statute.  Massachusetts law  sometimes appears

confusing on this issue, but a careful reading of the cases reveals

a pattern to which most of the language and outcomes can be fit. 

Of course, the Massachusetts Supreme Judicial Court has the last

word on this issue; but in the meantime, we think a brief

discussion may be helpful to district courts faced with this issue.

     In general, a false answer does not itself automatically

prove deceitful intent--the mistake could easily be a reasonable

one or merely negligent.  At the other end of the spectrum, a

false statement in an insurance policy, known by the applicant to

be untrue and deliberately intended to induce reliance on the false

statement, indicates actual deceit.  See Danca v. Taunton Savings

Bank, 429 N.E.2d 1129 (Mass. 1982).  The real difficulty lies

between these end points, especially with false statements that

might be described as reckless.

     We agree with the district judge that actual deceit may

exist in certain cases where an applicant makes a false statement

without actual knowledge of its falsity.  Imagine a case where--

although not certain that his answers are false--an applicant knows

full well that he is ignorant as to their truth or falsity and

intends to deceive by conveying a false impression that he believes

the answers to be true.  Cf. United States v. London, 66 F.3d 1227,

1241 (1st Cir.), cert. denied, 517 U.S. 1155 (1996) (standard

"willful blindness" instruction).

     Yet in other cases, an applicant's false statement might

be reckless, even suggestive of fraud, but fall short of compelling

an inference of deliberate deception or bad faith.  Put more

simply, the recklessness rubric may cover some cases in which the

applicant is actually deceitful but also others in which he is

simply careless in the extreme.  In the latter instance,

Massachusetts does not impute actual deceit as a matter of law. 

Cf. Sullivan v. John Hancock Mutual Life Ins. Co., 174 N.E.2d 771,

774 (Mass. 1961); McDonough v. Metropolitan Life Ins. Co., 117 N.E.

836 (Mass. 1917).

     Turning to the present facts, we agree with the district

judge that the Islanders's conduct was indisputably reckless in the

sense that it was careless in the extreme.  But whether a jury

would be compelled to conclude that "the Islanders" consciously

conveyed a false impression is a more difficult issue, especially

because we are dealing with the state of mind of three different

individuals who knew only different parts of the puzzle:  the

trainer who completed the application but whose state of knowledge

as to the past concussions is unclear, and Lindros and the club

doctor who knew more but may never have read the application.

     The gap as to subjective intent might be filled by a more

detailed assessment, but this course is unnecessary given the

district court's alternative ground for summary judgment, namely,

its conclusion that the false statements were material as a matter

of law under section 186.  "Materiality" may mean different things

in different contexts.  But the Massachusetts statute provides a

definition to focus the inquiry:  a false answer is material under

section 186 if "the matter misrepresented . . . increased the risk

of loss" for the insurer.  Mass. Gen. Laws ch. 175,  186.

     An understanding of why this requirement exists informs

its interpretation.  On this branch of the Massachusetts statute,

an innocent or merely carelessly false statement may avoid the

policy.  Absent actual deceit, the materiality requirement limits

avoidance to cases where an accurate answer could reasonably have

affected an insurer's choices--for example, whether to insure the

applicant, whether to impose exclusions, whether to charge a higher

premium--decisions largely governed by perceptions as to the

likelihood and magnitude of loss.

     At the same time, the statute does not go so far as to

require proof by the insurer that it would have acted differently

(although such proof certainly tends to establish materiality,e.g., Barnstable County Ins. Co. v. Gale, 680 N.E.2d 42 (Mass.

1997)).  Where the misstatement would "naturally influence" the

judgment of the underwriter, id. at 44, it may be material without

proof that the insurer would ultimately have refused to insure the

applicant or would have charged more for the insurance.  This

objective definition is broadly consistent with the way

"materiality" is defined in other contexts.  See, e.g., United

States v. Corsino, 812 F.2d 26, 30 (1st Cir. 1987) (finding

statement material for purposes of federal anti-fraud statute if it

has a "natural tendency to influence . . . a governmental

function").

     Whether a misstatement increases the insurer's risk of

loss "is ordinarily a question of fact."  Keefe v. John Hancock

Property & Cas. Ins. Cos., No. 9429, 1997 WL 733843, at *4 (Mass.

App. Div. Nov. 17, 1997).  Nevertheless, the issue is often

resolved as a matter of law under Massachusetts law where the

health condition or occurrence falsely concealed is objectively

serious enough that no reasonable person could doubt that it

increased the risk of loss.  If the cases are sometimes hard to

reconcile, this is partly because they cover almost a century of

changing medical knowledge and partly because of variations in the

background facts (e.g., what was asked, what was disclosed, and in

what circumstances).

     Here, the primary witness for the insurers as to risk was

Dr. John Brennan, a consulting physician to the National Hockey

League's underwriters.  Dr. Brennan opined by affidavit that had he

known of Lindros's prior injuries, he would have advised the

insurers at a minimum to exclude insurance coverage for head

injuries and brain damage.  His deposition indicated that repeated

head injuries can produce cumulative brain damage.  And this

testimony is consistent with the opinion expressed by Dr. Thorne,

one of Lindros's physicians, regarding the risk of permanent damage

from repeated injury.

     Yet Dr. Brennan was a less-than-ideal witness for the

insurers in several respects: he does not specialize in neurology

and his experience with repeated head trauma apparently involved

boxers exclusively (for whom cumulative effects are well documented

but whose repetitive head trauma could be distinguished from the

kind of less frequently repeated injury suffered by hockey

players).  And although Dr. Brennan testified to his understanding

that the effect of brain injuries can be cumulative, he did not

claim a close acquaintance with the scientific literature on the

subject. 

     The Islanders's own expert, Dr. Robert Cantu, had strong

qualifications and directly disputed the proposition that

cumulative brain damage necessarily results from repeated injury of

the kind suffered by hockey or football players (rather than

boxers).  Although impeached to some extent by his own previous

writings, Dr. Cantu said that it depends on the individual whether

such cumulative effects will be manifested.  And in Brett Lindros's

case specifically, he found no evidence of cumulative damage from

examining his medical records.

     However, what Dr. Cantu did not dispute is the

statistical conclusion, exemplified by a study of "several thousand

high school football players" finding that players who had

sustained one concussion were four times more likely to suffer

another than those players who had never had one.  Whether such

data is a function of some athletes' more aggressive tactics (as

Dr. Cantu himself believes), their greater susceptibility based on

past injuries, or merely an individual predisposition to head

injury matters not.  It is enough that the defendant's own expert

effectively conceded that prior concussions have been shown

significantly to increase the risk for the class.

     The question remains whether the increased risk should be

disregarded if, as the Islanders claim to be true, the insurers

would in fact have issued the same policy for Lindros, without any

exclusion, and without any change in premium, even if they had

known all of the information about the prior concussions.  The

insurers offered affidavit evidence that the information would or

could well have altered the outcome; but the affiant himself had

admitted in deposition that coverage had been granted without

further investigation to 20 or more previously concussed players;

and a separate study offered by the Islanders found no case, among

a large sample, where a denial or exclusion under this policy had

been based on such a disclosure.

     There are various reasons why a player might be covered

without any change in the policy despite increased risk: policies

"group" risks, actuaries draw classification lines at different

points, and insurers who have a major continuing policy covering an

important sports industry have plenty of reasons to be

accommodating to the insured teams.  In this case, the evidence of

past practice does not raise a disputable issue as to whether the

objective risk was increased.  It certainly does raise the question

whether the new information would have altered the insurers'

response to the application.

     The Massachusetts statute on its face makes proof of

objective risk sufficient, and the cases look in this direction

although none is conclusive.  See note 4, above.  Further, given a

false application, there are reasons to avoid a retrospective

inquiry that can rarely be answered with perfect confidence: here,

for example, it is not clear that the underwriters had ever insured

a player with as many as three prior concussions and the several

troubling symptoms that accompanied them in Lindros's case.  Under

Massachusetts law, it is enough that the application was false in

substantial respects and that the information omitted did

materially increase the risk to the insurer.

     A final issue remains.  The Islanders argued that the

trial court erred by entering judgment in favor of BWD because the

evidence permitted a jury to find that BWD breached its alleged

duty of care to the Islanders when it failed to forward Lindros's

1993 team physical to the underwriters.  The physical would have

shown at least one prior concussion and--if forwarded--would have

provided the insurers with some additional warning.

     The district court properly found that, even assuming BWD

was the Islanders's agent, no rational jury could conclude that BWD

failed to fulfill its obligation to the Islanders.  It is

undisputed that BWD (as the National Hockey League's broker)

informed the Islanders's own insurance broker, Sterling & Sterling,

that team physicals were no longer required after January 1993, and

that BWD also relayed that change of policy to the Islanders

directly.  Although BWD occasionally forwarded team physicals after

this date, it was under no obligation to do so.

     Once BWD returned Lindros's 1993 team physical to the

Islanders, citing the rule change, the Islanders never requested

that BWD send it on to the underwriters.  As the trial court

determined, BWD had no independent duty to confirm the veracity of

the statements contained in the Islanders's applications for the

insurance coverage and did not sign the forms; it merely fulfilled

the administrative task of checking to see if the questions asked

on the forms had all been answered.

     Affirmed.