Principal Life Insurance Co. v. Emad Zaki

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 4, 2021
• Docket: 18-16572
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAR 4 2021 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

PRINCIPAL LIFE INSURANCE No. 18-16572 COMPANY, D.C. No. 2:15-cv-01337-SMM Plaintiff-counter- defendant-Appellee, MEMORANDUM* v.

EMAD ZAKI,

Defendant-counter-claimant- Appellant.

Appeal from the United States District Court for the District of Arizona Stephen M. McNamee, District Judge, Presiding

Submitted March 2, 2021** Phoenix, Arizona

Before: BEA and BUMATAY, Circuit Judges, and CARDONE,*** District Judge.

In this insurance dispute, Emad Zaki appeals from the district court’s grant of

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). *** The Honorable Kathleen Cardone, United States District Judge for the Western District of Texas, sitting by designation. summary judgment in favor of Principal Life Insurance Company, rescinding

Principal’s disability insurance contract with Zaki under Ariz. Rev. Stat. (“ARS”)

§ 20-1109. Reviewing de novo, we affirm. Branch Banking & Tr. Co. v. D.M.S.I.,

LLC, 871 F.3d 751, 759 (9th Cir. 2017).

1. Arizona law allows an insurer to deny coverage because of a

misrepresentation in the insurance application. James River Ins. Co. v. Hebert

Schenk, P.C., 523 F.3d 915, 920–21 (9th Cir. 2008) (citing ARS § 20-1109).

Principal sought to rescind Zaki’s disability insurance because of misrepresentations

in his application form. Zaki countered that two “agents” of Principal, Bishara

Bahbah and Steve Moore, filled out his application form and so Principal was

responsible for any omissions or errors. We hold that ARS § 20-1109 is met because

Bahbah and Moore were not agents of Principal and, therefore, misstatements in

Zaki’s application are not attributable to the insurance company.

Agency may be based on either actual or ostensible authority. Ruesga v.

Kindred Nursing Centers, L.L.C., 215 Ariz. 589, 597 (Ct. App. 2007). Here, Bahbah

and Moore obtained actual authority from Principal only for the limited purpose of

facilitating the submission of insurance applications. But under Arizona law, this

makes Bahbah and Moore mere “soliciting agents,” and mistakes in an insurance

application resulting from a soliciting agent are not attributable to the insurer. See

Smith v. Republic Nat’l Life Ins. Co., 107 Ariz. 112, 116 n.3 (1971); see also Curran

2 v. Indus. Comm’n of Ariz., 156 Ariz. 434, 436 (Ct. App. 1988) (“Insurance agents

differ from independent agents or brokers. The former are authorized representatives

of the insurer; the latter are middlemen representing the insured. For this reason, the

acts of the insurance agent, but not those of the independent agent or broker, are

imputable to the insurer.”).

Nor did Bahbah and Moore have ostensible authority. Such authority is

present when “the principal knowingly or negligently holds his agent out as

possessing” authority or (2) “permits [the claimant] to assume” the putative agent

possesses such authority. Reed v. Gershweir, 160 Ariz. 203, 205 (1989). Zaki has

not pointed to any act which suggests that Principal had held out Bahbah and Moore

as its agents to him. See id. (“Apparent authority can never be derived from the acts

of the agent alone.”). The undisputed evidence showed that Principal did not train

Bahbah and Moore directly, provide them with office space or supplies, or control

their work. Accordingly, any “fraudulent” statement in Zaki’s application is not

chargeable to Principal. ARS § 20-1109(1).

2. The materiality and reliance prongs of § 20-1109 are also met. See ARS

§ 20-1109(2)–(3). Materiality is met when “the facts, if truly stated, might have

influenced a reasonable insurer in deciding whether to accept or reject the risk.”

Cent. Nat’l Life Ins. Co. v. Peterson, 23 Ariz. App. 4, 7 (1975). Reliance is

established if the company shows that it “in good faith would either not have issued

3 the policy, or would not have issued a policy in as large an amount.” ARS § 20-

1109(3).

These prongs are met because Principal’s underwriting guidelines establish a

$25,000 per month maximum issue and participation limit for disability insurance.

It is undisputed that the omissions or misstatements in Zaki’s application went

toward other disability benefits he would receive. Indeed, Principal specifically

stated in its letter to Zaki that it would not have approved his application had it

known of his other in-place policies. Because Zaki has not proffered evidence to

rebut Principal’s evidence that the underwriting guidelines were material and relied

upon to cause the company’s rescission, no genuine issue of fact exists as to the

elements of materiality and reliance. See Valley Farms, Ltd. v. Transcon. Ins. Co.,

206 Ariz. 349, 354 (Ct. App. 2003) (failure to disclose information was material

because defendant did not dispute plaintiff’s statement that the information was

material).

3. Zaki’s argument on appeal regarding his breach of contract claim relies on

his contention that the errors in his application are attributable to Principal through

Bahbah and Moore. Because, as we explained above, Bahbah and Moore were not

Principal’s agents, Zaki’s breach of contract claim fails, also.

Zaki’s bad faith claim fails, too, because it requires him to show that Principal

(1) “acted unreasonably” and (2) that Principal knew “that it was acting

4 unreasonably or acted with such reckless disregard that such knowledge may be

imputed to it.” Trus Joist Corp. v. Safeco Ins. Co. of Am., 153 Ariz. 95, 104 (Ct.

App. 1986). As explained above, Principal is entitled to recission of Zaki’s disability

insurance contract. To be in bad faith in the performance of a contract there must

be a valid contract. This contract was properly rescinded. Thus, Principal did not

act unreasonably by refusing to perform that same contract. Noble v. Nat’l Am. Life

Ins. Co., 128 Ariz. 188, 190 (1981) (“To show a claim for bad faith, a plaintiff must

show the absence of a reasonable basis for denying benefits of the policy[.]”)

(simplified).

4. We do not reach Zaki’s arguments regarding which state’s law governs this

dispute because generally “we will not consider arguments that are raised for the

first time on appeal.” Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999). Zaki’s

motion for an indicative ruling in the district court is not on review before the court.

Thus, in this appeal, Zaki cannot raise the issues raised in that motion. See TAAG

Linhas Aereas de Angola v. Transamerica Airlines, Inc., 915 F.2d 1351, 1354 (9th

Cir. 1990).

AFFIRMED.