16-2930 Principal National Life Insurance Co. v. Coassin
In the United States Court of Appeals For the Second Circuit ________
August Term 2017
ARGUED: DECEMBER 14, 2017 DECIDED: MARCH 5, 2018
No. 16‐2930‐cv ________ PRINCIPAL NATIONAL LIFE INSURANCE CO., Plaintiff‐Counter‐Defendant‐Appellant,
v.
EMILY C. COASSIN, Trustee of the Lawrence P. Coassin Irrevocable Trust dated 06/23/1999, THOMAS GIBNEY, Defendants‐Counter‐Claimants‐Appellees,
J.C. DAVID HADDEN, Trustee of the Lawrence P. Coassin Irrevocable Trust dated 06/23/1999, Defendant. ________
Appeal from the United States District Court for the District of Connecticut. No. 13‐cv‐1520 – Janet Bond Arterton, District Judge. ________
Before: CALABRESI, WESLEY, AND CHIN, Circuit Judges. ________
Sara Anderson Frey, Gordon & Rees, LLP, Philadelphia, PA (Jay S. Blumenkopf, Gordon & Rees, LLP, New York, NY, on brief) for Plaintiff‐Counter‐Defendant‐Appellant
David R. Schaefer, Brenner, Saltzman & Wallman, LLP, New Haven, CT (Michael T. Cretella, Brenner, Saltzman & Wallman, LLP, New Haven, CT, on brief) for Defendants‐Counter‐Claimants‐Appellees
CALABRESI, Circuit Judge:
In this appeal from a bench trial, we must decide whether the District
Court properly denied an insurance company’s motion to rescind a life insurance
policy on the basis of misrepresentations made by the deceased when applying
for the policy. The District Court found that the deceased had made
misrepresentations in his life insurance application. It concluded, however, that
the deceased’s misrepresentations were immaterial and denied the motion to
rescind.
In reaching this result, the District Court relied on Pinette v. Assurance Co.
of America, 52 F.3d 407 (2d Cir. 1995) (“Pinette”) and FDIC v. Great American
Insurance Co., 607 F.3d 288 (2d Cir. 2010) (“Great American Insurance Co.”), our
2 most recent decisions on when, under Connecticut law, an insurer may rescind a
policy because of an insured’s misrepresentation.
No decision of a Connecticut court or of this Court calling Pinette or Great
American Insurance Co. into question has been brought to our attention. Nor has
any independent research revealed any cases missed by the parties. “A ruling of
one panel of this Circuit on an issue of state law normally will not be
reconsidered by another panel absent a subsequent decision of a state court or of
this Circuit tending to cast doubt on that ruling.” Woodling v. Garrett Corp., 813
F.2d 543, 557 (2d Cir. 1987). Accordingly, the District Court correctly identified
Pinette and Great American Insurance Co. as setting the controlling standards in
this case. The District Court’s findings of fact were not clearly erroneous. We
see no error in its application of these facts to the controlling standards. We,
therefore, affirm.
I.
On April 9, 2012, Lawrence Coassin submitted an application to Principal
National Life Insurance Company (“Principal”) for a $10,000,000 life insurance
policy to replace an existing life insurance policy that he had had with another
company. The application contained the following language:
2 I represent that all statements in this application are true and complete to the best of my knowledge and belief and were correctly recorded before I signed my name below. I understand and agree that the statements in the application, including statements by the Proposed Insured in any medical questionnaire that becomes a part of this application, shall be the basis of any insurance issued. I also understand that misrepresentations can mean denial of an otherwise valid claim and rescission of the policy during the contestable period.
App. 958. On April 17, 2012, Principal issued Coassin the requested life
insurance policy on the conditions that he complete, among other things, an
Amendment to that Application and a Supplemental Statement of Health.
On April 25, 2012, Coassin completed the Amendment and revised his
answer to question 18(j) of the original application. That question asked: “In the
last ten years, have you had, been treated for or been diagnosed as having . . .
any disease or disorder of the eyes, ears, nose, throat or skin?” App. 956. In the
original application, he had answered “no.” App. 956. In the Amendment, he
answered, “[Y]es, earache with dizziness, lightheadedness and vertigo 12/11.
Resolved completely without recurrence. No further MD visits needed.” App.
949. The Amendment provided that “amendments to the Application listed
above are part of the Application, and the Application and the amendments are
to be taken as a whole.” Id.
3 On the same day, he also completed the Supplemental Statement. He
checked “No” to the question, “Have you had any illness or injury or consulted a
member of the medical profession since the date of application?” App. 950. The
Supplemental Statement likewise provided that “these statements will become
part of my application and any policy issued on it.” Id.
In filling out these forms, Coassin knowingly made misrepresentations to
Principal. On April 17, 2012, Coassin had seen Dr. Ronald Hirokawa, an ear,
nose, and throat specialist, to investigate his vertigo. At the visit, Dr. Hirokawa
had arranged a) further tests and b) future appointments. All this was contrary
to what Coassin had represented in the Amendment and the Supplemental
Statement. Unaware of these falsehoods, Principal issued the life insurance plan
at a standard rate.
Coassin followed up with three scheduled appointments. First, he sat for a
standard hearing test, known as a basic audiological evaluation, and performed
normally. Second, he underwent an auditory brainstem response evaluation
(“ABR”) and the audiologist reported that “[r]etrococlear pathology,” a problem
relating more closely to the brain than to the inner ear, “cannot be ruled out.”
4 App. 968. Third, he received a videonystagmography (“VNG”) and learned that
there “is a sign of [a central nervous system] lesion.” App. 967.
Because the ABR and the VNG produced abnormal results, Dr. Hirokawa
recommended a magnetic resonance imaging (“MRI”). Coassin received an MRI
and the radiologist noted that “[n]o abnormal mass is seen,” App. 284, but that
indications could “signal abnormality.” App. 285. Dr. Hirokawa then suggested
that Coassin “seek an evaluation or consultation with a neurologist.” App. 286.
Coassin sent his MRI to Dr. Samuel Potolicchio, a neurologist who
happened to be his brother‐in‐law, and Dr. Potolicchio told him in a conversation
on the telephone that “[t]here was no structural lesion in the brain to suggest
tumor.” App. 332. Dr. Potolicchio explained Coassin’s vertigo by noting that he
“most likely had benign positional vertigo” and that “[t]here are exercises that
[he] could do, there’s specific therapy that can be done, and medications that
could be used.” App. 333. Significantly, he did not recommend further testing
or evaluation.
In November 2012, an MRI with contrast revealed that Coassin had, in fact,
developed a brain tumor. In July 2013, Coassin died. Later that year, Coassin’s
5 wife, acting as a trustee of the Lawrence P. Coassin Irrevocable Trust dated
06/23/1999, submitted a claim for benefits under the policy.
Because Coassin died within two years of applying for his policy, Principal
performed a contestability review “to provide an underwriting opinion as to
what we would have done had all the true facts been known.” App. 416. As part
of this review, Principal investigated Coassin’s application and discovered his
misrepresentations. After consulting Principal’s written guidelines, Principal
concluded that, had it known the truth, it would have denied Coassin’s
application.
Principal then brought suit in the District of Connecticut for rescission of
the policy and for a declaration that the Policy was void. Principal moved for
summary judgment. The District Court held, as a matter of law, that Coassin had
misrepresented information on his application. But, finding disputed questions
of fact as to whether Coassin’s misrepresentations qualified as material, it denied
summary judgment in part.
After a bench trial, the District Court ruled in favor of Coassin. The Court
observed, ‘“Under Connecticut law, an insurance policy maybe [sic] voided by
the insurer if’ the insurer ‘prove[s] three elements: (1) a misrepresentation (or
6 untrue statement) by the [applicant] which was (2) knowingly made and (3)
material to [the insurer’s] decision whether to insure.’” Principal Natʹl Life Ins.
Co. v. Coassin, 196 F. Supp. 3d 356 n.2 (D. Conn. 2016) (quoting Pinette, 52 F. 3d at
409) (second alteration added). To determine materiality, the District Court
further explained, “[A]n answer to a question on an insurance application is
presumptively material . . . , and an inquiry into whether the insurer would have
issued the policy had the applicant been truthful on the application is therefore
appropriate.” Id. at 356 (internal quotation marks and citations omitted) (first
alteration in original).
The District Court then found that, had Principal known the truth, it
would have still issued the policy. And, on that basis, it held that the
misrepresentations were not material.
According to the District Court, Principal follows written guidelines to
determine whether or not to issue a policy. Those guidelines provide that
Principal will issue a life insurance policy, even if a person has vertigo and the
cause is unknown, if the vertigo has been fully investigated and the symptoms
have continued for more than six months. Under Principal’s interpretation of
those guidelines, “fully investigated” requires that “there’s no ongoing referrals,
7 recommendations to see additional physicians, [and] there’s a definitive
diagnosis.” App. 690. On this basis, the District Court concluded that, after Dr.
Potolicchio had reviewed Coassin’s MRI, had diagnosed the vertigo as benign
positional, and had recommended no further referrals, Principal would have
issued a policy at the standard rate. Coassin’s vertigo, which had continued for
more than six months, had been fully investigated under Principal’s guidelines
as Principal interpreted them.
In coming to these conclusions, the District Court rejected Principal’s three
main arguments a) that the doctor related to the patient could not have fully
investigated an illness, b) that the doctor could not have fully investigated an
illness without making a written record, and c) that the doctor could not have
fully investigated an illness without performing his own examinations of the
patient. Principal timely appealed.
II.
We hear this case in diversity jurisdiction. “Federal courts sitting in
diversity cases will, of course, apply the substantive law of the forum State on
outcome determinative issues.” Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114,
119 (2d Cir. 1994). “We . . . review de novo the district court’s interpretation and
8 application of state law.” Phansalkar v. Andersen Weinroth & Co., L.P., 344 F.3d
184, 199 (2d Cir. 2003). “The district court’s findings of fact after a bench trial are
not to be overturned unless they are clearly erroneous.” Ceraso v. Motiva Enter.,
LLC, 326 F.3d 303, 316 (2d Cir. 2003). Given the applicable standards of review,
we affirm.
First, we hold that the District Court correctly followed our previous
interpretations of state law, which—in the absence of a subsequent state court or
Second Circuit decision casting them into doubt—are generally to be treated as
controlling. Second, while we might not have reached the same result, we
conclude that the District Court did not clearly err in its factual findings.
A.
The District Court applied the correct legal standard. Under Connecticut
law, an insurance policy may be voided by the insurer if the applicant made
“[m]aterial representations . . . , relied on by the company, which were untrue
and unknown [sic] by the assured to be untrue when made.” State Bank & Trust
Co. v. Conn. Gen. Life Ins. Co., 145 A. 565, 567 (Conn. 1929). See also Middlesex Mut.
Assur. Co. v. Walsh, 590 A.2d 957, 963 (Conn. 1991) (quoting State Bank & Trust
Co., 145 A. at 567, as holding that “[m]aterial representations . . . relied on by the
9 [insurance] company, which were untrue, and known by the assured to be
untrue when made, invalidate the policy” (alterations in original)). The case
before us raises the further question of what makes a particular representation
“material” under Connecticut law. Four relevant cases, two state and two
federal, speak to this question.
In the first state case, Davis Scofield Co. v. Agricultural Insurance Co.,
Connecticut’s highest court found that an insurance company could rescind a fire
insurance policy because the applicant had failed to disclose information about
an embezzling employee and his previous attempts to burn down the
purportedly covered property. 145 A. 38, 40 (Conn. 1929). In coming to this
conclusion, the Supreme Court of Errors gave the following definition of
materiality: “A fact is material to the consideration of a contract of insurance
when, in the judgment of reasonably careful and intelligent persons, it would so
increase the degree or character of the risk of the insurance as to substantially
influence its issuance, or substantially affect the rate of premium.” Id. Because a
history of embezzlement and a previous arson attempt would influence a fire
insurance policy’s issuance, the Court of Errors concluded that these facts were
material and that the insurance company could rescind the policy.
10 In the second state case, State Bank & Trust Co., decided just a month after
Davis Scofield Co., the Court of Errors ruled on whether another representation
was material. 145 A. at 566. In that case, an insurance company sought to
rescind a life insurance policy after it discovered that the deceased had
knowingly misrepresented his medical history on his life insurance application.
Id. The deceased’s beneficiary argued to the Court of Errors that “recovery is not
barred by misrepresentations as to immaterial matters and the question of their
materiality was one of fact for the jury . . . .” Id. The Court rejected this assertion
and stated that it “is beyond question” that the facts “were material to the risk as
[a] matter of law.” Id.
In coming to this conclusion, the State Bank & Trust Co. Court wrote
ambiguously. In some sentences, the Court of Errors seemed to diverge from its
decision in Davis Scofield Co. It said that “[m]atters made the subject of special
inquiry are deemed conclusively material” and that, “[w]here the representation
is contained in an answer to a question contained in the application which is
made a part of the policy, the inquiry and answer are tantamount to an
agreement that the matter inquired about is material.” Id.
11 In other sentences, however, the Court appears to have hewn closely to
Davis Scofield Co., explaining that “[t]he test of materiality is in the effect which
the knowledge of the fact in question would have on the making of the contract.”
Id.
In two cases, our Court has harmonized Davis Scofield Co. and State Bank &
Trust Co. by relying on what is common to both cases and by construing State
Banks & Trust Co.’s seemingly inconsistent absolute rule into a presumption. In
the first case, Pinette, an insurance company rescinded a fire insurance policy
when it discovered that the applicants had inaccurately answered questions
related to their loss history and a previously canceled policy. 52 F.3d at 409. We
sided with the insurance company and held, “Under Connecticut law, a
misrepresentation is material ‘when, in the judgment of reasonably careful and
intelligent persons, it would so increase the degree or character of the risk of the
insurance as to substantially influence its issuance, or substantially affect the rate
of premium.’” Id. at 411 (quoting Davis Scofield Co., 145 A. at 40). We followed
this with a less absolute articulation of State Bank & Trust Co.’s standard:
“Furthermore, Connecticut caselaw strongly suggests that an answer to a
12 question on an insurance application is presumptively material.” Id. (citing State
Bank & Trust Co., 145 A. at 566) (emphasis added).
Having established these standards, we found that the fire insurance
applicants’ misrepresentations qualified as material under either standard. With
regard to the first standard, we wrote, “Common sense tells us that an
applicant’s prior loss history is material to a reasonable insurance company’s
decision whether to insure that applicant or determination of the premium.” Id.
With regard to the second standard, we explained, “Thus, in addition to the
character of the information misrepresented, the fact that the application in this
case specifically requested the information supports the district court’s finding of
materiality.” Id.
In the second case, Great American Insurance Co., we cited State Bank &
Trust Co.’s rule but applied its more nuanced gloss. 607 F.3d at 295. After
quoting State Bank & Trust Co.’s language that “[m]atters made the subject of
special inquiry are deemed conclusively material,” id., we held, “As prior losses
were the subject of specific inquiry, CBC’s response is presumptively material.”
Id. (emphasis added). That is, we treated Pinette’s reading of State Bank & Trust
Co. as the correct statement of Connecticut law.
13 In the case before us, the District Court properly relied on the Pinette rule
as we applied it in Great American Insurance Co. “A ruling of one panel of this
Circuit on an issue of state law normally will not be reconsidered by another
panel absent a subsequent decision of a state court or of this Circuit tending to
cast doubt on that ruling.” Woodling, 813 F.2d at 557. We have not had any
subsequent state court decisions or language in any circuit court opinions cited
to us that cast doubt on our previous rulings. Nor have we been able to identify
any such case ourselves. Principal cites only one state court case decided after
Great American Insurance Co. and it cites that case, Gordon v. Gordon, 84 A.3d 923
(Con. App. Ct. 2014), for an unrelated point.1 It follows that the District Court
correctly relied on our decisions in Pinette and Great American Insurance Co. to
identify the controlling standard of materiality under Connecticut law.
B.
The application of this standard to the facts of this case presents a closer
question. But we conclude that the District Court did not clearly err in finding
1 Principal cites two unpublished state court cases decided after Pinette but before Great American Insurance Co. These cases, Sherman v. Prudential Insurance Co. of America, No. CV990078688S, 2002 WL 467774 (Conn. Super. Ct. Mar. 6, 2002) and La Teano v. Hartford Life Insurance Co., No. CV980580409S, 2000 WL 966371 (Conn. Super. Ct. June 23, 2000), do not indicate any tension between Pinette and State Bank & Trust Co. 14 that Coassin had rebutted the presumption of materiality by showing that
Principal would have issued Coassin a policy, even if it had known of the
concealed information.
Coassin made two related misrepresentations. First, he wrote in an
amendment to his insurance policy application that his vertigo “was resolved
without recurrence” and, “No further MD visits needed.” App. 949. Second, he
checked “No” in the Supplemental Statement to the question, “Have you had
any illness or injury or consulted a member of the medical profession since the
date of application?” App. 950.
Both representations were false. Coassin knew that he continued to
experience vertigo and that he had scheduled additional doctors’ appointments.
Indeed, he had received a basic audiological evaluation, an ABR, and a VNG
after the date of the original applications. And, when the ABR and VNG
revealed a possible neurological abnormality, he consulted with a neurologist.
In the absence of Principal’s guidelines, the District Court might well have
had to conclude that the misrepresentations were material and that Principal
would not have sold the policy at the standard price but for the false statements.
But Principal had guidelines indicating when, in circumstances like these,
15 policies should issue nonetheless. And the District Court did not clearly err in
finding that, under Principal’s guidelines, Principal would have issued Coassin a
policy even if it had known this hidden history. Documentary evidence
introduced at trial supports the District Court’s conclusion that, under its
guidelines, Principal would issue a policy to a person with vertigo if the vertigo
had been “fully investigated” and the symptoms had continued for more than six
months. Moreover, according to Principal’s own testimony, “fully investigated”
requires that “there’s no ongoing referrals, recommendations to see additional
physicians, [and] there’s a definitive diagnosis.” App. 690.
In light of these facts, the District Court did not clearly err when it found
that, when the neurologist a) had reviewed Coassin’s MRI more than six months
after his vertigo symptoms began, b) had recommended no further referrals, and
c) had diagnosed Coassin as suffering from “benign positional vertigo,”
Coassin’s vertigo had been “fully investigated,” as those terms were defined by
Principal itself. On that basis, the District Court concluded that, had Principal
known the facts, it would nonetheless have issued a policy at the standard rate.
Principal seeks to refute this conclusion not so much by questioning the
applicability of the guidelines as by questioning whether the guidelines were met
16 because of who the neurologist was and how he reached and reported his
conclusions. Specifically, Principal argues that the credibility of Coassin’s
diagnosis was undermined by the facts that Coassin a) was diagnosed by his
brother‐in‐law, b) was diagnosed without an in‐person examination, and c) was
informed of his diagnosis over the telephone.
The District Court found the first argument unpersuasive because it
assumed that a family member would be more—not less—likely to discover a
family member’s illness. Whatever the merits of that assumption, we note that
there was nothing in the guidelines suggesting that the diagnosing doctor could
not be related to the applicant. The District Court dismissed the second
argument because Principal’s policies allow insurers to make issuance decisions
based on oral conversations with doctors. The District Court cast the third
argument aside because Dr. Potolicchio testified that he would have performed
the exact tests that Dr. Hirokawa had ordered and no more. As a result, the
District Court denied Principal’s claim for rescission and declaratory judgment
and ruled that Principal had breached its contract with Coassin by refusing to
pay his claim.
17 In determining whether the District Court’s rejection of Principal’s
“explanations” lay well within a bench trial decisionmaker’s authority, it is
important to emphasize that we review the District Court’s decision under the
deferential clear error standard. Pursuant to this standard, “we are not allowed
to second‐guess either the trial court’s credibility assessments or its choice
between permissible competing inferences.” Ceraso, 326 F.3d at 316. Indeed,
“Where there are two permissible views of the evidence, the factfinder’s choice
between them cannot be clearly erroneous.” Anderson v. Bessemer City, 470 U.S.
564, 574 (1985).
In the absence of evidence to that effect, we cannot say, as a matter of law,
that Principal’s guidelines required that diagnosis and prognosis a) be made by a
non‐related physician or b) be in writing or c) be based on a personal
examination of the applicant rather than on a full review of the relevant exams.
Nor can we find clear error in the District Court’s rejection of testimony
suggesting that perhaps Principal would not have followed its guidelines and
would have refused to insure Coassin, so to speak, on a hunch. In other words,
we cannot say that the District Court clearly erred in finding that the facts found
met the guidelines’ requirements for the issuance of the insurance policy.
18 III.
Since the District Court applied Connecticut law correctly and did not
clearly err in its findings of fact, we AFFIRM its judgment.