United States District Court, D. Minnesota
Benjamin C. Johnson, Benjamin J. Rolf, Erik T. Salveson, and Gregory A. Bromen, Nilan Johnson Lewis PA, Counsel for Plaintiff.
Richard D. Snyder, Fredrikson & Byron, PA, Counsel for Defendant.
MEMORANDUM OF LAW & ORDER
MICHAEL J. DAVIS, Chief District Judge.
This matter is before the Court on Plaintiff The Northwestern Mutual Life Insurance Company's ("Northwestern Mutual") Motion for Summary Judgment [Docket No. 17] and Defendant Douglas G. Weiher's Motion for Summary Judgment [Docket No. 26]. The Court heard oral argument on February 21, 2014.
Finding no genuine issue of material fact regarding whether Defendant breached his obligation under his insurance policy, and considering the applicable case law, the Court concludes that rescission is the proper remedy for Defendant's breach. Accordingly, the Court grants Plaintiff's Motion for Summary Judgment and denies Defendant's Motion for Summary Judgment.
A. Factual Background
i. Defendant Dr. Weiher
Defendant is a 54-year-old dentist who resides in Stillwater, Minnesota. (Weiher Decl. ¶¶ 1-2.) Before his disability, Defendant worked for several area dental clinics, but his most recent dental practice was primarily in Hudson, Wisconsin. (Weiher Decl. ¶ 2.) His income since 2005 has primarily derived from his Wisconsin practice. (Weiher Decl. ¶¶ 1-2.) From 2006 to 2011, as Defendant's dental practice grew, his adjusted gross income steadily rose from $136, 258 to $681, 304. (Weiher Decl. ¶ 3.)
ii. Defendant's Application for Disability Insurance From Northwestern Mutual
In 2009, due to his rising income, Defendant felt he was under-insured. (Weiher Decl. ¶ 4.) On June 9, 2009, Defendant met with insurance financial representative Michael Leverty in Hudson, Wisconsin to discuss disability insurance. (Weiher Decl. ¶¶ 5-6; See Salveson Aff., Ex. F, at F19.) Leverty is an independent insurance agent for the Bohanan Group and sells insurance for Northwestern Mutual and other insurers. (See Salveson Aff., Ex. F, at F19-20.) In a second meeting on June 30, 2009, Defendant and Leverty discussed disability insurance again and the policies that Defendant owned at the time. (See id. at F18.) Defendant owned a group policy from UNUM with a $5, 000 monthly benefit ("UNUM Policy") and an individual disability policy sponsored by the American Dental Association and underwritten by Great West Life Insurance Company with a $6, 000 monthly benefit ("ADA/Great West Policy"). (Weiher Decl. ¶ 4.) Leverty requested, and Defendant provided, copies of these other insurance policies. (Weiher Decl. ¶ 7; Snyder Decl. Exs. C, D.) Leverty knew the monthly benefit amounts on both policies. (Snyder Decl., Ex. E, at ML000077 (email from Leverty showing that he knew the amounts).)
On July 28, 2009, Defendant expressed to Leverty that he wanted additional disability insurance. (Salveson Aff., Ex. F, at F14-15.) On May 4, 2010, Defendant met with Leverty in Hudson, Wisconsin, to complete a Northwestern Mutual disability insurance application. (Weiher Decl. ¶ 9; Hoesly Aff., Ex. H, at H26-32.) Defendant maintains that Leverty advised him that the purpose of the application was to get Northwestern Mutual's "best offer" as to the amount of insurance it was willing to provide and that no final decision would be made until later. (Weiher Decl. ¶¶ 9-10; Snyder Decl., Ex. B, at 106.) Defendant asserts that Leverty explained to him that, in order to get the best offer, the application would state that Defendant would replace his ADA/Great West Policy. (Weiher Decl. ¶ 10.) Defendant also asserts that Leverty explained that he and Defendant would discuss how to respond to Northwestern Mutual's offer, including whether to keep or replace his ADA/Great West Policy and whether to decline, accept, or partially accept the offer. (Weiher Decl. ¶ 10; Snyder Decl., Ex. B, at 106, 117.)
Leverty read each question on the application ("Application") to Defendant, who provided responses, and Leverty and his assistant filled out those responses on the Application. (Salveson Aff., Ex. B, at 229-30; Snyder Decl., Ex. B, at 90; Weiher Decl. ¶ 11.) Once the Application was completed, Defendant was able to review it; Defendant then signed the Application. (Id.) By signing, Defendant attested the following: "The insured consents to this application and declares that the answers and statements made on this application are correctly recorded, complete and true to the best of the insured's knowledge and belief." (Hoesly Aff., Ex. H, at H32.)
In the Application, Defendant represented that the Northwestern Mutual Disability Income Policy ("Policy") for which he was applying would replace his ADA/Great West Policy and that he would terminate the ADA/Great West Policy by its next premium due date. (Id. at H30). The Application provided:
E. Will the insurance applied for replace insurance from a source other than Northwestern Mutual?.... Yes. [checked box]
If yes, complete the information below. The agent should submit any required papers.
When issuing insurance as a result of this application, Northwestern Mutual will rely on the fact that the coverage listed below can and will be terminated by the next premium due date, which must be within 90 days of the date of this application. If the coverage listed is not terminated by that date, or it is terminated and later reinstated, any policy issued as a result of this application may be rescinded and all premiums will be returned. Northwestern Mutual may contact a listed insurer to confirm that the coverage has been terminated.
(Id. (emphasis added) (including a table listing the ADA/Great West Policy, with $6, 000 listed as the "Amount to be Replaced").) On May 6, 2010, Leverty forwarded copies of Defendant's 2008 and 2009 tax returns to Eric Schiesser, a lead underwriting consultant for Northwestern Mutual's home office in Milwaukee. (Snyder Decl., Ex. F, at NM001730; see Seebach Aff., Ex. U.)
On May 18, 2010, by signing a Personal Health and Status Declaration, Defendant confirmed that the information on the Application had remained unchanged. (Hoesly Aff., Ex. N.) On May 24, 2010, Northwestern Mutual conducted a telephone interview of Defendant to determine his Client History. (Manthei Aff., Ex. X.) During the interview, Defendant once again stated that the Policy would replace his ADA/Great West Policy. (Manthei Aff., Ex. X, at X25.) Defendant then identified the ADA/Great West Policy as his other insurance, but incorrectly stated that the ADA/Great West Policy had a benefit of $3, 500 per month, not $6, 000. (Manthei Aff., Ex. X, at X25.)
Despite this mistake, Schiesser performed a financial underwriting analysis of Defendant. (See Seebach Aff., Ex. U (Schiesser's financial underwriting notes).) First, Schiesser calculated Defendant's earned income. (See Seebach Aff. ¶ 5, Ex. T.) Second, Schiesser applied that income to the Northwestern Mutual Issue and Participation Limit Table in effect at the time the Policy was issued. (See Seebach Aff. ¶ 5, Ex. T.) Based on Defendant's 2009 tax return, Schiesser initially determined that Defendant was eligible for a disability insurance policy with a $6, 000 per month benefit; he reported this to Leverty. (Snyder Decl., Ex. F, at NM001813.) Leverty questioned this amount, and Shiesser admitted that he had made a mistake. (Id. at NM001812.) Schiesser then concluded that Defendant was eligible for a policy with a monthly benefit of $8, 420, based on an assumption that Defendant's 2009 income was $271, 550. (Seebach Aff. ¶ 5; Snyder Decl., Ex. G, at 39-40.)
Schiesser later stated, during his deposition, that the $8, 420 monthly benefit amount may have been too low because he may have incorrectly reduced Defendant's 2009 income by almost $60, 000. (Snyder Decl., Ex. G, at 48.) Nevertheless, during this process, Schiesser concluded that Plaintiff would offer a policy to Defendant with a monthly benefit of about $8, 400, subject to Defendant terminating his ADA/Great West Policy. (Salveson Aff., Ex. F, at F3; Seebach Aff. ¶ 5.) On May 18, 2010, as a result of Schiesser's analysis, Leverty submitted the Application, and filled in $8, 400 as the monthly benefit Defendant was applying for. (Snyder Decl., Ex. A, at ML000112, ML000117.) Defendant did not receive a copy of this version of the Application. (Snyder Decl., Ex. B, at 77-78.)
Through several emails, Leverty advised Defendant that the maximum coverage that Plaintiff would provide was $8, 400 per month if Defendant terminated his ADA/Great West Policy. (Salveson Aff., Ex. F.) Despite this, Defendant expressed his desire for higher coverage (a monthly benefit of $15, 000) and asked if he could keep his ADA/Great West Policy: "I was told that because the N.W. Mutual DI policy was for $8, 900/month benefit that I would NOT replace the ADA policy. (I was looking for a monthly benefit of $15, 000) Please confirm." (Salveson Aff., Ex. F, at F7 (June 1, 2010 email from Defendant to Leverty's Assistant, Ann Urbik).)
The parties dispute whether anyone from Northwestern Mutual ever told Defendant that he did not need to replace the ADA/Great West Policy. Plaintiff that no one from Northwestern Mutual or Leverty's office told Defendant he could keep the ADA/Great West Policy. (See Pl.'s Mem. Supp. Mot. Summ. J, at 6.) Defendant argues that Leverty told him that, based on Defendant's 2008 income, he could get additional disability coverage through Northwestern Mutual and supplement the existing UNUM and ADA/Great West policies. (Weiher Decl. ¶ 8; Snyder Decl., Ex. B, at 66; Snyder Decl., Ex. E, at ML000073.) Defendant also claims that Leverty told him there would be future opportunities to increase his benefit as his income continued to rise. (Weiher Decl. ¶ 8.)
In any case, after receiving Defendant's email claiming that he was told he could keep his ADA/Great West Policy, Leverty responded that the Policy would have a maximum monthly benefit of $8, 400 provided Defendant terminated his ADA/Great West Policy. (See Salveson Aff., Ex. F; Seebach Aff. ¶ 5.)
On June 25, 2010, Defendant signed a Northwestern Mutual form entitled "Notice to Applicant Regarding Replacement of Accident and Sickness Insurance." (Hoesly Aff., Ex. Q.) This form represented that Defendant planned to terminate his ADA/Great West Policy and replace it with the Northwestern Mutual Policy. (Id. ("According to your application, you intend to lapse or otherwise terminate your present policy and replace it with a policy to be issued by The Northwestern Mutual Life Insurance Company.").)
iii. Plaintiff Issues Policy to Defendant
A Northwestern Mutual underwriter reviewed the Application, Amendment of Application, and other materials submitted regarding Defendant. (See Seebach Aff., Ex. V.) The underwriter verified answers to Defendant's medical and financial questions, collected medical records from Defendant's medical providers, and had medical professionals within Northwestern Mutual's home office determine Defendant's insurability. (Snyder Decl., Ex. H, at 20-21.) On June 2, 2010, in the middle of the underwriting process, Leverty asked the underwriter if Defendant's ADA/Great West Policy could remain in place with the Northwestern Mutual Policy to supplement it (and the UNUM policy). (Seebach Aff., Ex. V, at V4-5.) The underwriter ...