Qiuhong Liu v. Fidelity & Guaranty Life Insurance , 282 F. App'x 304 ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 7, 2008
No. 06-41224 Charles R. Fulbruge III
Clerk
QUIHONG LIU
Plaintiff-Appellee
v.
FIDELITY AND GUARANTY LIFE INSURANCE COMPANY
Defendant-Appellant
Appeal from the United States District Court
for the Eastern District of Texas
USDC No. 4:05-CV-313
Before DENNIS, CLEMENT, and PRADO, Circuit Judges.
PER CURIAM:*
Defendant-Appellant Fidelity & Guaranty Life Insurance Company
(“Fidelity”) appeals the district court’s entry of final judgment in favor of
Plaintiff-Appellee Qiuhong Liu (“Liu”) entitling her to proceeds from her
deceased husband’s life insurance policy. Fidelity argues that its insurance
contract with Chenggang Chen (“Chen”), Liu’s husband, never took effect
because Chen failed to satisfy a condition precedent to the contract’s formation.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 06-41224
We agree with the district court that the insurance contract did not contain a
condition precedent. We therefore affirm the judgment of the district court.
I. FACTUAL AND PROCEDURAL HISTORY
On September 4, 2003, Chen applied for a Fidelity life insurance policy
with a face amount of $230,000. Also on that date, Chen paid the initial $60
premium and signed a conditional receipt. The conditional receipt, which
provided for conditional insurance, became effective on September 8, 2003, when
Fidelity received the initial premium payment at its home office.
The application asked a number of health-related questions. Of particular
relevance to this appeal, question seven queried, “Within the past 10 years, has
any person proposed to be insured been treated for or diagnosed by a physician
or other health care professional as having . . . b. Cancer, cyst, or tumor?” Chen
marked the box indicating “No.” In addition, the application contained the
following provision:
AUTHORIZATION
I have read the questions and answers on this application. The
statements made in this application are: complete; true; and
correctly recorded. I agree that a copy of this application will form
a part of any policy issued by the Company. I also agree that,
except as provided in this application’s Receipt, if issued, no
insurance will take effect unless and until both of the following
conditions are satisfied during each proposed insured’s lifetime and
while each proposed insured’s health is as stated in this application:
(1) this policy is delivered to and accepted by the Owner; and (2) the
full initial premium for the mode of payment chosen is paid at our
Home Office.
(emphasis added).1
On September 9-10, 2003, Chen was diagnosed with lung cancer. On
September 12, 2003, Fidelity issued the life insurance policy and delivered it to
1
This opinion shall refer to the language in italics as the “Health as Stated Clause.”
2
No. 06-41224
Chen by mail. Fidelity did not know of Chen’s cancer diagnosis when it issued
the policy. Chen died from hepatic failure and lung cancer on January 23, 2004.
Following Chen’s death, Liu, his designated beneficiary, submitted a claim
for benefits. In a letter dated June 16, 2004, Fidelity denied Liu’s claim,
rescinded the policy, and refunded the initial premium. Liu refused the return
of the premium and did not deposit the check.
Liu filed suit against Fidelity, alleging that Fidelity breached the
insurance contract by failing to pay her the insurance proceeds due under the
contract.2 The parties filed cross-motions for summary judgment. Fidelity
argued that it did not enter into an insurance contract with Chen because Chen
failed to satisfy a condition precedent to formation of the contract, namely, the
Health as Stated Clause. According to Fidelity, Chen did not satisfy the Health
as Stated Clause because his health was not “as stated” in the application at the
time that Fidelity delivered the policy.
The district court rejected Fidelity’s argument and held that, under Texas
law, the Health as Stated Clause is a representation, not a condition precedent.3
The district court also held that, even if the “health is as stated” language from
the application constituted a condition precedent, additional language in the
policy created an ambiguity in the contract that had to be resolved in favor of the
insured.
The “General Provisions” section of the policy states, “We will rely on all
statements made in an application. Those statements will be considered
representations and not warranties. We will not use any statement in defense
of a claim unless that statement is made in an application which is part of the
entire contract.” (emphasis added). According to the district court, the “General
2
The application and the policy, along with other documents not relevant here, formed
the insurance contract.
3
The parties do not dispute that Texas law governs this case.
3
No. 06-41224
Provisions” section unambiguously provides that the Health as Stated Clause is
a representation. Because Fidelity did not contend that Chen made a
misrepresentation, the district court held that coverage existed under the policy,
and it granted summary judgment in favor of Liu. Fidelity now appeals.
II. DISCUSSION
We have jurisdiction over this appeal under 28 U.S.C. § 1291. Because the
parties submitted this case for summary judgment on stipulated facts, only
conclusions of law are at issue and we review the judgment de novo. Am. Indem.
Lloyds v. Travelers Prop. & Cas. Ins. Co., 335 F.3d 429, 435 (5th Cir. 2003).
The central issue on appeal is whether the language that Fidelity included
in its life insurance application operates as a condition precedent or a
representation about Chen’s health. If the insurance contract contained a
condition precedent that Chen did not satisfy,4 then there was no contract
between Fidelity and Chen, and Fidelity has no obligation to pay Liu any
insurance proceeds. See Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 507 (Tex.
2001) (“A condition precedent is ‘an event that must happen or be performed
before a right can accrue to enforce an obligation.’” (quoting Centex Corp. v.
Dalton, 840 S.W.2d 952, 956 (Tex. 1992))). If, however, the insurance contract
contained a mere representation about the insured’s health, then coverage exists
unless Fidelity can prove that Chen made a misrepresentation in the insurance
application. See Mayes v. Mass. Mut. Life Ins. Co., 608 S.W.2d 612, 616 (Tex.
1980).5 Because Fidelity did not allege that Chen made any misrepresentations,
4
“A party seeking to recover under a contract bears the burden of proving that all
conditions precedent have been satisfied.” Associated Indem. Corp. v. CAT Contracting, Inc.,
964 S.W.2d 276, 283 (Tex. 1998).
5
To avoid a policy based on a claim of misrepresentation, an insurer must prove (1) the
making of the representation, (2) the falsity of the representation, (3) reliance thereon by the
insurer, (4) the intent to deceive on the part of the insured, and (5) the materiality of the
representation. Mayes, 608 S.W.2d at 616.
4
No. 06-41224
Fidelity must perform under the insurance contract unless this court determines
that the contract contained a condition precedent that Chen did not satisfy.
A. Condition Precedent or Representation?
Because this case is in federal court based on diversity jurisdiction, we
follow Texas’s substantive law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78
(1938). In Texas, insurance policies are interpreted in accordance with the usual
rules of contract construction. Am. Mfrs. Mut. Ins. Co. v. Shaefer, 124 S.W.3d
154, 157 (Tex. 2003).6 “When the language of an insurance policy is susceptible
to more than one construction, the insurance policy should be construed in favor
of the insured to avoid exclusion of coverage.” Protective Life Ins. Co. v. Russell,
119 S.W.3d 274, 281 (Tex. App. 2003) (citing Barnett v. Aetna Life Ins. Co., 723
S.W.2d 663, 666 (Tex. 1987)).
This court has previously summarized the substantive law relevant to this
case:
Under Texas law, the responses given in a life insurance application
are mere representations, rather than warranties that would be
capable of making coverage void or voidable. Short of inserting an
unambiguous “good health warranty” demonstrating that the
parties intended the contract to rise or fall on the literal truth of an
insured’s general certification of good health, Texas has not allowed
an insurer to change that result by contracting to make truthful
application answers a condition precedent to coverage.
Riner v. Allstate Life Ins. Co., 131 F.3d 530, 536-37 (5th Cir. 1997) (citations
omitted). In other words, provisions in insurance policies that turn on the truth
6
These rules provide,
If policy language is worded so that it can be given a definite or certain legal
meaning, it is not ambiguous and we construe it as a matter of law. Whether
a contract is ambiguous is itself a question of law. An ambiguity does not arise
simply because the parties offer conflicting interpretations. An ambiguity exists
only if the contract language is susceptible to two or more reasonable
interpretations. When construing the policy’s language, we must give effect to
all contractual provisions so that none will be rendered meaningless.
Shaefer, 124 S.W.3d at 157 (internal citations and quotation marks omitted).
5
No. 06-41224
or falsity of answers in an insurance application are treated as representations.
Russell, 119 S.W.3d at 281 (citing Mayes, 608 S.W.2d at 616). Alternatively, a
“good health provision” that “expressly provides that coverage does not take
effect unless the applicant is in good health” operates as a condition precedent.
Id.
Texas law strongly disfavors warranties and conditions precedent. Riner,
131 F.3d at 537 n.7 (“Warranties in insurance applications are strongly
disfavored in the law, and even fairly obvious attempts to create warranties in
the application process have been rejected by Texas courts.”). Indeed, a Texas
statute dictates,
Any provision in any contract or policy of insurance issued or
contracted for in this State which provides that the answers or
statements made in the application for such contract or in the
contract of insurance, if untrue or false, shall render the contract or
policy void or voidable, shall be of no effect, and shall not constitute
any defense to any suit brought upon such contract, unless it be
shown upon the trial thereof that the matter or thing
misrepresented was material to the risk or actually contributed to
the contingency or event on which said policy became due and
payable, and whether it was material and so contributed in any case
shall be a question of fact to be determined by the court or jury
trying such case.
TEX. INS. CODE ANN. art. 21.16.7 Texas courts have set a very high bar in
interpreting insurance clauses as conditions precedent, even holding clauses that
specifically invoke the insured’s “good health” to be mere representations. See,
e.g., Am. Nat’l Ins. Co. v. Paul, 927 S.W.2d 239, 243 (Tex. App. 1996) (“I declare
that to the best of my knowledge and belief, I am in good health and that my age
is as stated above.”); Cartusciello v. Allied Life Ins. Co., 661 S.W.2d 285, 286
(Tex. App. 1983) (“I hereby certify that I am in good health . . . [and] the
7
The statute has since been repealed but was in effect at all times relevant to this
appeal.
6
No. 06-41224
information provided hereinbefore to the best of my knowledge is true . . . .”);
Allied Bankers Life Ins. Co. v. De La Cerda, 584 S.W.2d 529, 532 (Tex. App.
1979) (“I hereby certify that . . . to the best of my knowledge and belief I am in
good health as of the above effective date.”).
In other cases, Texas courts have shown what is required for an insurance
provision that turns on the insured’s health to operate as a condition precedent.
See, e.g., Great Am. Reserve Ins. Co. v. Britton, 406 S.W.2d 901, 903 (Tex. 1966)
(“[T]he policy shall not take effect until it has been delivered to its owner during
the lifetime and good health of the Insured . . . .”); Lincoln Income Life Ins. Co.
v. Mayberry, 347 S.W.2d 598, 599 (Tex. 1961) (“This policy shall be voidable by
the Company if on its date of issue the insured is not in sound health . . . .”).
Notably, the provisions in these cases condition coverage on a factual test of the
current good health of the insured, and they in no way rely on or incorporate
statements made by the insured in the insurance application.
The provision at issue in this case contains aspects of both a good health
condition precedent and an incorporation of a mere representation made by the
insured. At first blush, the language appears to condition the application’s
effectiveness on the actual state of health of the insured at the time the two
listed conditions are met. However, the Health as Stated Clause also necessarily
incorporates Chen’s statements from the application that he had not been
“treated for or diagnosed” as having cancer. Thus, although this clause does
turn on Chen’s actual health at the time of delivery of the application, it also
turns on the truth or falsity of a representation Chen made in the insurance
application. Therefore, the provision at issue in this case purports to do exactly
what the Texas Insurance Code and case law prohibit: it provides that untrue
or false answers in an insurance application render the policy void. See TEX. INS.
CODE ANN. art. 21.16 (“Any provision . . . which provides that the answers or
statements made in the application for such contract or in the contract of
7
No. 06-41224
insurance, if untrue or false, shall render the contract or policy void or voidable,
shall be of no effect . . . .”); Paul, 927 S.W.2d at 243 (“[W]here the language in the
policy states that the answers in the application are true and correct at the time
of delivery of the policy, such a requirement is merely a representation.”).
Therefore, under Texas law, this clause cannot operate as a condition precedent.8
It is true that Chen’s health was not “as stated” at the time of delivery of
the policy. However, under Texas law, an insurer must plead the elements of a
misrepresentation in order to avoid coverage. Mayes, 608 S.W.2d at 616. The
policy is not automatically void, as it would be if this clause were an
unambiguous good health provision. Here, Fidelity could have argued that
Chen’s failure to correct his answers in the application constituted a
misrepresentation. See id. (holding that an “insured’s failure to advise the
insurer of the changes in his prior answers were misrepresentations”). Fidelity
made no such argument and we therefore agree with the district court’s
conclusion that this insurance policy should stand.
B. Effect of the “General Provisions” section of the policy on the
Health as Stated Clause
The district court held in the alternative that, even if the Health as Stated
Clause constituted a condition precedent, Fidelity owed Liu the insurance
proceeds because the “General Provisions” section of the policy indicates that all
8
Fidelity argues that we are bound by this court’s decision in Bryant v. Standard Life
& Accident Insurance Co., 348 F.2d 649, 655 (5th Cir. 1965). In Bryant, this court declared
that the clause, “while health, habits and occupation of the Proposed Insured remain as
described in this application,” operated as a good health provision—and thus a condition
precedent. 348 F.2d at 655. However, this statement is mere dictum, because the court’s
holding relied on a different provision of the insurance contract in question. Id. at 657 (“The
fact is, therefore, clearly established that the applications for each of these policies was [sic]
under [a different contractual provision].”). Therefore, Bryant does not bind us on this
question.
8
No. 06-41224
“statements” in the application are representations.9 According to the district
court, if a provision in the application appears to create a condition precedent
and language in the policy indicates that the same provision is a representation,
then there is coverage because Texas law requires courts to resolve all
ambiguities in an insurance contract against the insurer. See Paul, 927 S.W.2d
at 243 (“When the language of an insurance policy is susceptible to more than
one construction, the insurance policy should be construed in favor of the insured
to avoid exclusion of coverage.”). Because we affirm the district court’s primary
holding, we need not address its alternative holding.
III. CONCLUSION
For the reasons stated above, we AFFIRM the judgment of the district
court.
AFFIRMED.
9
Recall that the “General Provisions” section states, “We will rely on all statements
made in an application. Those statements will be considered representations and not
warranties. We will not use any statement in defense of a claim unless that statement is made
in an application which is part of the entire contract.”
9