Insurer claims policyholder failed to disclose medical conditions, rescinds policy: Breach of contract: Postverdict settlement

Law Reporter, May 2003

Wells v. Baltimore Life Ins. Co., Cal., San Diego County Super. Ct., No. GIN015035, Feb. 4, 2003.

Wells and her husband sought a second mortgage on their home. A sales agent for Baltimore Life Insurance offered them "mortgage protection" in the form of credit life insurance. The application for the life insurance included a questionnaire on the applicants' medical condition. The sales agent read the questions to them and recorded their responses. In response to a question about diseases or disorders of the digestive system, they informed the agent that Wells's husband suffered from "heartburn." The sales agent answered the query in the negative. The insurer approved issuance of the policy, and Wells and her husband purchased it.

A few months later, Wells's husband died from complications arising from elective surgery for a peptic ulcer. Wells submitted a claim under the policy. The insurer denied the claim, contending that her husband had materially misrepresented his health history by failing to disclose his condition when he applied for the policy. The insurer then rescinded the policy, claiming that if it had known her husband's true medical condition, it would not have issued it. Wells suffered lost benefits and emotional distress.

Wells sued the insurer, alleging breach of contract and breach of the implied covenant of good faith and fair dealing. The court granted defendant's motion to trifurcate the trial.

In the first phase of the trial, the jury unanimously found that plaintiff had not engaged in material misrepresentations on the insurance application. In the second phase, the jury unanimously found that defendant had breached the covenant of good faith and fair dealing, and awarded plaintiff $500,000 for emotional distress. The jury also unanimously found that defendant had acted with malice, fraud or oppression.

Before commencement of the third phase of the trial, on the amount of punitive damages to be awarded, the parties settled for $5.5 million.

Plaintiff's experts were Don Kelley, insurance practices, Ventura, Cal., and Michael Humphrey, medicine, Oceanside, Cal. Defendant's experts were Burt Burnstein, insurance practices, Goleta, Cal., and Mark Kalish, medicine, San Diego, Cal.

Plaintiff's Counsel

*Harvey R. Levine, San Diego, Cal.

*Jeffrey A. Bloom, San Diego, Cal.

Jacques J. Kirch, Escondido, Cal.