This week the Ninth Circuit affirmed a grant of summary judgment in favor of USAA Life Insurance Company, holding that the insurer was entitled to rescind the policy under California law when it discovered that its insured had made material misrepresentations about his medical history when he applied for the policy. Salkin v. USAA Life Ins. Co., 2013 WL 5879504 (9th Cir. Nov. 4, 2013) (mem. op., unpublished). Margaret Levy and Joanna McCallum of Manatt represented USAA Life. Appellants were represented by William Shernoff and Travis Corby of Shernoff Bidart Echeverria Bentley LLP and Julia Follansbee.
When Dr. Salkin applied for the policy by phone, he was asked numerous questions about his medical history. He indicated only that he had a certain heart condition and was treating himself for high blood pressure. He repeatedly stated that he had seen no doctors and that there were no medical records. Based on his representations, USAA Life issued him a policy at a “rated” premium due to the heart condition.
Later, when Dr. Salkin was diagnosed with terminal prostate cancer and made a claim for accelerated benefits, USAA Life was provided with a list of his current doctors—which led to the discovery that he had made numerous material misrepresentations in his application. For example, he had failed to disclose numerous doctor visits and several diagnostic tests, including an MRI of his brain. It was clear from the newly discovered information that Dr. Salkin had not been truthful when he told USAA Life that he had seen no doctors and had no medical records. USAA Life determined that the misrepresentations concealed material conditions and that it would not have issued the policy had it known his actual medical history. So it rescinded the policy.
Dr. Salkin and his wife sued, alleging that he had not made material misrepresentations and that the rescission was unjustified. The district court granted summary judgment for USAA Life. It excluded evidence of Dr. Salkin’s medical records that were obtained by USAA Life during its claims investigation because the records had not been authenticated by the custodians of records of the various medical providers. But the court nonetheless concluded that the application and Dr. Salkin’s own deposition testimony contained sufficient evidence of material misrepresentations to entitle USAA Life to summary judgment as a matter of law.
On appeal to the Ninth Circuit, Dr. Salkin raised several novel theories. He argued that in the application process, USAA Life had obtained material medical information that should have caused it not to issue the policy in the first place. Dr. and Mrs. Salkin claimed that because USAA Life essentially considered certain disclosed conditions immaterial, it was precluded from later claiming that other undisclosed conditions were material. As the Ninth Circuit recognized, however, materiality under California law is a subjective standard. As Judge Reinhardt wrote in a brief concurrence, USAA Life’s underwriter had testified that the misrepresentations were material, and Dr. Salkin had offered no evidence to the contrary.
The Ninth Circuit also rejected appellants’ argument that Dr. Salkin had not made material misrepresentations at all. It noted that he was asked specific medical questions and “[h]e responded with misrepresentations that USAA [Life] considered to be material. Moreover, given that he was a physician himself, there is no concern about Dr. Salkin’s ability to comprehend questions containing basic medical terminology, let alone those questions that require no particular expertise to understand.”
In addition, the court declined Dr. Salkin’s attempt to extend the statutory prohibition on postclaims underwriting to the context of life insurance. Recognizing that, by statute, postclaims underwriting applies only to health and disability policies, “the court declines appellants’ invitation to expand California law based on public policy considerations.”
The Salkin decision reaffirms California law that misrepresentations—whether intentional or unintentional—will support rescission of a life insurance policy, and that materiality is a subjective standard to be determined from the point of view of the insurer.