Question

Facts: In late August 2011, Natasha Hawkins (plaintiff) applied for a second life insurance policy on her 19-year-old son, Khalil Wallace, from Globe Life Insurance Company. After Globe received Ms. Hawkins’s enrollment form and premium payment but before Globe formally approved the policy, Khalil was murdered. Globe refused to pay the policy proceeds, and Ms. Hawkins filed suit.

Judicial Opinion:

SCHNEIDER, Magistrate Judge Globe mailed plaintiff an advertisement for life insurance protection. The materials included these materials:

Pamphlet 1

First-day coverage

No waiting period

Buy direct by mail

Choose $5,000, $10,000, $20,000, $30,000 or $50,000 coverage

$1.00 for $50,000

No medical exam—just answer a few health questions

Pamphlet 2

Start a Life Insurance Policy for Only $1 Letter

No Waiting Period (2x)

Buy Direct by Mail (2x)

$1.00 Starts Up To $50,000 Life Insurance Coverage

Globe gives you life insurance coverage that costs only $1.00 to start!

There’s no medical exam . . . just answer a few Yes/No health questions

You buy directly through the mail

Answer A Few Yes/No Health Questions (2x) Enrollment Form/Application

No waiting period.

$1 Buys Up to $50,000

$1 Buys $50,000—Direct by Mail

You can choose from $5,000, $10,000, $20,000, $30,000 or even $50,000 life insurance coverage

There is no medical exam—just a few Yes/No health questions.

Globe’s enrollment form contains Question 2.b. This question asks whether in the past three years Khalil “had or been treated for . . . drug or alcohol abuse.” Plaintiff was aware her son was previously arrested and charged with multiple drug offenses. Subsequent to one of Khalil’s arrests, plaintiff arranged for Khalil to attend a few counseling sessions with a general therapist. However, plaintiff denied any knowledge of what her son discussed with his therapist. She also denied any knowledge that her son used drugs. Plaintiff testified that despite her son’s troubled past she did not believe he abused drugs. She noted that her son was an athlete and never showed symptoms of drug abuse.

After plaintiff mailed the enrollment form, Khalil was charged on September 2, 2011 with possession of marijuana. Plaintiff learned about this arrest within a few days but did not inform Globe.

Plaintiff’s application was subject to a “Quality Assurance” (QA) follow-up call. Globe attempted to telephone plaintiff 21 times and sent two letters to verify the truth of the statements on her enrollment form.

On September 20, 2011, plaintiff’s son disappeared into a van with unidentified individuals. On September 22, 2011 plaintiff was informed that her son was last seen two days prior and that his cell phone was found in Philadelphia. The same day plaintiff filed a missing persons report with the state police. Despite these events, plaintiff testified she was not concerned for her son’s safety following his disappearance because he would often be away from home for periods of more than two weeks at a time. Additionally, plaintiff testified that when she filed the missing per- sons report the police believed her son had run off to avoid charges from his recent arrest.

On September 28, 2011, plaintiff called Globe to complete the QA. During the call, . . . [t]he Globe representative asked plaintiff whether the proposed insured had a history of drug or alcohol abuse. Plaintiff again denied any knowledge that her son had a history of drug or alcohol abuse or treatment and affirmed that her answers were true to the best of her knowledge.

Following the QA call, Globe formally approved plaintiff’s policy on October 1, 2011. On October 6, 2011, six days after the policy was issued, Khalil Wallace’s body was found. The cause of death was determined to be multiple gunshot wounds inflicted on September 20, 2011, the day Khalil went missing. Plaintiff called Globe to report her son’s death on October 24, 2011 and submitted her claim for payment on February 6, 2012. On February 21, 2012 Globe advised it was investigating the claim. Following an exchange of letters between Globe and plaintiff, on July 6, 2012, Globe advised that it was voiding its policy because plaintiff misrepresented material facts during the application process.

Plaintiff argues the solicitation materials she received from Globe along with the fact that she answered “No” to all of the health-related questions led her to believe that she received interim coverage when Globe received her application materials on September 9, 2011.

Recognizing that the language of insurance con- tracts is often the result of technical semantic constructions and unequal bargaining power, New Jersey courts interpret insurance policies to give effect to the reasonable expectations of an objectively reasonable policyholder. As a result, courts resolve ambiguities in insurance contracts against the insurer.

The Court finds Globe’s promotional documents are ambiguous and should be interpreted to meet the reasonable expectations of an objectively reasonable applicant.

Globe’s pamphlet expressly states that Globe is offering “First-day coverage”. [T]he statement is easily read to indicate that interim coverage begins immediately. Directly underneath “First-day coverage” are the representations that applicants can “Buy direct by mail” with “No waiting period.” These statements read together indicate that an applicant can submit an application by mail and receive immediate interim coverage.

The pamphlet further states that if the applicant’s responses to the application show good health, coverage begins after the application is approved. Here, plaintiff answered “No” to all of the health-related questions in the application. Thus, it was her reason- able belief that since she answered that the insured was in “good health,” interim coverage applied.

The large and bolded font emphasize that plaintiff was reasonable in expecting interim coverage even before her policy was formally approved. The body of Globe’s letter also states that $1.00 “starts” up “coverage”. Although the letter later states in non-bolded text that the policy will be mailed once the application is “approved,” Globe still fails to qualify what that entails. Further, even if a reasonable applicant understood that “approval” included an underwriting process, it does not eliminate the impression that interim coverage exists while the application is processed.

Globe’s letter also states that “Your FULL protection starts the first day your policy is issued. There is no waiting period.” These sentences create ambiguity because Globe states that full protection starts when the policy is issued, but simultaneously promises no waiting period. Thus, the impression is created that policy issuance and coverage is immediate. Globe would have a better argument if instead of its ambiguous language it would have stated, “Your coverage starts only IF your policy is approved by Globe after receipt and review of your completed application”, and if it omitted the promise of “first-day coverage” and “no waiting period.”

Globe’s font sizes and text locations further plain- tiff’s impression that she received interim coverage. Representations concerning immediate coverage such as “$1.00 Starts Up to $50,000 Life Insurance Cover- age” and “No waiting period” appear in bold and large font while the “approval” language, which Globe emphasizes in support of its argument, appears in the authorization in much smaller font.

New Jersey courts “depart from the literal text and interpret [a policy] in accordance with the insured’s understanding, even when that understanding contradicts the insurer’s intent, if the text appears overly technical or contains hidden pitfalls, cannot be under- stood without employing subtle or legalistic distinctions, is obscured by fine print, or requires strenuous study to comprehend.”

Besides the ambiguity in Globe’s solicitation materials there was another good reason for plaintiff to objectively believe she had interim coverage. This belief is supported by considerable New Jersey precedent. . . . “[T]he very acceptance of the premium in advance tends naturally towards the understanding of immediate coverage though it be temporary and terminable.”

Globe received plaintiff’s application materials on September 9, 2011 and deposited the premium check on September 12, 2011. For the reasons described above, this initiated interim coverage on Khalil’s life as of September 9 or 12, 2011. Accordingly, plaintiff had interim coverage when Khalil died on September 20, 2011.

The law draws a distinction between misrepresentations made in response to an insurance company’s objective and subjective questions. If the question is objective, even an innocent misrepresentation can warrant rescission and constitutes equitable fraud. Courts are more lenient when the question is subjective.

The application question at issue: “In the past 3 years, has the Proposed Insured had or been treated for . . . drug or alcohol abuse[?]” Plaintiff answered this question “No.” Globe asserts that because plain- tiff was aware that her son was arrested for drug-related crimes and attended general therapy she should have answered the question in the affirmative. The Court disagrees. The problem with Globe’s argument is that it did not ask the right question. Globe did not ask if Khalil was ever arrested. Nor did it ask if Khalil ever possessed or distributed drugs, or was accused of same. Globe’s question only asks if Khalil had or was treated for drug abuse. Globe has failed to point to any evidence that this occurred. [T]he Court finds that Globe has not satisfied its burden of showing that plaintiff misrepresented any answers on her application.

Relatedly, plaintiff did not have a duty to inform Globe about her son’s September 2, 2011 arrest for marijuana possession. Again, Globe never inquired whether the insured had a criminal history on the insurance application. Additionally, that fact that Khalil’s arrest is not material is evidenced by the fact that Globe did not ask plaintiff any questions during the September 28, 2011 QA call which would have required her to inform Globe about the arrest.

Globe’s motion for summary judgment is denied.

Case Questions:

1. What were the problems with Globe’s marketing materials?

2. Develop a timeline for the events from the time of the policy mailer. Why are Khalil’s arrest and previous counseling not required to be disclosed?

3. Describe how Globe should have asked its questions.

Answer 1

1) The problems with Globe's marketing materials were ambiguity regarding interim coverage as the material clearly stated in different ways in bold lettering specifically highlighted in a way as to draw attention, that a policy was available for $1 and would come into immediate effect upon receipt of the applicants Policy form and premium amount. The onus for avoiding misrepresentation of facts does not lie on the insured but the insurer always as also the responsibility for verification of the veracity and truth of the facts provided by the insured. It is the insurance companies prerogative to frame its application in a way so as to leave minimum scope for misrepresentation of facts by the insured. In this case, the insurance company was clearly more interested in maximising sales at the cost of losing out on due diligence required by it to avoid facing situations such as this.

3) Globe should have had counterchecks in place in the form itself for health questions with more specific questions like has the insured ever been hospitalised, or undergone treatment in any form for the condition, or has he been arrested or been taking any unpresribed over the counter medications. Also, when the insurer is not the person interacting directly or filling the form the insurance company should ensure such applicant has adequate contact with the insured and is in a position to provide correct and reliable information. Again the insurer is responsible for making atleast a single contact with the insured to verify accuracy of data provided to them.

2) The image attached below.