Facts: In late August 2011, Natasha Hawkins (plaintiff) appliedfor a second life insurance policy on her 19-year-old son, KhalilWallace, from Globe Life Insurance Company. After Globe receivedMs. Hawkins’s enrollment form and premium payment but before Globeformally approved the policy, Khalil was murdered. Globe refused topay the policy proceeds, and Ms. Hawkins filed suit.
Judicial Opinion:
SCHNEIDER, Magistrate Judge Globe mailed plaintiff anadvertisement for life insurance protection. The materials includedthese 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 tostart!
There’s no medical exam . . . just answer a few Yes/No healthquestions
You buy directly through the mail
Answer A Few Yes/No Health Questions (2x) EnrollmentForm/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 questionasks whether in the past three years Khalil “had or been treatedfor . . . drug or alcohol abuse.” Plaintiff was aware her son waspreviously arrested and charged with multiple drug offenses.Subsequent to one of Khalil’s arrests, plaintiff arranged forKhalil to attend a few counseling sessions with a generaltherapist. However, plaintiff denied any knowledge of what her sondiscussed with his therapist. She also denied any knowledge thather son used drugs. Plaintiff testified that despite her son’stroubled past she did not believe he abused drugs. She noted thather son was an athlete and never showed symptoms of drug abuse.
After plaintiff mailed the enrollment form, Khalil was chargedon September 2, 2011 with possession of marijuana. Plaintifflearned about this arrest within a few days but did not informGlobe.
Plaintiff’s application was subject to a “Quality Assurance”(QA) follow-up call. Globe attempted to telephone plaintiff 21times and sent two letters to verify the truth of the statements onher enrollment form.
On September 20, 2011, plaintiff’s son disappeared into a vanwith unidentified individuals. On September 22, 2011 plaintiff wasinformed that her son was last seen two days prior and that hiscell phone was found in Philadelphia. The same day plaintiff fileda missing persons report with the state police. Despite theseevents, plaintiff testified she was not concerned for her son’ssafety following his disappearance because he would often be awayfrom home for periods of more than two weeks at a time.Additionally, plaintiff testified that when she filed the missingper- sons report the police believed her son had run off to avoidcharges from his recent arrest.
On September 28, 2011, plaintiff called Globe to complete theQA. During the call, . . . [t]he Globe representative askedplaintiff whether the proposed insured had a history of drug oralcohol abuse. Plaintiff again denied any knowledge that her sonhad a history of drug or alcohol abuse or treatment and affirmedthat her answers were true to the best of her knowledge.
Following the QA call, Globe formally approved plaintiff’spolicy on October 1, 2011. On October 6, 2011, six days after thepolicy was issued, Khalil Wallace’s body was found. The cause ofdeath was determined to be multiple gunshot wounds inflicted onSeptember 20, 2011, the day Khalil went missing. Plaintiff calledGlobe to report her son’s death on October 24, 2011 and submittedher claim for payment on February 6, 2012. On February 21, 2012Globe advised it was investigating the claim. Following an exchangeof letters between Globe and plaintiff, on July 6, 2012, Globeadvised that it was voiding its policy because plaintiffmisrepresented material facts during the application process.
Plaintiff argues the solicitation materials she received fromGlobe along with the fact that she answered “No” to all of thehealth-related questions led her to believe that she receivedinterim coverage when Globe received her application materials onSeptember 9, 2011.
Recognizing that the language of insurance con- tracts is oftenthe result of technical semantic constructions and unequalbargaining power, New Jersey courts interpret insurance policies togive effect to the reasonable expectations of an objectivelyreasonable policyholder. As a result, courts resolve ambiguities ininsurance contracts against the insurer.
The Court finds Globe’s promotional documents are ambiguous andshould be interpreted to meet the reasonable expectations of anobjectively reasonable applicant.
Globe’s pamphlet expressly states that Globe is offering“First-day coverage”. [T]he statement is easily read to indicatethat interim coverage begins immediately. Directly underneath“First-day coverage” are the representations that applicants can“Buy direct by mail” with “No waiting period.” These statementsread together indicate that an applicant can submit an applicationby mail and receive immediate interim coverage.
The pamphlet further states that if the applicant’s responses tothe application show good health, coverage begins after theapplication is approved. Here, plaintiff answered “No” to all ofthe health-related questions in the application. Thus, it was herreason- able belief that since she answered that the insured was in“good health,” interim coverage applied.
The large and bolded font emphasize that plaintiff wasreasonable in expecting interim coverage even before her policy wasformally approved. The body of Globe’s letter also states that$1.00 “starts” up “coverage”. Although the letter later states innon-bolded text that the policy will be mailed once the applicationis “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 theimpression that interim coverage exists while the application isprocessed.
Globe’s letter also states that “Your FULL protection starts thefirst day your policy is issued. There is no waiting period.” Thesesentences create ambiguity because Globe states that fullprotection starts when the policy is issued, but simultaneouslypromises no waiting period. Thus, the impression is created thatpolicy issuance and coverage is immediate. Globe would have abetter argument if instead of its ambiguous language it would havestated, “Your coverage starts only IF your policy is approved byGlobe after receipt and review of your completed application”, andif it omitted the promise of “first-day coverage” and “no waitingperiod.”
Globe’s font sizes and text locations further plain- tiff’simpression that she received interim coverage. Representationsconcerning immediate coverage such as “$1.00 Starts Up to $50,000Life Insurance Cover- age” and “No waiting period” appear in boldand large font while the “approval” language, which Globeemphasizes in support of its argument, appears in the authorizationin much smaller font.
New Jersey courts “depart from the literal text and interpret [apolicy] in accordance with the insured’s understanding, even whenthat understanding contradicts the insurer’s intent, if the textappears overly technical or contains hidden pitfalls, cannot beunder- stood without employing subtle or legalistic distinctions,is obscured by fine print, or requires strenuous study tocomprehend.”
Besides the ambiguity in Globe’s solicitation materials therewas another good reason for plaintiff to objectively believe shehad interim coverage. This belief is supported by considerable NewJersey precedent. . . . “[T]he very acceptance of the premium inadvance tends naturally towards the understanding of immediatecoverage 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 thereasons described above, this initiated interim coverage onKhalil’s life as of September 9 or 12, 2011. Accordingly, plaintiffhad interim coverage when Khalil died on September 20, 2011.
The law draws a distinction between misrepresentations made inresponse to an insurance company’s objective and subjectivequestions. If the question is objective, even an innocentmisrepresentation can warrant rescission and constitutes equitablefraud. Courts are more lenient when the question is subjective.
The application question at issue: “In the past 3 years, has theProposed Insured had or been treated for . . . drug or alcoholabuse[?]” Plaintiff answered this question “No.” Globe asserts thatbecause plain- tiff was aware that her son was arrested fordrug-related crimes and attended general therapy she should haveanswered the question in the affirmative. The Court disagrees. Theproblem with Globe’s argument is that it did not ask the rightquestion. Globe did not ask if Khalil was ever arrested. Nor did itask if Khalil ever possessed or distributed drugs, or was accusedof same. Globe’s question only asks if Khalil had or was treatedfor drug abuse. Globe has failed to point to any evidence that thisoccurred. [T]he Court finds that Globe has not satisfied its burdenof showing that plaintiff misrepresented any answers on herapplication.
Relatedly, plaintiff did not have a duty to inform Globe abouther son’s September 2, 2011 arrest for marijuana possession. Again,Globe never inquired whether the insured had a criminal history onthe insurance application. Additionally, that fact that Khalil’sarrest is not material is evidenced by the fact that Globe did notask plaintiff any questions during the September 28, 2011 QA callwhich 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 marketingmaterials?
2. Develop a timeline for the events from the time ofthe policy mailer. Why are Khalil’s arrest and previous counselingnot required to be disclosed?
3. Describe how Globe should have asked itsquestions.
