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Agent's Fraudulent Concealment of Terminal Illness Resulted in Rescission of Policy Insuring His Brother

ReliaStar Life Ins. Co. v. Laschkewitsch, 2014 WL 2211033 (E.D.N.C. May 28, 2014)


ERISA and Life Insurance News
(August 29, 2014)

Laschkewitsch, an insurance agent, submitted to ReliaStar the application of his brother Ben for life insurance. The policy was issued in February 2010, with Laschkewitsch as the beneficiary. Ben died in January 2012.

ReliaStar denied Laschkewitsch’s claim for the death benefit, based on misrepresentations in the application, and filed a declaratory judgment action. The federal district court declared the policy void and granted summary judgment to ReliaStar on its claims of breach of the producer contract and fraud, ordering Laschkewitsch to repay his commission.

The court found that Laschkewitsch had contrived to acquire $3.9 million in life insurance on the life of his brother, who was terminally ill with ALS. Laschkewitsch helped his brother apply for the policy and made material misrepresentations to ReliaStar about his brother’s health and the amount of life insurance in force or applied for with other companies.

The evidence showed that Ben had been diagnosed with ALS and frontotemporal dementia in August 2009; in September 2009, Ben disclosed his diagnosis to another insurer, which declined his application for insurance; in October 2009, Ben was terminated from his job because of his inability to perform as a result of ALS; and in January 2010, VA records showed that Ben’s health had declined significantly.

Despite this, Ben answered “no” to questions on the application, including, “[h]ave you within the last 5 years had any mental or physical disorder....?” Ben also misrepresented the total amount of life insurance in force, and that he had been denied coverage by another insurer. ReliaStar showed that it would not have issued the policy if Ben had disclosed his illness, his other coverage, and his pending life insurance application to another company.

The court rejected Laschkewitsch’s argument that ReliaStar waived its objections to the application deficiencies, because waiver requires “knowledge” of false facts and “conduct inconsistent with an intent to enforce the condition.” While an insurer is under no duty to question the truth of an applicant’s statements, it may learn of facts “sufficient to put it on inquiry,” requiring an “investigation to determine the truth or falsity thereof.” ReliaStar, on several occasions, was placed on inquiry notice of fraud, but each time Laschkewitsch sufficiently covered his tracks to stop the inquiry. The court said that ReliaStar was under “no obligation to dig deeper in order to avoid waiver.”

Next, Laschkewitsch argued that the policy was not contestable. The policy stated: “After your policy has been in force during the lifetime of the Insured for two years from the Issue Date, we will not contest its validity….” Laschkewitsch argued that ReliaStar’s suit could not be maintained more than two years after the policy was issued. The court rejected this argument because the “policy was not in force for two years during the lifetime of the insured.”

Laschkewitsch also argued that ReliaStar was unjustly enriched by receiving premiums and then refusing to pay the claim. The court rejected this argument because all premiums were reimbursed. Finally, Laschkewitsch argued that ReliaStar was estopped from challenging the policy because it retained premiums after Ben died. However, like the unjust enrichment argument, the evidence showed that all premiums were reimbursed.

In ruling on ReliaStar’s breach of contract and fraud claims, the court found that Laschkewitsch breached his producer contract by not disclosing facts that were pertinent to Ben’s insurability. As to the fraud claim, the court found that Laschkewitsch had actual awareness of Ben’s ALS, and thus he made material and intentional misrepresentations on which ReliaStar relied.

Click here to view the full August 2014 Edition of the ERISA and Life Insurance News.

Authors
H. Sanders Carter
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Kenton J. Coppage
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Mary B. Ramsay
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Jennifer Noland Rathman
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F (404) 962-1213
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