MEMORANDUM OPINION AND ORDER
GUZMAN, District Judge.
Pending is plaintiff Royal Maccabees Life Insurance Company's ("Royal Maccabees") motion for summary judgment and defendant Leon Malachinski's cross-motion. For the reasons set forth below, the Court grants Royal Maccabees' motion and denies Malachinski's cross-motion.
Royal Maccabees is a life insurance company. Malachinski applied for and was issued a disability insurance policy by Royal Maccabees.
On January 10, 1991, Malachinski met with Irwin Cohen in response to a direct mail solicitation he received from Cohen which invited him to set up a consultation with him to discuss his insurance needs. Cohen specialized in the sale of disability insurance for medical and dental professionals. He was licensed to sell insurance for several different companies and served
On the application for disability insurance, question 19(a) specifically asks the applicant for information regarding "insurance in force, applied for or applying to reinstate." In response, the application only listed Malachinski's insurance policy with Provident Life Insurance Company for $4,200 per month. No other company was listed in response to this question. After the application was completed by Cohen, Malachinski reviewed and signed it.
Based on the representations supplied in the application, Royal Maccabees issued to Malachinski a policy of disability insurance with a monthly disability benefit of $1,800. This disability policy contained a provision that allowed Malachinski the option to increase his monthly disability benefits by $1,000 after having the policy for a specified period of time. On or about March 12, 1992, Malachinski exercised that option and increased his monthly benefit amount. On that date, Malachinski submitted a renewal application for disability insurance. Again, the application requested information in section 19(a) with respect to "insurance in force, applied for or applying to reinstate." The response written on the application again listed Malachinski's insurance policy with Provident and with Royal Maccabees. No other insurance company was listed.
On March 1, 1995, Malachinski filed a claim of disability. Royal Maccabees approved the claim and remitted to Malachinski the amount of $12,712 for his disability benefits for the period of March 10, 1995 through July 10, 1995. Subsequent to Malachinski's first claim for disability benefits, he filed additional claims for disability benefits and in response thereto, Royal Maccabees remitted to Malachinski additional disability payments on the policy up to and including the period from July 10, 1995 through June 10, 1996 in the total amount of $38,136.
At some point after distributing these monies, Royal Maccabees discovered that at the time Malachinski submitted his January 10, 1991 and March 12, 1992 application to Royal Maccabees, he also had in force group disability insurance coverage with Union Mutual Life Insurance Company ("Union Mutual") in the amount of $6,250 per month. However, in reviewing both applications, Royal Maccabees found no written reference to the Union Mutual policy in question 19(a) or anywhere else. Further investigation by Royal Maccabees also revealed that Malachinski's policy with Union Mutual was in effect during the period of March 10, 1995 through June 10, 1996 when the defendant was accruing benefits from Royal Maccabees.
Shortly after this discovery, Royal Maccabees terminated their policy with Malachinski and filed this suit. In their two-count complaint, plaintiff alleges that Malachinski made material misrepresentions on his January 10, 1991 application and that because Royal Maccabees relied on those misrepresentations, they should be allowed to now rescind the contract and recoup the disability payments it provided to him.
Summary judgment is appropriate if the pleadings, answers to interrogatories, admissions, affidavits and other materials show "that there is no genuine issue as to
I. Cohen's Relationship to Malachinski
Malachinski opines that Royal Maccabees "waived" its right to rescind the insurance contract because he told his insurance man, Irwin Cohen, about his other disability coverage with Union Mutual group
"Although the question whether an insurance broker is the agent of the insured or the insurer is generally one of fact, when the evidence clearly shows that the broker is the agent of the insured, it becomes a matter of law." Lazzara v. Howard A. Esser, Inc., 802 F.2d 260, 264 (7th Cir.1986). Illinois courts have defined an insurance broker as:
Galiher v. Spates, 129 Ill.App.2d 204, 262 N.E.2d 626, 628 (4th Dist.1970); see, e.g., City of Chicago v. Barnett, 404 Ill. 136, 88 N.E.2d 477, 481 (1949). An insurance agent, on the other hand, has an exclusive, fixed, and permanent relationship to an insurance company that the agent represents and has certain duties and allegiances to that company. See Roby v. Decatur Steel Erectors, Inc., 59 Ill.App.3d 720, 17 Ill.Dec. 71, 375 N.E.2d 1355, 1359 (4th Dist.1978); Galiher, 262 N.E.2d at 628.
Under Illinois law, the knowledge of an insurance "broker" generally cannot be imputed to the insurance company. Economy Fire & Cas. Co. v. Bassett, 170 Ill.App.3d 765, 121 Ill.Dec. 481, 525 N.E.2d 539, 542 (5th Dist.1988). Whether a person is an agent or a broker is determined by his or her acts in a particular transaction. See Barnett, 88 N.E.2d at 481; Galiher, 262 N.E.2d at 628. Illinois
Based on these criteria, the undisputed facts clearly show that Cohen was an insurance broker whose knowledge, if any, as to Malachinski's existing disability coverage with another insurance company is not attributable to Royal Maccabees. In his deposition, Cohen testified that he was an independent insurance broker with no exclusive relationship with any insurance company, including Royal Maccabees. Additionally, it was Malachinski who initiated his contact with Cohen after requesting a meeting with him in response to Cohen's general solicitation mail advertisement. Further, Malachinski controlled Cohen's actions at all times regarding his request for disability coverage through Maccabees. Indeed, Cohen testified that he represented Malachinski and worked in his interest to obtain the most suitable and affordable life insurance policy to fit his client's needs. Cohen testified that he recommended Royal Maccabees insurance but it was Malachinski who ultimately adopted his recommendation and ordered him to place the request with the plaintiff on his behalf. Further, it should be noted that Cohen had no obligation to recommend any particular insurer, as he did regular business with several dozen companies, including Royal Maccabees, and had no fixed or permanent relationship with any company. Lastly, in his role as an intermediary between the defendant and Royal Maccabees, Cohen represented Malachinski's interests. As previously stated, the evidence indicates that Cohen did not work exclusively for Royal Maccabees or any other insurance company. Rather, he was an independent businessman who was free to contract with any insurance company with whom he was licensed to do business. As such, his duty was to Malachinski who hired him to obtain the appropriate disability insurance that would meet his particular needs. Thus, the Court holds as a matter of law that Cohen clearly acted as an insurance broker between Malachinski and Royal Maccabees.
Furthermore, plaintiff has failed to present, and the Court does not find, any evidence that Cohen's conduct with Malachinski during the application process demonstrated his implied authority to bind the insurance company. "Implied authority" is defined as "actual authority circumstantially proved" and is regarded as authority implied by the facts and circumstances. Indemnity Ins. Co. v. Midwest Transfer Co., 184 F.2d 633, 636 (7th Cir.1950).
In this case, the undisputed facts and circumstances surrounding the application process establish that Cohen did not have implied authority to act as Royal Maccabees' agent. As stated above, in Cohen's sworn deposition, he testified he was an independent insurance broker with no exclusive relationship with any insurance company. His testimony is supported by his office letterhead on which he conducted official business and which states "Irwin Cohen & Associates,
II. Rescission of Contract Based on Misrepresentation
Royal Maccabees has also moved for summary judgment arguing that it is entitled to rescind the insurance contract. Specifically, Royal Maccabees argues that Mr. Malachinski materially misrepresented his disability insurance in force at the time he submitted his application to Royal Maccabees. Moreover, Royal Maccabees contends it would not have issued the insurance had it known the defendant had coverage with another policy. Because the Court concludes that there is no genuine issue as to a material fact regarding rescission, the Court grants plaintiff's motion.
Rescinding an insurance contract is a complete defense to an action on the policy. Bageanis v. American Bankers Life Assurance Co. of Fla., 783 F.Supp. 1141, 1144 (N.D.Ill.1992). The Illinois Insurance Code limits the insurer's ability to avoid or defeat an insurance policy because of an insured's misrepresentation. Commercial Life Ins. Co. v. Lone Star Life Ins. Co., 727 F.Supp. 467, 470 (N.D.Ill. 1989). Section 154 of the Illinois Insurance Code states in part:
215 ILL. COMP. STAT. 5/154 (West 2000).
Because Malachinski's intent is shrouded in issues of fact, the Court will only consider whether the omission regarding the defendant's disability coverage with Union Mutual Company was a material misrepresentation. "Materiality" is determined by asking whether a reasonably careful and intelligent person would have regarded the omitted facts as substantially increasing the chances of the events insured against so as to cause a rejection of the application or different conditions, such as higher premiums. Weinstein v. Metropolitan Life Ins. Co., 389 Ill. 571, 60 N.E.2d 207, 210 (1945); Garde, 101 Ill.Dec. 120, 498 N.E.2d at 308. The failure to disclose material information or provide complete information in response to a question can constitute a material misrepresentation. Cohen v. Washington Nat'l Ins. Co., 175 Ill.App.3d 517, 124 Ill.Dec. 948, 529 N.E.2d 1065, 1067 (1st Dist.1988); Garde, 101 Ill.Dec. 120, 498 N.E.2d at 308. That is because an applicant has a duty to act in good faith toward an insurer by making a full and complete disclosure of all relevant information when completing an
It is uncontroverted that Malachinski failed to disclose that he had disability coverage in force with Union Mutual Company at the time he submitted his request with Royal Maccabees. Question 19(a) of the January 10, 1991 application asked in plain and simple terms whether the applicant had "insurance in force, applied for or applying to reinstate." The answer provided stated that the applicant had insurance coverage with Provident insurance company for a specified amount. There is no mention of his coverage with Union Mutual Company anywhere in this answer section or anywhere else in the application. Malachinski alleges that he orally conveyed this information to Cohen who then failed to note such information on the actual application which he signed. However, whether Malachinski did or did not disclose this fact to Cohen is irrelevant as to the issue of whether Royal Maccabees is entitled to rescission because, as discussed above, Cohen's knowledge may not be imputed to Royal Maccabees.
Furthermore, Malachinski's misrepresentation was material as a matter of law. Ordinarily, the materiality of a misrepresentation is a question of fact. Mooney v. Underwriters at Lloyd's, London, 33 Ill.2d 566, 213 N.E.2d 283, 285 (1965). However, where the misrepresentation is of such a nature that all would agree that it is or is not material, the question is appropriate for summary judgment. Hatch v. Woodmen Accident & Life Co., 88 Ill.App.3d 36, 42 Ill.Dec. 925, 409 N.E.2d 540, 544 (2d Dist.1980).
There is no question that Royal Maccabees would have reached an alternative assessment of the risk of underwriting the Malachinski policy had it known of his disability insurance policies with another company. It is well-established that an insurer has the right to inquire whether its applicants have insurance with another company. Garde, 101 Ill.Dec. 120, 498 N.E.2d at 308. The significance of a misstatement about other insurance may be influenced by the amount of undisclosed insurance, particularly when a policy limits the extent of recovery when there are other insurance policies already in existence. Id. Therefore, courts consider such information as vital to the preliminary investigation of the proposed insured and may be considered as material as a matter of law. Id.
Malachinski maintains that there is insufficient evidence to establish that non-disclosure of the Union Mutual policy was a material misrepresentation. The defendant claims that Royal Maccabees does not point to a specific company rule which directs it not to insure under these circumstances. The Court disagrees.
It is well-established that materiality may be established by the testimony of the insurer's underwriter. Alperin v. National Home Life Assurance Co., 32 Ill.App.3d 261, 336 N.E.2d 365, 367 (1st Dist.1975). Moreover, courts have recognized
It is undisputed that John McLeod, an underwriter for Royal Maccabees,
As such, there is no question that Royal Maccabees would have reached an alternative assessment of the risk of underwriting the Malachinski policy had it known of policies in force with Union Mutual Company. The existence of his other policies combined with his total income would have made him ineligible for disability coverage with Royal Maccabees. Knowledge of those policies would undoubtedly have resulted in a rejection of his application. As such, the Court finds that reasonable minds could not differ about the materiality of the misrepresentation in this case.
Additionally, Royal Maccabees contends that because Malachinski misrepresented the existence of other insurance on his application, Royal Maccabees may now void the insurance policy it issued to him. Illinois courts have found that the effect of a misrepresentation about the existence of other insurance is a material misrepresentation which will void an insurance policy. See Garde v. Inter-Ocean Ins. Co., 842 F.2d 175, 177 (7th Cir.1988).
In Garde v. Inter-Ocean Ins. Co., an applicant submitted an application for and was issued a conditional receipt for a life insurance policy with an insurance company. Id. at 176. Several weeks after obtaining a receipt for the policy, the applicant drowned and his named beneficiaries began the process of collecting on his policy. Id. However, one month after his death, the insurance company discovered that the applicant had obtained for or applied for some twenty other life insurance policies totaling in excess of $1.5 million from at least seventeen other companies. Id. Following receipt of this information, the insurance company denied coverage
The Seventh Circuit agreed and allowed the insurer to rescind the contract. Id. at 178. In reaching its decision, the court reasoned that an insurer has a right to inquire whether its applicants have insurance with another company because such information may be vital to the preliminary investigation of the proposed insured. Id. at 177. By withholding this coverage information, the court held the defendant prevented the insurance company from assessing the risk on the basis of the facts as they existed. Id. As such, the court found the misrepresentation to be material and allowed the insurer to rescind the contract. Id. at 178.
Similar to facts in Garde, in the instant case, Malachinski failed to disclose that he had a disability insurance policy with Union Mutual which provided him with a monthly benefit of $6,250 per month. As discussed above, it is clear that the existence of other insurance, if known, would have affected Royal Maccabees assessment of the risk involved in underwriting Malachinski's disability insurance policy. It was, therefore, a material misrepresentation. Moreover, the undisputed evidence indicates that had plaintiff known of defendant's other insurance, it is unlikely that Malachinski would have been eligible for disability payments totaling more than $50,000, which he ultimately received prior to Royal Maccabees' discovery that he failed to disclose his policy with Union Mutual at the time he applied for coverage with Royal Maccabees. Therefore, the Court finds the undisputed facts show that the policy is void based on Malachinski's material misrepresentation on his Royal Maccabees application.
Royal Maccabees apparently seeks damages for the total disability benefits it paid out to Malachinski and the interest incurred on those monies. However, Royal Maccabees did not address the issue of damages in its legal memoranda and Malachinski therefore had no opportunity to respond to that issue. The Court, therefore, reserves its ruling on damages until the matter is briefed and affidavits are submitted as to the amount in controversy. Royal Maccabees' memorandum and affidavits in support of damages are due fourteen days after the date of this opinion. Malachinski's response memorandum and affidavits are due fourteen days after plaintiff's memorandum/affidavits in support are due. Plaintiff's reply is due seven days after defendant's response.
For the above reasons, the Court grants plaintiff's motion for summary judgment [docket no. 121-1] and denies defendant's cross-motion for summary judgment [docket no. 129-1]. The Court reserves its ruling on damages until the matter is briefed and affidavits are submitted as to the amount in controversy. Royal Maccabees' memorandum/affidavits in support of damages are due fourteen days after the date of this opinion. Malachinski's response memorandum/affidavits are due fourteen days after plaintiff's memorandum in support is due. Plaintiff's reply is due seven days after defendant's response.