Reisen v. Blue Cross Blue Shield

EDMONDS, J. In this action to recover benefits under a health insurance policy, plaintiff appeals from a judgment on a directed verdict for defendant insurer. ORCP 60. Plaintiff contends that the materiality of plaintiffs decedent’s representations in his insurance application was a question of fact for the jury. A directed verdict is proper only if reasonable people could draw but one conclusion from the evidence. James v. Carnation Co., 278 Or 65, 69, 562 P2d 1192 (1977). In reviewing the directed verdict, we view the evidence in the light most favorable to the non-moving party as to whether the representations were material. City of Rogue River v. DeBoer, 288 Or 485, 488, 605 P2d 697 (1980). We affirm. In June, 1989, decedent applied for, and was issued, a health insurance policy by defendant. The application provided that, if it contained material or fraudulent misstatements or omissions, defendant was entitled to rescind the contract. In response to specific questions on his application, decedent said that he had not had any medical conditions or treatments and had not taken any medication in the past five years.1 After decedent became ill in the summer and fall of 1989, he sought benefits under defendant’s policy. Defendant reviewed hospital records and rescinded the policy. At trial, defendant offered evidence that decedent had failed to disclose: (1) A1984 auto accident, within the 5 year period, resulting in a back injury for which decedent received medical [399] treatment and physical therapy, including 18 physician visits and 14 physical therapy treatments. (2) Emergency and follow-up treatment for herpes zoster in 1985. (3) Treatment in 1985 to remove a growth on his face. (4) Emergency treatment in 1986 for an accident that injured his hand and back and chiropractic treatments for the back injury. (5) Treatment and medication in January, 1989, for what decedent described as a dandruff problem, which was diagnosed as seborrheic dermatitis. (6) Treatment and medication in January, 1989, for an oral yeast infection known as mondial glossitis. (7) A hospital record dated September 31, 1989, showing that decedent had said that he had had a questionable positive HIV test in January, 1989. (8) A hospital record dated September 31, 1989, showing that decedent had said that he had had a chronic cough since January, 1989. Decedent’s evidence indicated that the first six conditions were minor and that he had fully recovered from them and had experienced no recurring problems. He testified that, in July, 1989, he had received two emergency treatments and one follow-up visit for a cough that he had had for approximately one month. He was diagnosed as having bronchitis. In late August, 1989, he became very ill and was treated for pneumonia, but the treatment was unsuccessful. He became concerned that he was suffering from AIDS-related pneumonia. In September, 1989, he went to a Portland hospital and told a doctor that he had had a questionable positive HIV test. He testified that he gave the report about the HIV test, which was false, because his friends had advised him that he needed immediate therapy and testing would require too much delay. A medical report from that hospital says that decedent said that he had been tested for HIV in January, 1989, and had had a chronic cough since January, 1989. [400] The failure to disclose information to an insurer by a prospective insured may prevent recovery of insurance benefits if the information was “material.” ORS 742.013(1).2 The issue is whether decedent’s representations in his application for insurance were material, as a matter of law, to acceptance of the risk by defendant. Plaintiff argues that decedent’s AIDS condition had not been treated or diagnosed and there were no “direct symptoms” of AIDS before he applied for insurance. Plaintiff says that, “ [although [decedent] had some past medical problems, unrelated to AIDS, that were omitted from the application, the materiality of those omissions is a question of fact [for the jury].” Relying on Knight v. Continental Casualty, 259 Or 46, 485 P2d 403 (1971), defendant argues that decedent’s misrepresentations were material as a matter of law.3 If decedent had disclosed the omitted information, defendant argues that it would not have insured him or would have issued a more restrictive policy. In Knight, the defendant insurer refused to pay the plaintiff benefits under its policy for an injury to her back because of her misrepresentations on the insurance application. The application asked whether the plaintiff had ever been treated medically for any ulcer of the [401] stomach or intestines, whether she had had any medical treatment in the last five years and whether she had suffered from any other physical impairment. The plaintiff answered, “No.” The evidence showed that she had been treated by a doctor for an ulcerous condition for about six months during the pertinent time. The court noted the testimony of the defendant’s underwriter, who said that any disorder of the stomach or the duodenum would have resulted in qualifying endorsements to the policy. It held: “We are of the opinion that the evidence in the present case requires a ruling that the answers were material as a matter of law. It is common knowledge that an insurance company will not issue a policy of insurance or will issue only a qualified policy if the company knows that the applicant has certain serious symptoms relevant to the type of coverage offered under the policy. * * * Some of the variations [in the degree of the seriousness of the applicant’s affliction] will be such that the court, drawing upon its knowledge of business practice, would be entitled to rule as a matter of law that the failure to reveal information in response to the question in the application is or is not material. When the court does not have such knowledge, the insurer must adduce evidence to establish the fact and the claimant may rebut it with other evidence. “In the present case [the insurer] presented evidence on the issue of materiality, but plaintiff did not. The question is whether, under these circumstances, the issue of materiality should be submitted to the jury. We hold that it is not a jury question in this case. CC* * * * * “And the misrepresentation was material even though it did not relate to the injury for which the claim is made in this case. * * * If plaintiff had digestive difficulties and they were disclosed by her response to the questions in the application, defendant would have issued the policy only with qualifying endorsements thus protecting itself against the risk of loss resulting from plaintiffs digestive problems. If plaintiff misrepresented her condition, defendant would be subjected to the risk that the misrepresentátion might go undetected and claims relating to plaintiffs digestive tract might be paid.” 259 Or at 50. (Citation omitted; emphasis supplied.) [402] Under ORS 742.013(1) and Knight, a misrepresentation can be material, even if it is not related to the condition for which a claim is made. 259 Or at 51. Even if disclosure of the ulcer would have resulted only in a qualifying endorsement, that nondisclosure was material to the insurer’s acceptance of the risk and the insurer was entitled to deny benefits for the plaintiffs back injury. We turn to the evidence in this case in the light of the holding in Knight. Plaintiff argues that, because another insurer in California had insured him in 1988 without restriction, that evidence creates an issue of fact as to whether defendant would have insured him in June, 1989. The issue is whether defendant would have insured decedent at the time he applied, not whether defendant would have insured him in 1988. Regarding decedent’s back condition, it is uncontroverted that decedent did not report to defendant that he had been treated for previous back injuries in 1984 and 1986. When defendant’s underwriter was asked what she would have done if decedent had disclosed those treatments, she said, “I would have had to exclude the back condition.” An underwriter for another company testified: “We would have excluded care for the back, the spine, and any of the muscles and the nerve roots associated with that.” The evidence is uncontroverted that decedent’s misrepresentations as to his back condition were material as a matter of law. Moreover, treatment for two of the conditions that decedent did not report on his application, seborrheic dermatitis and mondial glossitis, occurred after his insurance with the California insurer had terminated. The uncontradicted testimony demonstrates that disclosure of either condition would have resulted in exclusion of the condition. The dissent says that the testimony is not uncontradicted, because the witness used the words “possibly” and “probably.” We quote defendant’s underwriter’s testimony in context regarding those two conditions: ‘ ‘ Q What would you have done with that information, in Dr. Kennedy’s records [regarding monilial glossitis and seborrheic dermatitis]? “A I think it’s quite possible he would not have been accepted. “Q Why? [403] ‘ ‘A The monilial glossitis or the oral yeast infection is a positive or a very suggestive symptom of decreased immunity, and I think I would have liked to defer this individual for coverage. ‘ ‘Q Would you have done anything with the diagnosis of seborrheic dermatitis? “A Probably excluded that, if the person had been accepted. “Q Was — in Mr. Reisen’s case, was that just a simple case of dandruff? “A Not in my opinion, no. “Q Why? “A Dandruff is a common term — ordinary person’s term for flakes in their hair. When you have skin excoriation or the breakdown of skin and sores, it is beyond straight dandruff. You have a skin problem. “Q And did you have any information as to whether that skin problem had been existing for sometime? “A Yes. According to the record, it had, both — there was indication of medications being taken prior to this visit with Dr. Kennedy, as well as indications of further refills of medications afterwards. “Q What would you have done with that information if you had it on the application? “A Uh, I would have excluded it.” On cross-examination, she testified: “Q Okay. Now, as a result of the skin condition you said that — as to the seborrheic dermatitis — “A Uh-huh? “Q — that would also be excluded; is that right? “A That’s correct.” Regarding those two conditions, an underwriter for another insurer testified that her company would have “ridered” the dermatitis condition and would have wanted follow-up information on the monilial glossitis.4 [404] Furthermore, defendant’s underwriter was unequivocal in her testimony that the combination of decedent’s other unreported conditions would have resulted in exclusion of the conditions or rejection of the application: “Q Now, we’ve talked about each one of these symptoms individually. What — if all of this had been listed on the application — what, if anything, would Blue Cross have done with the application? “A I do not believe the person would have been accepted. “Q And why not?. “A A combination of things. As I say, particularly when you put together the herpes zoster with the monilial glossitis, you’ve got two instances of evidence of suppressed immunity. Plus, you would also have had to have exclusions on the other conditions as well, to make them acceptable.”5 [405] The underwriter for another carrier testified that she would have “postponed” the application on the basis of the herpes zoster and the facial growth, pending further investigation.6 Decedent did not offer any expert testimony to contradict either witness. The trial court properly granted defendant’s motion for a directed verdict on the basis that decedent’s misrepresentations were material as a matter of law for either of two reasons. The evidence is uncontroverted that, had defendant been aware of decedent’s back condition, it would have considered that condition material and would have excluded it. Under Knight, it was entitled to rescind the policy and deny all benefits on the basis of the nondisclosure of the back treatments. Second, the uncontradicted testimony shows that disclosure of either dermatitis or mondial glossitis conditions in combination with decedent’s other unreported conditions that occurred before June, 1989, would have resulted in exclusion of those conditions or rejection of the application. Affirmed. Footnotes [1] Decedent had answered “no” to these questions: “47. Has any person listed on the application consulted or received advice or medical testing from a physician or other health professional in the last 5 years that isn’t mentioned above? * * * If yes, please give the persons’s name, nature of consultation/advice and/or results, including date(s), full name and address of physician. “48. Has any person listed on the application had a condition (as defined above) in the last five years for which there has been no treatment or medical consultation? * * * If yes, indicate which person and for what condition. “50. Has any person listed on the application taken medication in the last five years? * * * If yes, indicate which person and for what condition. “53. Have you had chronic cough, significant weight loss, chronic fatigue, diarrhea or enlarged glands within the past 12 months? “55. Have you tested positive on any HIV antibody test?” [2] OBS 742.013(1) provides: “All statements and descriptions in any application for an insurance policy by or in behalf of the insured, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealments of fact and incorrect statements shall not prevent a recovery under the policy unless the misrepresentations, omissions, concealments of fact and incorrect statements: “(a) Are contained in a written application for the insurance policy, and a copy of the application is indorsed upon or attached to the insurance policy when issued; “(b) Are shown by the insurer to be material, and the insurer also shows reliance thereon; and “(c) Are either: “(A) Fraudulent; or “(B) Material either to the acceptance of the risk or to the hazard assumed by the insurer.” [3] The dissent also says that the majority “mischaracterizes the law” by omitting a quotation from Knight v. Continental Casualty, supra, 259 Or at 51. 115 Or App at 406. That quotation refers to general principles used in determining whether uncontradicted evidence suffices to take a case from the jury. See Wiebe v. Seely, Administrator, 215 Or 331, 343-44, 335 P2d 379 (1959). Those general principles were applied in Knight to decide that, as a matter of law, the plaintiff s misrepresentations were material. [4] The underwriter for another insurer testified: “Q Have you reviewed his records from his visits with Dr. Kennedy in January of 1989, where he was treated for seborrheic dermatitis and monilial cystitis? [404] “A Yes. “Q What would you have done if those two conditions had been listed on the — “A On the dermatitis, we would have ridered the condition. “Q Why? “A Because of the time, being as it was recent — as recent as it was to the application. “Q How long would you have put a rider on that for? “A People who have riders on their policy can apply to us to have those reviewed in two years. And what we want to know is from a — we want a physician to tell us whether or not it was still present. So we do need follow-up care to show that the condition resolved. “Q And what would you have done with the monilial glossitis condition? “A We would want follow-up with the physician to know how it resolved. “Q And what if the person hadn’t had any follow-up? What would you do? “A Postpone the applicant. Cl* * * * * “Q By postpone, you mean asking him to go see a doctor? “A Postpone means we in essence decline the applicant. But it’s up to the applicant to clarify with the physician or to seek follow-up care.” [5] Defendant’s underwriter also testified: “Q If there was no positive HIV test and no cough, so all you had was the back conditions and the skin conditions and the monilial glossitis, and you found that out now — none of it was revealed on the application, but revealed after the fact — what would you do? “A I would still rescind the coverage.” [6] She testified: “Q Have you had an opportunity to review Mr. Reisen’s medical claims for treatment to his back in 1985 and ’86? “A Yes, I did. “Q If Mr. Reisen had applied for health insurance with your company and had listed those visits to a doctor and that particular diagnosis, what would you have done? “A We would have excluded care for the back, the spine, and any of the muscles and the nerve roots associated with that. “Q Why? “A Because the amount of care that he had would indicate to us that the possibility of recurrence would be there. “Q Have you also reviewed his medical records which indicate that in 1985 he was treated for herpes zoster, and for — had a growth removed from his face? “A Yes. “Q Would you have done anything with the report on those two conditions? “A We would have been concerned and would have wanted to have follow-up care. We’d want to know if either of those conditions either recurred or were they still — were they resolved. “Q Would you actually send him back to a doctor if he hadn’t seen one? “A No. We would postpone and leave that up to him to determine — him or her — to determine what they wanted to do about it.”