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Terry v. National Life Ins. Co.

September 28, 2007


The opinion of the court was delivered by: William M. Skretny United States District Judge



In this action, Plaintiff Susan Terry alleges that Defendant National Life Insurance Company ("National") wrongfully denied her application for benefits and improperly rescinded her private disability insurance policy. Presently before this Court are the parties' motions for summary judgment.*fn1 For the reasons discussed below, the motions are denied.


A. Facts

1. Terry's Application for Disability Insurance

On November 9, 1992, Terry met with insurance agent David Stein, who completed an application for disability insurance from National on Terry's behalf. (Plaintiff's Rule 56 Statement of Undisputed Facts ("Plaintiff's Statement"), ¶¶ 1, 2.) Stein read the questions from the application aloud, and then recorded Terry's answers. (Plaintiff's Statement, ¶ 3.) The only part of the application that Terry completed herself was the signature block. (Plaintiff's Statement, ¶ 2.)

The important part of the application for purposes of this litigation involves the medical questions.*fn2 Terry identified Dr. Leo F. Stornelli as her primary physician in question 16. (Plaintiff's Statement, ¶ 5.) She did not disclose any other doctors. (Plaintiff's Statement, ¶ 5.) Stein told Terry that the insurance company would obtain her full medical history from Dr. Stornelli, and Stein thought that Dr. Stornelli's records would list all of Terry's doctors. (Plaintiff's Statement, ¶¶ 6, 7.)

In question 17, Terry indicated that she had "been treated for or diagnosed as having" one or more of the following medical conditions: epilepsy, convulsions, dizziness,*fn3 fainting, paralysis or any other disease or disorder of the brain or nervous system; pain in the back or neck, sciatica, slipped or herniated disc, or any other disorder of the neck, back or spine; arthritis, gout or any disease or disorder of the muscles, bone, joints, or skin In question 18, Terry answered "no" to each part of the following question:

Other than already mentioned in this application, have you in the past five years:

a) consulted a physician, psychiatrist, psychologist, counselor, chiropractor or other practitioner (include regular checkups)?

b) had or been advised to have any surgical operation, hospitalization, medical care, electrocardiogram, x-ray, blood test (except for blood tests designed to determine the presence of HIV infection or AIDS) or other diagnostic test?

c) used cocaine, amphetamines, hallucinogens, barbiturates, heroin or any other narcotic drug?

According to Terry, she did not understand that question 18 required her to list every doctor she had seen in the previous five years other than Dr. Stornelli. (Terry Aff., ¶ 1.) Rather, she believed, based on Stein's representation, that National would obtain additional information, including the names of her other doctors, from Dr. Stornelli and his medical records. (Terry Aff., ¶ 2.)

Finally, in question 20, which gives applicants the opportunity to expand their answers to questions 16-19, Terry listed several more of her medical conditions in response to question 17, but did not identify any additional doctors or hospitals in continuation of question 18. She claims that she did not know that the application required her to list every medical service from the five years prior to the application, other than her physical exam with Dr. Stornelli on May 12, 1992. (Terry Aff., ¶ 1.)

2. The Underwriting Investigation

Upon receipt of Terry's application, National sent it to UnumProvident Corporation ("Unum")*fn4 for underwriting and claims services. (Plaintiff's Statement, ¶¶ 8, 9, 10; Defendant's Response to Plaintiff's Statement ("Defendant's Response"), ¶ 8.) During the underwriting investigation, Unum reviewed Dr. Stornelli's records, which indicated that Terry treated with undisclosed physicians Sagawa, Lincoln, and DeMacher. (Plaintiff's Statement, ¶¶ 11, 13, 16.) Dr. Stornelli's records also revealed that Terry had spinal cord tethering as a result of a 1988 horse-riding accident. (Brenerman Aff., ¶ 7.)

On March 3, 1993, National issued the disability policy to Terry with a rider excluding disability due to "radiculopathy or injury, disease or disorder of the spine." (Plaintiff's Statement, ¶ 19; Brenerman Aff., ¶ 11.) The policy carried a monthly disability benefit of $2,000. (Plaintiff's Statement, ¶ 20.) Terry also purchased an option to buy an additional $2,000 in coverage without medical underwriting, but she never bought the additional coverage. (Plaintiff's Statement, ¶¶ 20, 21.) Terry authorized National to draw monthly premium payments directly from her checking account, and never revoked this authorization. (Plaintiff's Statement, ¶¶ 22, 23.)

3. Terry's Claim for Benefits and National's Investigation

On January 23, 1998, Terry filed a claim for benefits alleging that she had been unable to work since October 6, 1997, due to a back injury and fibromylagia. (Bradley Aff., Exhibit A.) National paid Terry benefits for the period from January 4, 1998, through August 4, 1998. (Plaintiff's Statement, ¶ 24.) Meanwhile, National investigated Terry's claim.

National's investigation revealed that Terry failed to disclose numerous physicians with whom she had treated in the five years preceding her application. (Defendant's Rule 56 Statement of Undisputed Facts ("Defendant's Statement"), ¶ 4). Among others, Terry saw physicians John A. O'Sullivan, Michael Dunn, John A. Glaser, Wilfried Kunze, and John R. Devanny. (Defendant's Statement, ¶ 4.) These physicians diagnosed or treated Terry for various conditions including carpal tunnel syndrome, right radial nerve sensory injury and permanent motor deficit, verbal dyslexia, and partial tear of the anterior cruciate ligament and meniscus in the right knee. (Defendant's Statement, ¶ 4.) These doctors were not listed in Terry's application. (Plaintiff's Statement, ¶¶ 11, 13, 16.)

National also discovered that Terry had arthroscopic knee surgery in May of 1991, and suffered a miscarriage later that year in December. (Plaintiff's Statement, ¶¶ 14, 17.) These conditions were also not disclosed in Terry's application. (Plaintiff's Statement, ¶ 18.)

National's investigation further revealed that Terry sought employment and traveled during the time period for which she claimed to be disabled. Terry traveled to Oregon in September of 1997; Mexico in November of 1997; Alabama in December of 1997; Oregon, San Francisco, and Los Angeles in March of 1998; and Florida (for scuba diving) in June of 1998. (Defendant's Statement, ¶¶ 7, 8; Plaintiff's Response to Defendant's Statement ("Plaintiff's Response"), ¶¶ 7, 8; Lanham Aff. Exhibits B and C; Bradley Aff., Exhibit F.) Terry also applied for an attorney position with the Court of Appeals in Salem, Oregon, in December of 1997. (Lanham Aff., Exhibit B.)

Based on the findings of its investigation, National decided to deny Terry's claim ...

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