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Lin v. Metropolitan Life Insurance Co.

February 25, 2010


The opinion of the court was delivered by: Richard J. Holwell, District Judge


This case involves a $1 million life insurance policy issued by defendant Metropolitan Life Insurance Company ("MetLife") to Bang Lin. When Mr. Lin applied for the policy, he neglected to disclose that he had been diagnosed with, and treated for, Hepatitis B. After he passed away from an unrelated cause, MetLife discovered the discrepancy and rescinded the policy. The policy's beneficiary, plaintiff Jean Lin, sued. MetLife's principal defense is that rescission was proper, because Mr. Lin's treatment history was material to its underwriting decision.

On March 30, 2009, the Court issued a memorandum opinion and order finding that MetLife was entitled to summary judgment. Lin v. Metro. Life Ins. Co., No. 1:07-cv-03218-RJH, 2009 WL 806572 (S.D.N.Y. Mar. 30, 2009). With respect to the materiality of Mr. Lin's undisclosed treatment history, the Court explained that "[i]f the question . . . was whether a reasonable insurer would have offered a policy to Mr. Lin on the same terms as the policy that MetLife ultimately issued, . . . materiality . . . would be a close question, particularly at summary judgment." Id. at *10. Nevertheless, the Court continued to find Mr. Lin's omission material, for two reasons. First, the record showed that Mr. Lin's treatment history would have had a substantial effect on MetLife's underwriting process had it been disclosed. Id. And second, MetLife specifically inquired whether Mr. Lin had been treated for Hepatitis. Id. at *11. Under California law, such an inquiry "in itself [is] usually sufficient to establish materiality." Thompson v. Occidental Life Ins. Co., 513 P.2d 353, 360 (Cal. 1973).

In its decision, the Court took judicial notice of certain medical background information about Hepatitis B. See Lin, 2009 WL 806572, at *1-2 & n.2. To allow the parties an opportunity to object, see Fed. R. Evid. 201(e), the Court stayed entry of judgment. Id. at *11. Shortly thereafter, plaintiff filed an objection to one of the facts noticed and moved the Court to reconsider several aspects of its decision. The motion will be denied.


Under Local Civil Rule 6.3, reconsideration is appropriate if the Court overlooked controlling decisions which, had they been considered, might reasonably have altered the result of the underlying decision. E.g., Levine v. AtriCure, Inc., 594 F. Supp. 2d 471, 474 (S.D.N.Y. 2009). At the same time, "[a] motion for reconsideration 'is not a motion to reargue those issues already considered when a party does not like the way the original motion was resolved.'" Finkelstein v. Mardkha, 518 F. Supp. 2d 609, 611 (S.D.N.Y. 2007).

In a diversity case such as this one, "the law to be applied . . . is the law of the state." Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). "[W]hether the law of the state shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern." Id. Thus, "[i]n ascertaining the substantive law of the forum," the Court "look[s] to the decisional law of the forum state, as well as to the state's constitution and statutes." Travelers Ins. Co. v. 633 Third Associates, 14 F.3d 114, 119 (2d Cir. 1994). See Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832, 851 (2d Cir. 1967) (Friendly, J.) ("[W]hen a federal court must determine state law, it should not slavishly follow lower or even upper court decisions but ought to consider all the data the highest court of the state would use.").

Proof of Materiality Under California Law

Plaintiff contends that the Court applied the wrong legal standard in determining that Mr. Lin's treatment history was material to MetLife's underwriting decision. Generally, information is material if it is "[o]f such a nature that knowledge of [it] would affect a person's decision-making process." Black's Law Dictionary 991 (7th ed. 1999) (def. 3). The Court held that under California law, an undisclosed fact is material to an insurance contract if it would have had a substantial effect on the insurer's underwriting decision. Lin, 2009 WL 806572, at *10. This standard was satisfied because MetLife's underwriter approved Mr. Lin's policy based on the false assumption that there were no "flags" in Mr. Lin's medical history, and a relevant underwriting guideline called for additional analysis where a proposed insured had elevated bilirubin levels as a result of a known cause. Id. Thus, the Court found that if MetLife had known of Mr. Lin's treatment history, "it would have demanded more information from Mr. Lin and engaged in a substantially different underwriting process." Id.

Plaintiff does not challenge the factual premises underlying this conclusion, but contends that something more is required to establish materiality under California law. Specifically, plaintiff contends an omission is not material unless, had the insurer known the true facts, it would not have issued the policy, or would only have issued the policy on different terms. (Lin Mem. 12; Lin Reply Mem. 7).

In the Court's view, this interpretation of California law is too cramped. As the Court noted in its prior opinion, the California Insurance Code provides that "[m]ateriality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries." Cal. Ins. Code. § 334 (West 2005). Through its reference to "inquiries," the Code expressly contemplates that an insurer can establish the materiality of an omission by showing that it would have made substantially different inquiries had it known the true facts. See Lin, 2009 WL 806572, at *6, 10.

Plaintiff notes that California courts have held in a number of cases that a misrepresentation or omission was not material because the insurer would have issued a policy on the same terms even if it knew the true facts. See Holz Rubber Co., Inc. v. Am. Star Ins. Co., 533 P.2d 1055, 1064-1065 (Cal. 1975); Thompson, 513 P.2d at 362; Ransom v. Penn Mut. Life Ins. Co., 274 P.2d 633, 636-37 (Cal. 1954). Plaintiff errs, however, in assuming that these cases decided the issue raised here. In each case, the issue raised by the record was whether the policy would have issued on the same terms. See Holz, 533 P.2d at 1065 (insured's failure to disclose stock in warehouse without sprinkler immaterial because unreported stock not covered by policy); Thompson, 513 P.2d at 362 (insured's failure to disclose prior medical history immaterial because trial court could have concluded, as alternate ground for decision, that history related to "'minor indispositions' rather than serious aliments" [sic], and "subject matter of the . . . consultations would not have affected [insurer's] decision to issue a policy"); Ransom, P.2d at 637 (insured's failure to disclose high blood pressure, treatment for chest pain, and prior electrocardiogram immaterial because evidence showed that "there was nothing seriously wrong with his physical condition"). Yet as the Code provides, materiality also may be determined by "the probable and reasonable influence of the facts upon the party to whom the communication is due, . . . in making his inquiries." Cal. Ins. Code § 334 (emphasis added). See generally 6 Lee R. Russ & Thomas F. Segalia, Couch on Insurance § 82:16, at 82-31 (3d ed. 2005) ("The materiality of a representation is determined not by the actual influence it exerted upon the insurer, but by the possibility of its so doing."); 39 Cal. Jur. 3d Insurance Contracts § 183 (2009) ("[A] representation is material, for instance, if it might influence the insurer in accepting or rejecting the risk, in forming its estimate of the disadvantages of the proposed insurance or in making its inquiries in regard thereto, or in determining the rate of premium.").

Perhaps the best example of these alternate grounds for establishing materiality is Burns v. Prudential Insurance Co. of America, 201 Cal. App. 2d 868 (1962).*fn1 There, the insured failed to disclose that he had been treated for shortness of breath, chest pains, and a rapid pulse. See id. at 870. The insurer's underwriter testified that if he had known about this history, he would have ordered a "special heart report" and an electrocardiogram, and referred the insured's file to the insurer's medical department for interpretation and recommendation. Id. at 872. In addition, the insurer's medical director testified that "a standard policy would have been refused and a substandard policy might have been offered in the discretion of the underwriter." Id. The court held that the insured's failure to disclose his medical history was independently sufficient to establish materiality: "Both of plaintiff's experts agreed with defendant that to determine the physical condition of a person it is necessary to know the truth about his medical history. The misrepresentation in these respects is sufficient to support a rescission of the policy." Id. at 873.

Burns is applicable and instructive. The decision expressly considered the question raised by the record-whether an insurer can demonstrate the materiality of undisclosed medical information by pointing to the effect it would have had on its underwriting process. Its analysis gives effect to each term in the controlling statutory language, as required by generally applicable principles of statutory interpretation. See Reno v. Baird, 957 P.2d 1333, 1344 (Cal. 1998); Bolton v. MacDonald, 794 P.2d 911, 916 (Cal. 1990); City and County of San Francisco v. Farrell, 648 P.2d 935, 938 (Cal. 1982). And, while it is an ...

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