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American General Life Insurance Company v. Estate of Jude

United States District Court, E.D. Kentucky, Northern Division

May 21, 2019

AMERICAN GENERAL LIFE INSURANCE COMPANY PLAINTIFF
v.
THE ESTATE OF CHAD JUDE DEFENDANT THE ESTATE OF CHAD JUDE, and LORI JUDE COUNTER-PLAINTIFFS
v.
AMERICAN GENERAL LIFE INSURANCE COMPANY COUNTER-DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          DAVID L. BUNNING, UNITED STATES DISTRICT JUDGE

         This case is before the Court on six pending matters-a Motion for Judgment on the Pleadings (Doc. # 79), cross-Motions for Summary Judgment (Docs. # 86 and 87), two Motions to Exclude (Docs. # 84 and 88), and Objections to a January 24, 2019 Order entered by Magistrate Judge Atkins (Doc. # 106). Each matter has been fully briefed and the Court heard oral argument on the pending matters on May 15, 2019 (Doc. # 110). Therefore, the matters are ripe for the Court's review. For the reasons set forth herein, American General Life Insurance Company's Motion for Summary Judgment (Doc. # 86) is granted. All other pending matters are denied as moot.

         I. FACTUAL BACKGROUND

         In June of 2014, American General Life Insurance Company (“American General”)-through Matrix Direct, its agency service-reached out to Chad Jude in an attempt to sell him a life-insurance policy. (Doc. # 15 at 5). Chad Jude purchased a term life-insurance policy with a death benefit amount of $500, 000-Policy No. YMD7350711-which was issued on July 12, 2014. Id. Chad Jude made timely payments on the policy. Id. In July of 2015, American General-through agent Daniel Baldwin-reached out to Chad Jude to help him “reevaluat[e] his insurance needs.” Id. Chad Jude was interested in expanding his insurance coverage and undertook the process to increase his coverage. Id. at 5-6. This included signing insurance application forms-which Chad Jude claims were filled out on his behalf by American General's agent and not adequately explained to him-and undergoing a medical examination. Id. Specifically, Chad Jude signed Part B of the American General application form, the form that includes questions about a potential insured's health history, on August 4, 2015. (Doc. # 1-1 at 10). On September 4, 2015, Chad Jude's new term life-insurance policy- this one for $1, 500, 000-was issued and the half-million-dollar policy was terminated. (Docs. # 15 at 6 and 86-12 at 1). On September 21, 2015, Jude was directed by American General agent Sandra Hawkins to sign “The Policy Acceptance and Amendment of Application Form” (“PAA”), which he did. Id. American General received Chad Jude's first premium payment for the new policy on October 2, 2015. (Doc. # 86-6 at 1).

         During the application process, Chad Jude informed American General, through its agents, that he suffered from dysphagia and had been treated for vocal-cord problems resulting from complications from pneumonia. Id. at 6-7. Chad Jude claims that “as a result of the complications and symptoms previously disclosed to American General” he had a brain MRI on August 15, 2015. Id. at 7. The results indicated that Chad Jude had Chiari I Malformation, a non-life-threatening “condition in which the brain tissue extends into the spinal cord.” Id. Following this diagnosis, on August 20, 2015, Dr. Paul Bryson of the Cleveland Clinic referred Chad Jude to “neurosurgery.” (Docs. # 90-2 at 1 and 96 at 1). On September 2, 2015, Lori Jude contacted the Cleveland Clinic to cancel Chad's scheduled appointment with Dr. Edward Benzel for that day. (Doc. # 96 at 5). She indicated that Chad had spent the evening of September 1, 2015 in the emergency room because he had choked on food. Id. Lori reported that “his condition is deteriorating rapidly with difficult speech, swallowing and decreased upper extremity strength.” Id. The following day, September 3, 2015, Chad was seen by Dr. Sarel Vorster, a doctor in the Neurosurgery Department at the Cleveland Clinic. (Docs. # 90-2 at 1-4 and 103 at 3). Chad Jude had another brain MRI on September 14, 2015. (Doc. # 90-2 at 7-10). The results, dated September 15, 2015, again indicated that Chad Jude had a Chiari I Malformation. Id. On September 30, the Judes were told that Dr. Vorster recommended decompression surgery. Id. at 16. Chad Jude had his pre-surgery physical on October 1, 2015 and was “cleared for surgery pending normal labs.” (Doc. # 90-3). Chad Jude underwent surgery to repair the malformation on October 4, 2015 and went back to work in December 2015. (Doc. # 15 at 7). In February 2016, Chad Jude was diagnosed with Amyotrophic Lateral Sclerosis (ALS). Id.

         In 2016, Chad Jude allegedly received additional direct solicitation from American General. Id. On March 30, 2017, however, American General sent Chad Jude a letter indicating that it was rescinding Chad Jude's 1.5-million-dollar policy; included with the letter was a refund of the $2, 738.47 in premiums paid on that policy and a voluntary rescission agreement. Id.; (Doc. # 86 at 7-8). Following the letter informing Chad Jude of the rescission, Chad Jude claims he continued to receive direct solicitations from American General about modifying his policy and continued to make premium payments. (Doc. # 15 at 7-8). He alleges that, despite the policy being rescinded, “some payments have been accepted and retained.” Id. at 8.

         II. PROCEDURAL HISTORY

         This action commenced on August 18, 2017, when American General petitioned the Court for a declaratory judgment against Defendant Chad Jude. (Doc. # 1 at 1). Specifically, American General requests that the Court declare the 1.5-million-dollar policy issued to Chad Jude in September of 2015-Policy No. YMD7405546-to be null and void “due to the Defendant's material misrepresentations on the subject policy application.” Id. American General alleges that Chad Jude did not fully disclose his medical history-including that he had been diagnosed with Chiari I Malformation after an August 15, 2015 MRI-and “[h]ad American General been given a complete disclosure . . . the policy would not have been issued.” Id. at 4.

         American General indicates that Part B of the insurance application, which Chad Jude signed on August 4, 2015 and which included a number of medical questions, included a note that there would be no insurance contract until three specific conditions were met. (Doc. # 86 at 4). The third condition for the insurance contract to be valid is that there was “no change in health of the Proposed Insured(s) that would change the answers to any question in the application” between the completion of the application and both the delivery and acceptance of the policy, and the payment of the first full modal premium. Id. (emphasis added). The insurance policy was issued on September 4, 2015. (Doc. # 1 at 2). On September 21, 2015, Chad Jude signed the PAA which required him to agree that:

1. There have been no changes since the date of the application in my health or in any other condition;
2. Neither I nor any other proposed insured has since the date of the application:
a. Consulted a licensed health care provider or received medical or surgical advice or treatment; or
b. Acquired any knowledge or belief that any statements made in the application are now inaccurate or incomplete.

         (Doc. # 86 at 5) (emphasis added). According to American General, because the conditions required for the insurance policy to form were not satisfied-there were changes in Chad Jude's health between August 4, 2015 when he applied for the policy and October 2, 2015 when he made his first payment[1]-the company rescinded the policy. Id. at 1, 5, 7.

         Chad Jude answered the Complaint on November 21, 2017. (Doc. # 15 at 1-3). Additionally, at the same time, Chad Jude and his wife-Lori Jude-(“the Judes”) brought common-law and statutory counterclaims under Kentucky law against American General. Id. at 8-13. The Judes allege six claims-breach of contract (Count I); violations of Ky. Rev. Stat. § 304.12-030-Replacement Life Insurance, Unfair and Deceptive Practices, and Unfair Claims Settlement Practices (Counts II-IV); violation of Ky. Rev. Stat. § 367.170-Consumer Protection (Count V); and breach of duty to act in good faith (Count VI). Id. The Judes also request punitive damages. American General responded to the counterclaims on December 6, 2017. (Doc. # 16).

         After Chad Jude's death on December 30, 2017, the Estate of Chad Jude was substituted as the Defendant and a Counter-Plaintiff in this action.[2] (Docs. # 30 and 31). In August of 2018, American General sent Lori Jude a check for $533, 424.21-effectively reinstating the half-million-dollar life-insurance policy Chad Jude had terminated and paying out the benefits.[3] (Doc. # 86-12). Ten months later, on October 16, 2018, American General moved for judgment on the pleadings as to the counterclaims by Lori Jude. (Doc. # 79). Cross-Motions for Summary Judgment were then filed on November 16, 2018. (Docs. # 86 and 87). Also pending are two Motions to Exclude (Docs. # 84 and 88)-one to exclude recordings produced by American General and the other to exclude the Judes' expert-as well as Objections to one of Magistrate Judge Atkins's orders. (Doc. # 106). All pending matters have been fully briefed (Docs. # 82, 85, 93, 94, 97, 98, 101, 102, 103 and 104) and, following oral argument held on May 15, 2019 before the undersigned, are now ripe for the Court's review.

         III. CROSS-MOTIONS FOR SUMMARY JUDGMENT (DOCS. # 86 and 87)

         In its Motion for Summary Judgment, American General moves for summary judgment on its declaratory-judgment claim and all counterclaims filed against it by the Judes. (Doc. # 86). The Judes filed a cross-Motion for Summary Judgment requesting the Court grant summary judgment on three of the counterclaims-Count II, Count III, and Count V-they brought against American General. (Doc. # 87).

         A. Standard of Review

         Summary judgment is granted when there is no genuine issue of material fact, and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A material fact is one “that might affect the outcome of the suit under governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The role of the judge is to review the evidence and “determine[] whether there is the need for a trial-whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.” Id. at 250. If no such issue of material fact exists, summary judgment may be granted if the moving party is “entitled to [such] judgment as a matter of law.” Fed.R.Civ.P. 56(a).

         The moving party must explain the basis for its motion and reference evidence which “demonstrate[s] the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). That burden on the moving party may be “discharged by ‘showing' . . . that there is an absence of evidence to support the nonmoving party's case.” Id. at 325. Thus, summary judgment is appropriate “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Id. at 322. “To prevail, the non-movant must show sufficient evidence to create a genuine issue of material fact.” B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 592 (6th Cir. 2001). Sufficient evidence is more than a “mere scintilla”; there must be enough evidence that a jury could decide for the non-moving party. Anderson, 477 U.S. at 252. An opponent of summary judgment “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). When considering a motion for summary judgment, the Court must view any evidence in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Hamilton Cty. Educ. Ass'n v. Hamilton Cty. Bd. of Educ., 822 F.3d 831, 835 (6th Cir. 2016).

         B. Choice of Law

         A federal court sitting in diversity must apply the substantive law of the state in which it is sitting. See Hanna v. Plumer, 380 U.S. 460, 465-66 (1965) (explaining Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)). This includes applying the choice-of-law rules of the state in which the court sits. Phelps v. McClellan, 30 F.3d 658, 661 (6th Cir. 1994). Thus, in this case, the Court must apply Kentucky's choice-of-law rules.

         Under Kentucky choice-of-law rules “there is a strong preference . . . for applying Kentucky law.” Wells Fargo Fin. Leasing, Inc. v. Griffin, 970 F.Supp.2d 700, 707 (W.D. Ky. 2013) (collecting cases). “[T]he law of the forum . . . should not be displaced without valid reasons.” Foster v. Leggett, 484 S.W.2d 827, 829 (Ky. 1972). In other words, Kentucky is “very egocentric or protective concerning choice of law questions.” Paine v. La Quinta Motor Inns, Inc., 736 S.W.2d 355, 357 (Ky. Ct. App. 1987), overruled on other grounds by Oliver v. Schultz, 885 S.W.2d 699 (Ky. 1994). In general, “a court must apply Kentucky's law when there are not overwhelming interests to the contrary.” Asher v. Unarco Material Handling, Inc., 737 F.Supp.2d 662, 666 (E.D. Ky. 2010). In Kentucky, separate choice-of-law analyses exist for claims arising under tort and contract. Wells Fargo Fin. Leasing, Inc., 970 F.Supp.2d at 707 (citing Saleba v. Schrand, 300 S.W.3d 177, 181 (Ky. 2009)).

         In contract cases brought in Kentucky, Kentucky law applies if Kentucky is the state with the “most significant relationship to the transaction and the parties.” Breeding v. Mass. Indem. & Life Ins. Co., 633 S.W.2d 717, 719 (Ky. 1982); see also Saleba, 200 S.W.3d at 181. In determining what state has the most significant relationship, the court looks to: “the place or places of negotiating and contracting; the place of performance; the location of the contract's subject matters; and the domicile, residence, place of incorporation and place of business of the parties.” State Farm Mut. Auto Ins. Co. v. Hodgkiss-Warrick, 413 S.W.3d 875, 878-79 (Ky. 2013).

         Here, there is no dispute that Kentucky is the state with the most significant relationship to the transaction and parties. The life-insurance policy was purchased by a Kentucky resident, and was intended to benefit his family members domiciled in Kentucky. (Doc. # 15 at 4-5). This suit arose from a misrepresentation allegedly committed by a Kentucky resident presumably in Kentucky. Id. at 4-6; see also (Doc. # 1 at 2-4). Accordingly, the Court will apply Kentucky law.

         C. Existence of Policy

         1. Conditions Precedent Pleading Issue

         The Judes argue that American General did not specifically plead its condition-precedent argument in its Complaint and, therefore, may not rely on it. (Doc. # 87 at 14). The Judes rely on Federal Rule of Civil Procedure (FRCP) 9(c) to support their argument. Id. The Judes' argument, however, is misguided. FRCP 9(c) is not applicable to the declaratory-judgment action before the Court.

         FRCP 9(c) only requires that the satisfaction of conditions precedent be pled generally and any defenses to conditions precedent be pled specifically. This rule “applies to performance or occurrence of conditions precedent to liability.” EEOC v. Griffin Wheel Co., 360 F.Supp. 424, 425 (N.D. Ala. 1973). The rule does not, however, “impose an obligation on plaintiffs to plead the performance or occurrence of conditions precedent. Rather, it is the applicable substantive law that determines whether the performance or occurrence of conditions precedent is an element of the claim” and whether it must be pled. 5A Charles Alan Wright, et al., Federal Practice and Procedure § 1303 (4th ed. 2018) (emphasis added) (footnotes omitted); see also Kiernan v. Zurich Co., 150 F.3d 1120, 1124 (9th Cir. 1998) (“Rule 9(c) does not expressly require that performance of conditions be pled, it merely sets forth the manner in which such pleadings should be made.”).

         Case law indicates that, in the contract realm, FRCP 9(c) is applicable in breach-of-contract actions. See, e.g., Bus. Payment Sys., LLC v. Nat'l Processing Co., No. 3:10-cv-669, 2012 WL 6020400, at *10 (W.D. Ky. Dec. 3, 2012); Young Women's Christian Ass'n of Nat'l Capital Area, Inc. v. All State Ins. Co. of Can., 158 F.R.D. 6, 7-8 (D.D.C. 1994). In those cases, a plaintiff must generally plead “that it performed all contractual conditions required of it” before bringing suit. Byczek v. Boelter Co., Inc., 264 F.Supp.2d 720, 723 (N.D. II. 2003); see also W right, et al., supra, § 1303 (“A condition precedent is most notably a concept from contract law that refers to an act or event that must exist or occur before there is a right to performance under a contract. Under the law of contracts in some states, the performance by the plaintiff of conditions precedent is identified as an element of a breach of contract claim.” (footnotes omitted)).

         The declaratory-judgment action before the Court, however, is not a breach-of-contract claim. Here, the Court has yet to determine whether a contract was formed at all. See infra Part III.C.3-4. The Court is not yet considering liability under a contract but must first consider whether there is any contract between the parties. In doing this, the Court is focusing on conditions precedent to contract formation, rather than litigation of the contract. See infra Part III.C.3. American General is not pursuing a claim with elements that must be satisfied in order for relief to be granted; rather, it is merely seeking a declaration from this Court that a policy is void. (Doc. # 1). The Judes have not cited any cases indicating that the nonoccurrence of conditions precedent to contract formation must be pled under Rule 9(c) ...


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