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October 15, 1993

COUNTRY LIFE INSURANCE COMPANY, an Illinois corporation, and LARRY STEPHENS, Defendants.


The opinion of the court was delivered by: JAMES B. MORAN

Plaintiff James Negoski (Negoski) brings this action against defendants Country Life Insurance Company (Country Life) and Larry Stephens (Stephens) under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. Before this court now are defendant Country Life's motion for summary judgment and plaintiff Negoski's cross-motion for summary judgment. Federal subject matter jurisdiction is based on 28 U.S.C. § 1331. For reasons stated below, defendant Country Life's motion is denied and plaintiff Negoski's cross-motion is granted.


 The facts of this case are essentially undisputed. In late 1989 and early 1990, Stephens, an insurance broker, contacted Negoski's employer, JMS, Inc., about transferring its health care coverage to Country Life. Negoski's daughter Erica, who was born with bilateral clubfoot deformities, was covered under JMS' then-existing health care plan. Negoski expressed his concern that any new policy would continue coverage of the costly treatment for Erica's clubfoot condition. He alleges that Stephens assured him that Erica would be covered if JMS transferred their group plan to Country Life, although the child would be subject to a pre-existing condition limit for a period of time. *fn1"

 In April 1991, Erica underwent surgery to correct her clubfoot condition. As a result of that surgery and related medical care the Negoskis incurred expenses of $ 11,903.43. The Negoskis submitted a claim for these expenses to Country Life. The carrier, however, denied the claim and rescinded coverage for Erica.

 Country Life contends that Negoski made a material misrepresentation in his application for insurance when he stated that "no further surgery [was] contemplated." It is on the interpretation of the term "contemplated" that the parties are divided. Negoski met with Erica's doctor, Dr. Kelkian, in January 1990, for one of Erica's regular checkups. Dr. Kelkian's notes from the meeting delineate the non-surgical course of treatment they were pursuing: "We will continue the night splinting, and I will see them back in four months. She is walking with shoes now. The notes go on to state that "if there are persistent problems the child may need midtarsal work such as cunnieform [sic] osteotomy and lateral column shortening. Presently that is not indicated . . . ."

 Negoski maintains that he fully disclosed all he knew about Erica's condition and that at the time of the application he had been informed and believed that further surgery would not be necessary. Country Life contends that by stating no further surgery was "contemplated" Negoski represented that there was no possibility of further surgery. Country Life maintains that had it known further surgery for Erica was possible, it would not have underwritten her coverage.


 I. Summary Judgment

 Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Renovitch v. Kaufman, 905 F.2d 1040, 1044 (7th Cir. 1990). In deciding a motion for summary judgment the court must read all facts in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Richardson v. Penfold, 839 F.2d 392, 394 (7th Cir. 1988). Because both Country Life and Negoski have moved for summary judgment, we have considered each motion independently of the other, construing the facts in accordance with the above standard.

 The main issue in this case is whether Negoski's statement that no further surgery was "contemplated" for Erica constitutes a material misrepresentation, allowing Country Life to deny the claim and rescind coverage for the child. Federal, not Illinois, law controls because the health care plan at issue qualifies as an ERISA benefit plan. In cases involving qualified employee benefit plans ERISA preempts state law. 29 U.S.C. § 1144(a); Rivera v. Benefit Trust Life Ins. Co., 921 F.2d 692, 695 n.1 (7th Cir. 1991). However, federal courts may look to state law for guidance in formulating federal common law, provided that the state law is consistent with the policies underlying ERISA. Fox Valley & Vicinity Constr. Workers Pension Fund v. Brown, 897 F.2d 275, 281 (7th Cir.), cert. denied, 498 U.S. 820, 112 L. Ed. 2d 41, 111 S. Ct. 67 (1990).

 Under both ERISA and Illinois law a material misrepresentation in an application for insurance will permit an insurer to deny benefits. Rivera, 921 F.2d at 695 n.1. A misrepresentation occurs when an applicant states something as a fact that is untrue, or where an insured provides an incomplete answer or fails to disclose information in response to an insurance application's question. Northern Life Ins. Co. v. Ippolito Real Estate, 234 Ill. App. 3d 792, 176 Ill. Dec. 75, 81, 601 N.E.2d 773 (Ill.App. 1992); Cohen v. Washington Nat'l Ins. Co., 175 Ill. App. 3d 517, 124 Ill. Dec. 948, 950, 529 N.E.2d 1065 (Ill.App. 1988), app. denied, 129 Ill.Dec. 148 (Ill. 1989). A misrepresentation is material when either the party made the representation with the intent to defraud the insurance company, or when the representation would have affected the insurance company's decision to accept the applicant for coverage. 215 ILCS 5/154 (Michie 1993); Apolskis v. Concord Life Ins. Co., 445 F.2d 31 (7th Cir. 1971).

 Country Life maintains that Negoski made a material misrepresentation on his application for insurance when he stated that further surgery for Erica was not "contemplated." Country Life contends that Negoski represented that no further surgery was possible when he stated that surgery was not "contemplated." Country Life points to Dr. Kelkian's medical records of 9/6/89 and 1/5/90 to demonstrate that Negoski indeed knew that further surgery was possible. On September 6, 1989, Dr. Kelkian noted that Erica "may need further reconstructive procedures." In his January 5, 1990 records Dr. Kelkian ...

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