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Brandt v. Time Insurance Company

December 10, 1998


The opinion of the court was delivered by: Justice Hoffman



The plaintiff, Jacqueline Brandt, filed the instant action against the defendant, Time Insurance Company (Time), and others to recover damages she allegedly sustained as a consequence of Time's refusal to pay her claims under a health insurance policy. Brandt's complaint as amended set forth, inter alia, claims against Time for breach of contract (count I), a violation of section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 1996)) (count II), fraud (count IX), and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 1996)) (count X). On July 17, 1997, the circuit court dismissed counts IX and X of Brandt's complaint for failure to state causes of action, including within its order the requisite finding of appealability under Supreme Court Rule 304(a) (134 Ill. 2d R. 304(a)). Brandt filed a timely notice of appeal from that order which was docketed in this court as appeal No. 1-97-2913. Thereafter, on January 8, 1998, the circuit court granted summary judgment in favor of Time on counts I and II of Brandt's complaint, again including within its order the requisite finding of appealability under Supreme Court Rule 304(a). Brandt filed a timely notice of appeal from the January 8 order which was docketed in this court as appeal No. 1-98-0143.

Brandt died after the filing of her appeals and Howard E. Tuma, Special Administrator of Brandt's Estate, was substituted as the appellant. In the interest of clarity, however, we shall continue to refer to Brandt as the plaintiff. We consolidated Brandt's appeals and, for the reasons which follow, we now (1) affirm the July 17, 1997, order of the circuit court dismissing counts IX and X, (2) reverse the summary judgment entered on January 8, 1998, in favor of Time on counts I and II, and (3) remand this cause to the circuit court for further proceedings consistent with this opinion.

Brandt was diagnosed as a Type II diabetic in 1988. Beginning in 1990, Douglas Ruth, an insurance broker, assisted Brandt in obtaining health insurance policies. In 1994, Brandt was issued two Short Term Medical (STM) insurance policies which provided coverage for a maximum of six months and were intended to provide interim coverage while she sought a comprehensive medical insurance policy. Brandt's STM policies excluded her diabetes from coverage as a pre-existing condition.

In March 1995, Ruth informed Brandt that her current STM policy was about to expire and recommended that she apply for an STM policy offered by Time. Ruth completed the Time application for Brandt and answered the questions contained therein, including the following: "4. Within the last five (5) years, have you, your spouse, or any dependent to be covered, ever received any medical or surgical diagnosis or treatment including medication for: heart or circulatory system disorder including heart attack or chest pain; stroke; diabetes; cancer;

Note: The policy *** cannot be issued if YES is answered on any questions, 2-4."

Ruth answered "No" to question 4, although he knew of Brandt's diabetic condition. Ruth sent Brandt's application with her premium check to Insurance Consulting Group (ICG), a company which processes insurance applications for policies issued by Time. Time issued the policy to Brandt, effective April 4, 1995.

On or around August 1, 1995, while her Time STM policy was in effect, Brandt was diagnosed with terminal stomach cancer. Brandt incurred medical bills for treatment of the cancer which she submitted to Time for payment. Before paying out on Brandt's claims, Time discovered that Brandt had suffered from diabetes since 1988 and had been treated for her condition within the five year period prior to her application for its STM policy. Time denied Brandt's claim for benefits and notified her on October 30, 1995, that it was rescinding the STM policy.

Brandt filed the instant action against Time, Ruth, and Ruth's company, Lenox Financial Services, Inc., on April 4, 1996. Brandt's complaint alleged, inter alia, that Ruth obtained her signature on a blank application for Time's STM policy, represented to her that he would fill it out accurately, and then recklessly filled out the application without indicating that Brandt suffered from diabetes. According to her complaint, Brandt had never seen the completed application until Time refused to honor the policy. Brandt alleged that Time was precluded from relying on Brandt's diabetes as a basis for denying coverage since it failed to attach the application to the policy (see 215 ILCS 5/154 (West 1994)). Brandt claimed that, by refusing to honor the policy, Time breached its contract of insurance (count I) and violated section 155 of the Insurance Code (215 ILCS 5/155 (West 1996)).

Time filed its answer along with affirmative defenses alleging that the STM policy was void ab initio since the misrepresentations in Brandt's application were material to Time's decision to accept the risk, were material to the hazard assumed by Time, and were made with the intent to deceive.

On December 2, 1996, Brandt amended her complaint, adding two new counts alleging that Time's practice of "post-claim underwriting" constituted common law fraud (count IX) and an unfair and deceptive trade practice under the Consumer Fraud Act (815 ILCS 505/1 et seq. (West 1996)) (count X). Time moved to dismiss counts IX and X for failure to state causes of action. The trial court granted the motion and Brandt was given leave to replead within 28 days. No amended complaint was filed and counts IX and X were dismissed with prejudice.


On appeal from a motion to dismiss under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1996)), this court must determine whether the complaint alleges facts which, if proved, would entitle the plaintiff to relief. Charles v. Siegfried, 165 Ill. 2d 482, 485-86, 651 N.E.2d 154 (1995). Our review is de novo. Kaden v. Puchinski, 287 Ill. App. 3d 546, 548, 678 N.E.2d 792 (1997).

In order to plead an action for fraud, the plaintiff must allege: that the defendant made a false statement of material fact, knowing or believing that the statement was false, with the intention of inducing the plaintiff to act; that the plaintiff reasonably relied on the truth of the statement and acted thereon; and that the plaintiff suffered damages which were proximately caused by her action in reliance upon the statement. Siegel v. Levy Organization Development Co., 153 Ill. 2d 534, 542-43, 607 N.E.2d 194 (1992). The basic elements of a deception claim under section 2 of the Consumer Fraud Act (815 ILCS 505/2 (West 1996)) are: (1) a deceptive act or practice; (2) the defendant's intent that the plaintiff rely on the deception; and (3) that the deception occurred in the course of conduct involving trade or commerce. Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 501, 675 N.E.2d 584 (1996).

Counts IX and X of Brandt's complaint allege that Time improperly practiced "post-claim underwriting." Brandt claims that an insurer must investigate the information on an application before, or within a reasonable time after, issuing a policy. According to Brandt, issuing a policy and then waiting until a claim is made before investigating the insurability of the applicant perpetrates a fraud upon the applicant and the public. Brandt also claims that this constitutes an unfair and deceptive business practice. Brandt cites to a number of extra-jurisdictional cases in support of her argument that the practice of "post-claim underwriting" (see e.g. White v. Continental General Insurance Co., 831 F. Supp. 1545 (D. Wyo. 1993)), or "retroactive underwriting" (see e.g. Meyer v. Blue Cross and Blue Shield, 500 N.W.2d 150 (Minn. App. 1993)), should preclude an insurer from rescinding its policy or disclaiming liability after a claim has been made.

Although our research has not disclosed any Illinois cases specifically addressing this issue, it has long been the law in Illinois that an insurer has no general duty to investigate the truthfulness of answers given to questions asked on an application for insurance. See Bageanis v. American Bankers Life Insurance Co., 783 F. Supp. 1141, 1146 (N. D. Ill. 1992); see also Apolskis v. Concord Life Insurance Co., 445 F. 2d 31, 36 (7th Cir. 1971); Metropolitan Life Insurance Co. v. Moravec, 214 Ill. 186, 188, 73 N.E. 415 (1905); National Blvd. Bank v. Georgetown Life Insurance Co., 129 Ill. App. 3d 73, 472 N.E.2d 80 (1984). Our courts have recognized that "[a]n insurance company has the right to rely on the truthfulness of the answers given by an insurance applicant, and the insured has the corresponding duty to supply complete and accurate information to the insurer." Commercial Life Insurance v. Lone Star Life Insurance, 727 F. Supp. 467, 471 (N.D. Ill. 1989). Since Illinois law imposes no duty on an insurer to conduct an independent investigation of insurability before issuing an insurance policy and Time made no representation as to when, or if, it would investigate the truthfulness of the information contained in Brandt's application, Brandt cannot predicate her claims for fraud and violation of the Consumer Fraud Act on the allegation that Time engaged in post-claim or retroactive underwriting. We conclude that counts IX and X fail to state causes of action for which Brandt would be entitled to relief, and we affirm the trial court's dismissal in appeal No. 1-97-2913.


We now address appeal No. 1-98-0143, in which Brandt contends that the trial court erroneously granted summary judgment in favor of Time on counts I and II, based on breach of contract and violation of section 155 of the Insurance Code, respectively.

A motion for summary judgment may be granted only when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 1996). The trial court is under a duty to consider such evidence strictly against the movant and in the light most favorable to the opposing party. Kolakowski v. Voris, 83 Ill. 2d 388, 398, 415 N.E.2d 397 (1980). If the evidentiary material could lead to more than one reasonable Conclusion or inference, the court must adopt the Conclusion or inference that is the most favorable to the opponent of the motion. Lapidot v. Memorial Medical Center, 144 Ill. App. 3d 141, 147, 494 N.E.2d 838 (1986). Our review of an order granting summary judgment is de novo. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 390, 620 N.E.2d 1073 (1993). Accordingly, we independently examine the evidence presented in support of and in opposition to a motion for summary judgment, apply the same standards that the trial court was obliged to apply, and determine whether the movant is entitled to judgment as a matter of law. Arra v. First State Bank & Trust Co., 250 Ill. App. 3d 403, 406, 621 N.E.2d 128 (1993).

To defeat or avoid a policy on the grounds of misrepresentation or false warranty, the insurer must first show that the misrepresentation was made with actual intent to defraud or that it materially affected the risk. Inter-Insurance Exchange v. Milwaukee Mutual Insurance Co., 61 Ill. App. 3d 928, 931, 378 N.E.2d 391 (1978). In its motion for summary judgment on counts I and II, Time contended that, under section 154 of the Insurance Code (215 ILCS 5/154 (West 1996))), Brandt's failure to disclose her true medical history on the application rendered the policy void as a matter of law. According to Time, Brandt's misrepresentation materially affected both its acceptance of the risk and the risk assumed because Time would not have issued the policy had it known about Brandt's illness. In support of its motion, Time submitted a copy of the completed application and the affidavit of a Time supervisor confirming that Time rescinded Brandt's policy after it became aware of her diabetic condition. Time attached part of Ruth's deposition in which he indicated that Brandt signed the application after he went over the questions with her. Time also attached an excerpt of Brandt's evidence deposition in which she identified her signature on the application.

In response, Brandt argued that Time failed to show that she misrepresented her medical history. Brandt contended that Ruth completed the application after procuring her signature on a blank copy. Relying on the General Agency Contract in force between ICG and Time, Brandt alleged that (1) Ruth, as ICG's agent, was authorized to solicit insurance on behalf of Time; (2) Ruth acted as Time's subagent when he filled out Brandt's application; (3) Ruth's misrepresentation as to Brandt's diabetes was, therefore, imputed to Time; and (4) Time was estopped from relying on the misrepresentation in the application as a basis for rescission of its policy. Brandt also alleged that Time was precluded from ...

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