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Golden Rule Insurance Company v. Schwartz

January 24, 2003


The opinion of the court was delivered by: Justice Freeman

Docket No. 92215-Agenda 9-November 2002.

In July 1985, plaintiff, Golden Rule Insurance Company, filed an action in the circuit court of Lawrence County, seeking a declaration that it was entitled to rescind a health insurance policy it had issued to defendant, Mark Schwartz. Defendant subsequently filed a countersuit in the action. In 1997, the cause was transferred to the circuit court of Cook County. Ultimately, the circuit court granted summary judgment in defendant's favor on the declaratory judgment action and on the first count of defendant's counterclaim. The circuit court also ruled that defendant was entitled to sanctions under section 155 of the Illinois Insurance Code and therefore granted summary judgment on that issue as well. The circuit court awarded defendant $447,074 in damages. Both parties filed cross-appeals from the circuit court's ruling.

The appellate court held that the circuit court's entry of summary judgment in defendant's favor in the declaratory judgment action was erroneous and reversed and remanded the matter for further proceedings. 323 Ill. App. 3d 86. We granted defendant's petition for leave to appeal (177 Ill. 2d R. 315(a)), and now affirm in part and vacate in part the appellate court's judgment.


In the spring of 1985, defendant was a 23-year-old full-time medical student. Due to defendant's age, his father, Spencer Schwartz (Spencer), inquired of his insurance broker about insurance coverage for defendant. The broker sent Spencer separate Golden Rule applications for defendant and the rest of Spencer's family. The broker advised Spencer that defendant would have to be covered under a separate policy because defendant was too old to be covered as a dependent under a family policy. On March 11, 1985, the broker filled out the Golden Rule applications while Spencer, on defendant's behalf, answered the questions on the telephone.

Question 9 on the application asks: "Are any persons named in #1 [proposed insured] covered by, or has application been made for, any type of Life, Disability, or Medical Insurance?" This question was answered in the negative. The application contains the following information with respect to other insurance:

"This policy will not be issued as a supplement to other health plans that you may have at the time of application. Medical payment provisions under liability policies and small cancer only policies do not affect our underwriting. A misstatement in the application about other medical insurance may cause us to void the policy. If, after the policy is issued, you are covered by other plans, the benefits paid under these other plans may be used to help satisfy the deductible and 20% coinsurance ***. Other plans are all policies and plans that provide benefits for hospital, surgical, or medical expenses, including individual and family policies, group programs, union programs, automobile medical payments insurance, Medicare and others."

The application also includes the following statement just above the signature line:

"I represent that the statements and answers in this application are true and complete to the best of my knowledge and belief. I agree that *** the statements and answers given in this application and any amendments to it will form the basis of any insurance issued."

Based on the application, Golden Rule issued a health insurance policy in defendant's name which became effective on March 14, 1985.

On March 24, 1985, defendant suffered serious injuries in an automobile accident which took place in New York. As a result, Spencer reviewed his insurance policies and realized that defendant was covered not only by the Golden Rule policy, but was also an "eligible dependent" under a policy Spencer held with Mutual of Omaha. The Mutual of Omaha policy was a group policy held through the American Bar Endowment and was issued to Spencer in 1973. Defendant submitted claim forms to both Mutual of Omaha and Golden Rule.

During its investigation of the claim, Golden Rule learned of the existence of the Mutual of Omaha policy. Based on this, Golden Rule decided to rescind its policy, which prompted the instant litigation. In its declaratory judgment action, Golden Rule alleged that defendant's failure to disclose the Mutual of Omaha policy constituted a material misrepresentation which justified rescission of the policy. Defendant filed a countersuit, in which he claimed, inter alia, that Golden Rule (i) was not entitled to offset damages with medical payments made by other insurance companies, (ii) engaged in improper claims practices which allowed for attorney fees under section 155 of the Illinois Insurance Code and (iii) breached its contract with defendant which entitled defendant to a recovery of all damages reasonably forseeable as a result of the breach.

The circuit court initially concluded that, as a matter law, defendant did not make a material misrepresentation on the application with respect to question 9. As to the claims made in defendant's countersuit, the circuit court granted defendant summary judgment, ruling that Golden Rule could not offset damages with payments made by other insurers. The circuit court also ruled that defendant was entitled to sanctions under section 155, but was not entitled to pro se attorney fees. As for the breach of contract claim, the circuit court found defendant entitled to recover the premiums he paid for comparable replacement coverage, but was not entitled to any prejudgment interest. The case was thereafter set for a bench trial in order to determine damages, after which judgment was entered in defendant's favor in the amount of $447,074. The circuit court reserved the issue of attorney fees and added Supreme Court Rule 304(a) language in its order, making it immediately appealable.

On appeal, Golden Rule challenged the circuit court's decision, arguing that it was entitled to rescind its policy due to defendant's material misrepresentation on the application. Golden Rule also contended that sanctions should not have been awarded in this case. Defendant filed a cross-appeal in which he maintained that the circuit court erred in finding that prejudgment interest was not appropriate in this case. ...

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