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Estate of Caplinger v. Time Insurance Co.

July 10, 2007


The opinion of the court was delivered by: Murphy, Chief District Judge


This matter came before the Court on June 18, 2007, for a hearing on a motion for summary judgment filed by Defendant Time Insurance Company, f/k/a Fortis Insurance Company (hereinafter "Time") (Doc. 28). For the reasons set forth below, the motion is granted.


Plaintiff, Raymond Caplinger (hereinafter "Caplinger"), filed his complaint on January 19, 2006, alleging that Time wrongfully terminated an individual health insurance policy which provided benefits to him and his wife, Mary Caplinger, now deceased.

He seeks actual and extra-contractual damages due to Time's cancellation of the insurance policy. Time contends rescission was valid due to material misrepresentation on the part of the Caplingers in their application for coverage. Time argues the Caplingers' failure to disclose Mary Caplinger's pre-existing diagnosis of peripheral vascular disease, atherosclerosis, diagnostic testing related to said diagnosis, and a later prescription for Trental on their application for health insurance, was a valid basis for rescission of the health insurance policy.

Caplinger claims Time's rescission of the policy after Mary contracted colon cancer was inappropriate. He claims his wife disclosed her condition to their insurance salesman, Chad Schaeffer, in the early stages of the application process. He argues Schaeffer is an agent of Time and, therefore, Time should be imputed with knowledge of Mary's condition. Finally, he contends Mary's diagnosis of atherosclerosis was not material to the issuance of her insurance policy.


Summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, 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." Fed.R.Civ.P. 56(c). In considering a summary judgment motion, a court must review the entire record and draw all reasonable inferences in the light most favorable to the non-moving party. See NLFC, Inc. v. Devcom Mid-America, Inc., 45 F.3d 231, 234 (7th Cir. 1995); Enquip, Inc. v. Smith-McDonald Corp., 655 F.2d 115, 118 (7th Cir. 1981).

Few facts are disputed in this case. The undisputed deposition testimony of Dr. Thomas J. Vitale is that: (1) On March 21, 2002, he diagnosed Mary Caplinger with severe peripheral vascular disease with claudication; (2) Mary Caplinger underwent diagnostic testing on March 29, 2002, related to her circulatory condition; and (3) Mary Caplinger was prescribed Trental, an oral medication intended to improve her circulation on March 29, 2001; and (4) This prescription was later refilled at least 9 times. Caplinger did not disclose any of the above information to Time during his telephone interview on August 3, 2003.

Applying the summary judgment standard, the Court is confronted with two possible genuine issues of material fact for the jury: (1) Whether the non-disclosure of Mary Caplinger's atherosclerosis was material to Time's acceptance of her application? (2) Whether the Caplinger's insurance salesman, Chad Schaeffer, was acting as Time's agent during the Caplinger's application process? Time contends there exists no genuine dispute regarding materiality, and, therefore, summary judgment should be granted as a matter of law. Furthermore, Time argues Schaeffer's undisputed deposition testimony reveals he is not an "agent" of the company. Consequently, Time cannot be imputed with any knowledge Schaeffer may have had regarding Mary's condition. The Court, applying Illinois law to the undisputed facts, agrees with Time.

Under the Illinois Insurance Code, an insurance contract may be rescinded for misrepresentation in the application process under two distinct circumstances: (1) where the erroneous or incomplete information is provided with "an intent to deceive"; and (2) where the false or incomplete information in the application given by the applicant "materially affects either the acceptance of the risk or the hazard assumed by the company." 215 ILCS 5/154. "The statute's provisions are to be read in the disjunctive, so that either an actual intent to deceive or a material misrepresentation which affects the acceptance of the risk or the hazard to be assumed can defeat or avoid the policy." National Blvd. Bank v. Georgetown Life Ins. Co., 472 N.E.2d 80, 86 (Ill. App. Ct. 1984) citing Campbell v. Prudential Ins. Co., 155 N.E.2d 9, 10 (Ill. 1958); Hatch v. Woodmen Accident & Life Co., 409 N.E.2d 540, 543 (Ill. App. Ct. 1980). Further, Illinois courts have held an insurance company need not independently investigate the truthfulness of applicants' answers, but may instead rely upon the information contained in the insurance application where there is nothing to imply certain answers may be untrue. See Apolskis v. Concord Life Ins. Co., 445 F.2d 31, 36 (7th Cir. 1971), citing Metropolitan Life Ins. Co. v. Moravec, 73 N.E. 415, 416 (Ill. 1905).

Caplinger argues a different standard for rescission applies under the Illinois Health Insurance Portability and Accountability Act (hereinafter "HIPAA"), 215 ILCS 97/1, which sets out five exceptions to limit the termination of certain health insurance policies. (See Doc. 36, p. 11-13). Caplinger contends Time must show that he falls within the fraud exception which requires the insured "made an intentional misrepresentation of material fact under the terms of the coverage." (See Doc. 36, p. 11-12, citing 215 ILCS 97/50(B)(2)).

Time argues the HIPAA provision cited by Caplinger applies only to "group health plans." (Doc. 37, p. 11-12) citing 215 ILCS 97/5. Time cites Molnar v. Conseco Medical Insurance Co., 830 N.E.2d 800, 807 (Ill. App. Ct. 2007), which held HIPAA did not govern in the case since it involved an individual insured and not a "group health plan." The Court finds HIPAA does not apply in this case. After all, HIPAA's purpose is to regulate the formation and operation of health care purchasing groups while supporting the development of strong and efficient markets for the basic health care needs of Illinois employers, employees, and their dependents. See 215 ILCS 123/5. Furthermore, the Court determined the applicable law is 215 ILCS 5/154 at the hearing on the motion for summary judgment, and Caplinger's counsel did not argue otherwise. Therefore, "intent to deceive" is not an issue in this case.

The first question before the Court is whether Caplinger's non-disclosure during the telephone interview materially affected the risk accepted or ...

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