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Massachusetts Mutual Life Insurance Company v. Christopher Zaucha

August 15, 2011

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, PLAINTIFF,
v.
CHRISTOPHER ZAUCHA, DEFENDANT.



The opinion of the court was delivered by: Charles P. Kocoras, District Judge:

MEMORANDUM OPINION

This matter comes before the Court on Plaintiff Massachusetts Mutual Life Insurance Company's ("Mutual Life") motion for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, the motion is granted.*fn1

BACKGROUND

Plaintiff Mutual Life is an insurance company headquartered in Massachusetts and transacting business in Illinois. Defendant Christopher Zaucha ("Zaucha") is a self-employed individual residing in Chicago, Illinois.

On or about May 7, 2008, Zaucha wanted to purchase life and disability insurance and met with Arthur Monroe ("Monroe"), a Water Tower Financial Partners ("Water Tower") employee licensed to sell insurance. Monroe helped him complete the application forms for the life and disability insurance policies.

During the application process for the life insurance policy (the "Life Policy"), Monroe asked several questions and wrote down the information Zaucha gave him. Zaucha's annual earned income became a critical part of the application process and the parties now dispute the reason why Monroe stated that Zaucha's annual earned income was $80,000. On one hand, Zaucha alleges that Monroe asked him about his assets and income, and that the number Monroe ultimately wrote down was the product of their joint calculation. Zaucha also alleges that, at Monroe's request, he tendered a copy of his 2007 income tax return, even though Mutual Life did not require any proof of income. On the other hand, Monroe maintains that Zaucha never gave him the tax return and unilaterally represented that his annual income was $80,000. After completing the Life Policy, Monroe gave Zaucha a copy of the form and told him that it would be submitted to Mutual Life for underwriting.

Once Zaucha signed the application for the Life Policy, Monroe helped Zaucha complete the disability application form (the "Disability Policy"). Again, the parties dispute the method they used to identify Zaucha's income in the application form.

According to Zaucha, Monroe was aware of his annual income because Zaucha had supplied a copy of his 2007 income tax return. Zaucha also alleges that the amount stated in the form was again the product of their joint calculation: Monroe informed Zaucha that he could not pick $100,000 and gave him a choice between $70,000, $80,000, or $90,000. Based on the numbers Monroe indicated, Zaucha chose $80,000. Monroe's summary of the events differs. He alleges that Zaucha never provided his 2007 income tax return. According to Monroe, Zaucha unilaterally represented that he made $100,000 annually. Monroe testified that even though Zaucha told him he earned $100,000, he told Monroe to write down a lower number to avoid paying a higher premium. Following Zaucha's instructions, Monroe wrote down $80,000 instead of $100,000. Finally, Zaucha read and signed the application for the Disability Policy.

Both the Life and the Disability Policies stated that "[a]ny policy issued as a result of material misstatement or omission of facts may be voided, and the company's only obligation shall be to return the premiums paid." The Policies further provided that "to the best of the applicant's knowledge and belief, all statements made in this [application] are complete, true, and correctly recorded."

Mutual Life issued the Life Policy on May 14, 2008, and the Disability Policy on July 11, 2008. On March 30, 2009, Zaucha suffered an injury and submitted a claim for disability benefits under the Disability Policy. On July 1, 2009, Mutual Life received the claim and conducted a routine investigation. Mutual Life alleges that, while investigating the claim, it obtained, for the first time, Zaucha's 2007 and 2008 income tax returns. The tax returns revealed that Zaucha's 2007 and 2008 total income was respectively $6,956 and $5,499.

On or about January 21, 2010, Howard Knudsen ("Knudsen"), a Mutual Life underwriter, reviewed the financial information in the Life and Disability Policies to inquire whether coverage would have been issued if Zaucha's true financial circumstances had been known. According to Knudsen, one of the factors that Mutual Life underwriters consider in evaluating applications is the applicant's ability to pay premiums. Knudsen calculated that, under both Policies, the combined premiums Zaucha would have to pay in 2008 and 2009 amounted to $3,182.41. The combined premiums represented 45.75% of Zaucha's 2007 income and 57.87% of his 2008 income. Based on these calculations and on Mutual Life's underwriting policies, Knudsen concluded that, had Zaucha truthfully disclosed the correct amount of his income, Mutual Life would have declined the applications because the misrepresentations materially affected its acceptance of risk. Knudsen also determined that had Zaucha disclosed that he earned less than $12,000 a year, Mutual Life would have rejected the disability application as a matter of policy. Zaucha disputes Knudsen's conclusions by alleging that Mutual Life's underwriters were aware of his income because they were in possession of his 2007 income tax return.

By letter dated February 9, 2010, Mutual Life notified Zaucha that it rescinded the Life and Disability Policies based on the misrepresentations of his earned income. With the letter, Mutual Life tendered to Zaucha checks for the refund of all premiums paid pursuant to the Policies. Zaucha refused to cash the checks.

On March 30, 2010, Mutual Life filed a four-count complaint against Zaucha. In Counts I and II, Mutual Life asserts that, because of Zaucha's material misrepresentations, it is entitled to rescind of the Life and Disability Policies. In Counts III and IV, Mutual Life seeks a declaratory judgment ...


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