Royal MacCabees Life Ins. Co. v. Montgomery

Citations: 716 So. 2d 921; 1998 La. App. LEXIS 1802; 1998 WL 391635Docket: 97 CA 1434

Court: Louisiana Court of Appeal; June 29, 1998; Louisiana; State Appellate Court

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An appeal was made in the case of Royal Maccabees Life Insurance Company v. Jerry D. Montgomery regarding the validity of a disability insurance policy that Royal sought to rescind based on alleged material misrepresentations by Montgomery concerning his medical history. Royal claimed Montgomery failed to disclose past medical issues, including heart murmur and chest pain, when he applied for the policy. After discovering these misrepresentations, Royal sent a letter to Montgomery on August 21, 1991, stating that, had they known the true medical history, they would not have issued the policy. Royal attempted to rescind the policy by filing a suit on August 26, 1991, just before the end of the contestable period of two years. 

Montgomery denied the allegations and filed motions, including a peremptory exception of no cause of action. The trial court initially denied relief to both parties but later sustained Montgomery's exception, ruling that the incontestability clause in the policy precluded cancellation after two years without adequate notice. The court found that Royal had not provided the required written notice of cancellation at least twenty days before the two-year period ended, thus determining the policy remained in force and was incontestable.

The trial court determined that Montgomery's alternative motion for summary judgment was moot due to the ruling on his exception of no cause of action. Montgomery subsequently sought attorney's fees under La. C.C.P. art. 863, claiming he was the prevailing party in an unfounded action brought by Royal. On May 16, 1995, the trial court, presided over by Judge Paul B. Landry, Jr., awarded Montgomery $5,800 in attorney's fees. Royal appealed both the September 21, 1994 and May 16, 1995 judgments, and Montgomery countered with a request for additional attorney's fees. 

Upon review, the appellate court found that Royal's petition did establish a cause of action for rescission of the insurance contract, subsequently reversing the trial court's judgment that upheld the exception of no cause of action and the attorney's fee award. The case was remanded for further proceedings, and the Louisiana Supreme Court denied Montgomery's writ application on October 25, 1996.

On November 14, 1996, Montgomery filed a "Defendant's Motion for Summary Judgment in Accordance With the Law of the Case," asserting that prior rulings supported his motion. On January 15, 1997, the trial court granted his motion, referencing the reasoning of a previous judge regarding the incontestable clause of the insurance policy, which precluded Royal's cancellation of the policy. However, the trial judge did not adopt the previous ruling on attorney's fees, stating that Royal had a reasonable basis for its lawsuit despite not prevailing. Both parties appealed, and the appellate court reversed the summary judgment in favor of Montgomery and remanded the case for further proceedings.

The analysis section clarified the nature of summary judgment, emphasizing its use as a procedural device to avoid trial when no factual disputes exist, and noted legislative changes that now favor summary judgments.

In 1997, Louisiana's Act No. 483 amended La. C.C.P. art. 966 to adopt the federal summary judgment standard, allowing retroactive application in evaluating summary judgments issued before the amendment's effective date. The amended article mandates that the moving party must demonstrate the absence of a genuine issue of material fact. If the moving party identifies a lack of factual support for essential elements of the opposing party's claims, the nonmoving party must then provide sufficient factual support to meet their evidentiary burden at trial. Failure to do so results in the absence of a genuine issue of material fact, warranting the granting of summary judgment. Appellate courts review such judgments de novo, using the same criteria as the trial court.

Regarding misrepresentations in insurance applications, La. R.S. 22:619 specifies that misrepresentations, whether oral or written, are only deemed material if made with intent to deceive. For health and accident insurance applications, statements are considered representations unless fraud is present, and false statements do not bar recovery unless they were intended to deceive or materially impacted the insurer's risk assessment. Insurers may rescind contracts where false statements materially affect risk and are made with deceptive intent. Rescission invalidates the policy from its inception, differing from other termination methods such as cancellation, expiration, or nonrenewal. La. R.S. 22:636 outlines the procedures insurers must follow for policy cancellation, applicable when the policy terms allow for it.

Written notice of cancellation must be delivered or mailed to the insured or their representative at least twenty days before the cancellation's effective date, except for nonpayment of premium. The notice aims to inform the insured of the policy's termination and allow time to secure alternative coverage. Certain insurance types, such as temporary life insurance binders and specific life or health insurance without cancellation provisions, are exempt from this requirement.

The incontestability clause in the disability policy states that the policy becomes incontestable two years after the issue date, which is identified as August 28, 1989. Royal claims it is not bound by the cancellation procedures in La. R.S. 22:636(A), arguing that the policy is "non-cancelable" and that La. R.S. 22:636 does not apply to its rescission suit. Montgomery contends that Royal must adhere to the notice requirements of La. R.S. 22:636(A) during the two-year contest period, asserting that the policy was not validly cancelled before it became incontestable on August 29, 1991.

The court finds that Montgomery has not demonstrated the absence of genuine issues of material fact necessary for judgment. The incontestability clause was not activated until August 29, 1991, and Royal was permitted to seek rescission based on La. R.S. 22:619 up until that date. A referenced case, Serie v. Safeway Ins. Co., illustrates that an insurer could be estopped from denying coverage if they fail to cancel a policy after being aware of material misrepresentations, suggesting that La. R.S. 22:636 was misapplied in that instance in favor of La. R.S. 22:619, which deals with application misrepresentations.

La. R.S. 22:619 governs the dispute, revealing unresolved factual issues concerning whether Montgomery made a false statement in his insurance application that materially affected the risk and whether any misrepresentation was made with intent to deceive. The trial court's grant of summary judgment to Montgomery is deemed erroneous and is reversed. Regarding attorney's fees, Montgomery seeks reinstatement and increase of the May 16, 1995 award, arguing it was justified as sanctions against Royal under La. C.C.P. 863. However, since the court finds merit in Royal's arguments, there is no basis for such sanctions, leading to the affirmation of the trial court's denial of Montgomery's attorney's fee claim. Consequently, the judgment of January 15, 1997 is partially reversed regarding summary judgment and affirmed regarding attorney's fees, with the matter remanded for further proceedings. Cost assessment will await final determination. Additional notes clarify the policy's issue date, Judge Keogh's subsequent ruling on attorney fees, and the appellate court's findings on the applicability of La. R.S. 22:636 and Royal's knowledge of misrepresentations.