Sherry Gasaway v. Northwestern Mutual Life Insurance Company, an Oregon Corporation John Does 1-10 Doe Partnerships 1-10 Roe Corporation

Citations: 26 F.3d 957; 94 Daily Journal DAR 7898; 94 Cal. Daily Op. Serv. 4256; 1994 U.S. App. LEXIS 13865; 1994 WL 246302Docket: 93-16235

Court: Court of Appeals for the Ninth Circuit; June 9, 1994; Federal Appellate Court

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Sherry Gasaway appealed the summary judgment granted in favor of Northwestern Mutual Life Insurance Company (NML) regarding its counterclaim for rescission of her disability insurance policy due to material misrepresentations in her application. Gasaway, an NML agent, initially applied for life insurance in April 1989, during which her medical records indicated a history of chronic fatigue syndrome and prescribed medication for depression. In December 1989, she applied for a disability insurance policy, during which she answered "no" to prior health issues except for acknowledging her previous physical exam. 

After becoming disabled between February and April 1990 and subsequently diagnosed with fibrositis, Gasaway filed a claim for disability benefits in July 1990. NML's investigation revealed significant undisclosed medical history, including visits for serious health conditions and ongoing medication use contrary to her application. NML also uncovered her prior treatment for depression, which was omitted from her applications. The underwriter's affidavits indicated that had this information been disclosed, the application would have been rejected. The district court upheld NML's summary judgment, concluding that Gasaway's misrepresentations were material to the insurer's risk assessment, leading to the denial of her benefits and the counterclaim for rescission.

To rescind Gasaway's insurance policy, NML must demonstrate that her statements constituted misrepresentations made with intent to deceive or that materially affected NML's assessment of risk. Gasaway concedes the falsity of her representations but claims they were not material, arguing NML had or could obtain the omitted information from other sources and that there was no causal link between her misrepresentations and her disability. 

She seeks to invoke Hawaii's "remedial" policy favoring insureds by treating insurance policies as adhesion contracts, but this is not applicable since the matter involves a statute rather than the insurer's contract language. Gasaway's assertion that NML had constructive knowledge of the risks in question is rejected; critical information regarding her prescription drug use, mental health history, and prior disability claims was not disclosed to NML, which the court found relevant to the risk evaluation.

Moreover, Gasaway's argument for a causal nexus between her misrepresentations and her medical condition is deemed irrelevant under Hawaii law, which only requires that the misrepresentation relate to the insurer's decision to insure the risk. The undisputed evidence indicates that NML would not have issued the policy had Gasaway provided her true medical history, justifying the summary judgment in favor of NML.

Gasaway also contends that NML did not meet its evidentiary burden for summary judgment, claiming the Westphal affidavits were insufficient and that the court improperly applied the Celotex standard, asserting NML bore the burden of proof. However, the court concludes that NML successfully demonstrated the lack of any genuine issue of material fact regarding the impact of Gasaway's misrepresentations on the acceptance of risk. Once NML established this, the onus shifted to Gasaway to produce evidence supporting her case, which she failed to do, as mere allegations or denials are insufficient under Federal Rule of Civil Procedure 56(e).

Gasaway failed to provide any witnesses, depositions, or affidavits to challenge NML's claims, merely asserting that Westphal's conclusions were speculative and should be ignored. The court noted that such allegations do not meet the burden of proof required to counter NML's evidence. The materiality of any misrepresentations was deemed clear enough that reasonable minds could only conclude whether the statements were true or false, justifying summary judgment based on precedents from Howell v. Colonial Penn Ins. Co. and Fine v. Bellefonte Underwriters Ins. Co. Gasaway's reliance on Vanatta v. Pacific Guardian Life Ins. Co., which pertains to Hawaii state law, was deemed inappropriate as federal law governs summary judgment in diversity cases. Furthermore, Gasaway's arguments against the adequacy of Westphal's affidavits—specifically regarding NML's underwriting manual and Westphal's medical qualifications—were rejected as she failed to object to these points in a timely manner, resulting in a waiver of those objections. NML sought attorney's fees based on several statutes, with the court remanding solely for a determination under Haw.Rev.Stat. Sec. 607-14. The court affirmed the prior ruling and remanded for attorney's fee evaluation, clarifying that misrepresentation does not prevent recovery unless there is intent to deceive or a material impact on the insurer's risk acceptance. Gasaway's claim that NML must prove intentional misrepresentation by "clear and convincing evidence" was dismissed as irrelevant to the case at hand.