Shirley R. Adzick v. Unum Life Insurance Company of America
Docket: 02-3325
Court: Court of Appeals for the Eighth Circuit; December 16, 2003; Federal Appellate Court
UNUM Life Insurance Company of America (UNUM) appealed the district court's denial of its motions for a new trial and for expanded findings of fact in the case brought by Shirley Adzick, seeking long-term disability insurance benefits. The district court had previously ruled in favor of Adzick, determining that UNUM's policy contained ambiguous terms and that Adzick had not fraudulently reported her income.
Adzick purchased a long-term disability policy from UNUM in February 1993 while employed as a dentist. During the application process, both Adzick and her employer provided information, and she reviewed the application for accuracy before signing. The policy stated that UNUM would not contest application statements after two years unless there were fraudulent misstatements. Adzick filed a claim for benefits on March 10, 1997, citing loss of confidence in her work abilities due to cocaine dependency and subsequently entered treatment.
UNUM requested her tax returns, which showed inconsistent income reports, leading them to rescind the policy and deny her claim on the grounds of fraudulent misrepresentation of income and cocaine use. Upon Adzick's appeal, UNUM upheld the denial, prompting her lawsuit. The district court found the term "regularly used" in the policy ambiguous, ruled that UNUM did not prove Adzick's regular cocaine use, and concluded there was no fraudulent misrepresentation of income.
UNUM's subsequent motions for amended findings or a new trial were denied, leading to its appeal. The appellate court noted that a district court's denial of a new trial is reviewed for abuse of discretion, emphasizing deference to the district court's judgment due to its firsthand observation of trial proceedings.
Minnesota Statutes § 62A regulates disability insurance, including provisions concerning the falsity of statements made in insurance applications. Specifically, § 62A.06(3) states that false statements do not bar recovery unless they materially influenced the insurer's acceptance of risk. For policies over two years old, the insurer, UNUM in this case, must additionally demonstrate fraud. Relevant case law indicates that if the insured is aware of concealed facts, it implies willful intent to mislead. The application in question included an inquiry about past cocaine use, to which Adzick answered "no," without definitions for "regularly" or "currently." At trial, Adzick defined "regularly" as "every day." Additionally, the application required income information, which Adzick provided without independent verification, relying on information from Perpich. UNUM contends the terms "regularly used" and "currently use" are not ambiguous and asserts evidence shows Adzick regularly used cocaine within the specified timeframe. However, the district court found these terms ambiguous, which UNUM contests, arguing that insurance contract interpretations should reflect the parties' intentions as expressed in the contractual terms.
An ambiguity in an insurance contract's language must be construed against the insurer and in favor of the insured. An insurance policy is deemed ambiguous only if it can reasonably be interpreted in more than one way. Courts cannot impose an ambiguity onto clear language to extend coverage. In evaluating ambiguities, courts should avoid creating ambiguities that do not exist. The existence of a contractual ambiguity does not automatically favor the drafter's loss. In this case, terms like "regularly used" and "currently use" are not defined in UNUM's insurance contract, so they should be interpreted according to their plain meanings. "Regular use" is understood as a habitual practice, while "current" refers to the present time. These definitions are not ambiguous in the context of this case. Testimony suggesting that "regularly used" means "daily use" lacks support, and Minnesota courts have generally found "regular use" and similar terms to be unambiguous in insurance policies. Various cases confirm this understanding in the context of automobile insurance, while other jurisdictions also recognize the unambiguity of "regular use," although some allow for factual determination at summary judgment.
The term "regularly used, or is currently using" illegal drugs has been deemed clear in the context of life insurance claims. In the case of Johnson v. Prudential Ins. Co. of America, the insurer denied benefits to the decedent's spouse due to the decedent's marijuana use before and after applying for insurance, claiming that he falsely answered a key question regarding drug use. The court found the terms unambiguous, determining that the decedent understood the question. Similarly, in the current case, the insurance application inquires whether Adzick "regularly used, or is currently using" cocaine or other illegal drugs. The court concluded that there was no reasonable ambiguity in these terms, rejecting Adzick's interpretation that "regularly used" meant "daily use" as unreasonable. Additionally, Adzick did not adequately explain her denial of current drug use on the application.
The court also examined whether Adzick provided a false answer, adhering to Rule 52(a) of the Federal Rules of Civil Procedure, which limits the overturning of factual findings unless clearly erroneous. The evidence presented, primarily from Adzick's medical records, indicated a long history of cocaine use, which she reported as continuous except during pregnancies. Reports from various medical professionals noted that her cocaine use escalated to a substantial problem around 1991-1993. Adzick described her use as "intermittent" until it became more frequent, supporting the conclusion that her answers on the insurance application were misleading.
Adzick claimed she did not regularly use cocaine until October 1995 and argued that her behavior from 1988 to 1993 did not indicate chronic use. She provided witness testimony asserting they observed no signs of cocaine-related issues; however, these witnesses primarily interacted with her in professional settings where she maintained a façade of sobriety. Evidence revealed that Adzick began daily cocaine use in October 1995 but managed to conceal it until a report to the Minnesota Board of Dentistry in December 1997. The district court dismissed treatment records that documented her own admissions of cocaine use, deeming them less credible due to their later creation. These records consistently indicated regular cocaine use starting around 1991 and 1992. The court contrasted Adzick’s case with that of another individual whose minimal marijuana use was deemed sufficient to establish regular use. The district court accepted witness testimonies about Adzick's sobriety despite them being recollections made years later, which the court previously deemed unreliable. Upon review, it was determined that the district court erroneously concluded Adzick did not regularly use cocaine during the relevant period, finding her negative response on the insurance application to a question about cocaine use constituted a false statement on a material matter. Consequently, the decision to deny UNUM's motion for a new trial and to amend findings of fact was deemed an abuse of discretion, leading to a reversal of the district court's ruling.
