Provident Life & Accident Insurance v. Adie

Citations: 176 F.R.D. 246; 1997 U.S. Dist. LEXIS 15046; 1997 WL 610046Docket: No. 95-40183

Court: District Court, E.D. Michigan; September 29, 1997; Federal District Court

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Dr. James A. Adie is seeking benefits from a disability income policy issued by Provident Life and Accident Insurance Company. He has filed four motions in limine: 

1. To prevent Provident from introducing two additional policy defenses that were not raised during the initial denial of his claim.
2. To exclude evidence suggesting he does not meet the definition of 'totally disabled' as per the policy.
3. To exclude evidence regarding his obligation to report any errors or discrepancies in his application to Provident.
4. To exclude evidence of his income and employment after the date he signed the insurance application.

The factual background outlines that on April 29, 1993, Dr. Adie signed a contract to purchase a dental practice and received a Practice Summary detailing financial projections. On May 12, 1993, he applied for disability insurance with Provident, providing his projected current annual income as $80,000 and reported past earnings of $60,000 for 1992 and $45,000 for 1991. He certified the truthfulness of these statements in his application. Following the application, a Provident employee verified his income claims over the phone. Provident issued the disability policy effective June 1, 1993, and Dr. Adie began working at the dental practice the next day.

Dr. Olson demanded rescission of the purchase agreement shortly after acquiring the practice, leading to a settlement agreement with Dr. Adie on August 19, 1993, which nullified the prior agreement. Dr. Adie subsequently began employment at a dental office in Sterling Heights, Michigan, earning about $1,000 weekly. In June 1994, he allegedly injured two fingers on his right hand using a hand saw and filed a Notice of Claim with Provident within the two-year contestable period of his policy. Provident's investigation uncovered discrepancies between Dr. Adie's reported and actual income, revealing that his actual earnings for 1991, 1992, and 1993 were significantly lower than what he stated in his insurance application. As a result, Provident denied his disability benefits, citing material misrepresentations. On October 5, 1994, Provident informed Dr. Adie that accurate income history would have affected policy issuance. Provident filed for a declaratory judgment on May 31, 1995, asserting the policy was null and void. Dr. Adie countered on July 13, 1995, claiming wrongful denial of benefits. On June 24, 1996, Provident moved for summary judgment, supported by claims of misrepresentation, while Dr. Adie filed a cross-motion asserting no such misrepresentations were made. The court, in a November 1, 1996 opinion, denied both motions, concluding that while Dr. Adie misrepresented his 1991 and 1992 income, materiality remained a disputed issue. It also found that there was a genuine question about whether Dr. Adie's 1993 projection was a misrepresentation. The remaining trial issues include the materiality of the 1991 and 1992 misrepresentations and whether Dr. Adie misrepresented his 1993 income. Currently, four motions in limine filed by Dr. Adie are pending discussion.

Dr. Adie's motion in limine seeks to prevent Provident from introducing two defenses regarding his claim for insurance coverage, specifically: 1) the argument that he is not "totally disabled" because he can perform the duties of a dentist or has not reasonably attempted to return to dentistry (the "total disability defense"), and 2) the assertion that he is not disabled because he can perform the duties of an unemployed person (the "occupation defense"). Dr. Adie argues that Provident is estopped from asserting these defenses due to their omission in the initial denial letter dated October 6, 1994, which cited misstatements as the basis for denying his claim.

Under Michigan law, an insurer's denial of liability based on specific grounds generally waives other defenses not mentioned at that time. The law requires that insurers inform policyholders of all defenses they intend to rely upon when denying a claim; failure to do so constitutes a waiver of those defenses. However, this rule is not absolute, as insurers are not barred from asserting defenses unknown to them at the time of denial.

The resolution of whether Provident can raise the total disability and occupation defenses at trial hinges on whether it had knowledge of these defenses when it denied benefits to Dr. Adie. Currently, there is a factual dispute regarding Provident's knowledge, which cannot be adequately addressed through a motion in limine, as such motions are intended to exclude matters from jury consideration due to potential prejudice or prior court rulings. The court finds that it would be inappropriate to grant Dr. Adie’s motion solely based on his assertions that Provident must have known about the defenses due to access to his medical records at the time of denial.

Dr. Adie should have filed a summary judgment motion instead of a motion in limine if he intended to prevent Provident from raising defenses at trial due to a lack of genuine issues of material fact. The court does not recognize the 'total disability defense' and 'occupation defense' as separate; rather, they constitute a single defense asserting that Dr. Adie is not totally disabled under the Policy because he can perform significant duties of his occupation. Provident raised this defense in its Answer to Dr. Adie's counter-complaint dated July 27, 1995, thus providing Dr. Adie with adequate notice to file a summary judgment motion early in the lawsuit. Consequently, Dr. Adie's motion in limine regarding these defenses is denied.

In his second motion in limine, Dr. Adie seeks to exclude evidence not previously disclosed by Provident regarding his 'total disability' status. He argues that Provident has only referenced his medical records without offering additional supporting evidence or identifying witnesses. Federal Rules of Civil Procedure 26(e)(1) and 37(c)(1) establish requirements for supplementing disclosures and prohibit introducing undisclosed evidence at trial without justification. The court agrees that Provident will be barred from presenting any previously undisclosed evidence or witnesses related to the 'total disability' issue.

Dr. Adie’s third motion in limine aims to prevent Provident from introducing evidence about his failure to notify them of errors in his 1993 income projection on his insurance application. This issue is central to the case as it pertains to whether Dr. Adie misrepresented his income. Dr. Adie argues that Provident should not introduce evidence regarding his failure to disclose any known errors in his income projection.

Dr. Adie asserts that he had no obligation to update his insurance application and contends that any evidence regarding his failure to inform Provident of errors in the application is irrelevant and should be excluded from trial. He argues that this failure does not relate to whether he misrepresented his income and does not indicate bad faith. The court previously ruled that insurers have no general duty to verify the truthfulness of an applicant’s responses, but an applicant is required to voluntarily update information if circumstances change before the policy is issued. The court finds evidence regarding Dr. Adie’s failure to notify Provident of known errors in his application relevant, as an insurance application represents a continuous affirmation of truthfulness until the policy is delivered. Consequently, if conditions change between the application and policy issuance, the insured must inform the insurer. Dr. Adie’s failure to disclose discrepancies can imply a lack of good faith and support claims of misrepresentation regarding his income projection.

Provident argues that Dr. Adie’s updating duty extends beyond the policy issuance, but the court finds no persuasive authority for this claim, noting that cited cases do not support ongoing duties past the issuance date. Thus, the court permits Provident to present evidence of Dr. Adie’s failures prior to the policy issuance but excludes evidence of any updates made after that date.

Dr. Adie also filed a motion in limine to exclude evidence of his employment and income post-application, arguing it is irrelevant and prejudicial. The primary issue to be resolved is whether he misrepresented his income when he stated it to be $80,000 in May 1993. Dr. Adie maintains that determining the accuracy of this representation does not require knowledge of his actual income from 1993.

Dr. Adie asserts that only the facts and circumstances at the time he estimated his 'Current Annual Rate of Earned Income' should be considered, arguing that his actual earnings in 1993 are irrelevant. He believed this rate, in May 1993, to be the monthly income from Dr. Olson’s dental practice multiplied by twelve. Provident, however, argues that Dr. Adie’s total earnings for 1993 are pertinent for two reasons: first, to demonstrate that he did not earn what he estimated, thus showing Provident acted without wrongdoing in denying his claim; second, to illustrate that his income between May and August 1993 did not align with his $80,000 projection, indicating he may have overestimated his income. The court agrees with Provident, ruling that evidence of Dr. Adie’s 1993 income is relevant and not overly prejudicial, as it helps the jury understand why benefits were denied and whether Dr. Adie misrepresented his income. The significant gap between his actual and projected income supports the likelihood that he lacked a legitimate expectation of earning $80,000 and did not make his estimate in good faith. Additionally, the court believes that potential prejudice can be mitigated with a limiting instruction to the jury. Consequently, evidence of Dr. Adie’s 1993 income will be admissible.

Dr. Adie's motion in limine to prevent Provident Life, Accident Insurance Company from presenting additional defenses related to the Policy is denied. His motion to exclude evidence regarding his 'total disability' status as defined by the Policy is granted. A portion of his motion to exclude evidence about his obligation to report errors or discrepancies in the Policy and application is granted and denied selectively; Provident is allowed to present evidence of Dr. Adie's failure to report such errors before the Policy's issuance but is barred from introducing evidence regarding failures post-issuance. Dr. Adie's motion to exclude evidence of his 1993 income is denied. The document notes that a third party, Weston, recorded Dr. Adie's verbal answers on the application. It states that Dr. Adie stopped practicing dentistry in March 1994, two months before his accident. The Policy stipulates that after two years from its effective date, only fraudulent misstatements can void the policy or deny claims for losses incurred thereafter. Dr. Adie's income for 1993 was not available at the investigation's start, as he had not filed his returns by late October 1994. Provident's arguments against the waiver of additional defenses are unconvincing, including its claim that its denial letter reserved all rights, as it provided no supporting authority. Furthermore, the assertion that an insurer can void a policy from the outset is not supported by Michigan law, as clarified in Jones v. Jackson Nat’l Life Ins. Co.