Life Insurer May Rescind Policy where Insured Misrepresented His Health

A life insurance carrier may rescind a life insurance policy that it issued after it received an application from the insured, performed a medical exam on the insured, and obtained a form from the insured that misrepresented that there had been no changes to his health since the medical exam, a federal district court in Illinois has ruled.  

The Case

On November 27, 2009, James Krenz, the owner of Amy Plumbing, Heating & Cooling, Inc., submitted a life insurance application to Riversource Life Insurance Company that stated, among other things, that he: (1) had last seen his physician on November 2, 2009; (2) was taking medication for hypertension, high cholesterol, and Type 2 diabetes; (3) was being treated by a chiropractor for “sciatic discomfort”; and (4) had gastric bypass surgery in 2004 and a kidney ailment “in the mid to late 1980’s [sic].” The insurer ordered Krenz’s medical records from his doctor and on December 19 and 30, 2009, conducted a medical exam and follow-up interview of Krenz.

On February 3, 2010, Krenz sought medical treatment for “loss of appetite, loss of energy, fever, gastrointestinal symptoms” and abdominal pain. After two CT scans were performed, the findings were that “pancreatitis is a possibility this is thought less likely and suspicion is higher of pancreatic neoplasm.”

On February 9, 2010, Riversource told Krenz that it would issue him a $250,000 10 year term life insurance policy if he signed an amendment to the insurance application that stated that there had been “no change in my health since the date of my application, supplemental application (including applications for riders) or medical examination, whichever was later.”  Krenz signed that form.

Later in February, Loyola University Medical Center confirmed that Krenz had pancreatic cancer. He died on May 31, 2011, and on September 6, 2011, Amy Plumbing submitted a claim for benefits under the policy.

Riversource sued Amy Plumbing seeking to rescind the policy or for a declaration that it was not required to pay benefits under the policy, arguing that Krenz’s statement in the February 9, 2010, amendment that there had been no change in his health was a misrepresentation that materially impacted the risk it had agreed to accept. Riversource moved for summary judgment.

The Court’s Decision

The court found that Krenz’s declaration that his health had not changed was a misrepresentation, given that he had attested that the general condition of his body had not changed since his insurance medical exam on December 30, 2009 but that during this period Krenz: (1) sought medical care for abdominal pain, weight loss and gastrointestinal symptoms; (2) had two CT scans of his abdomen; and (3) was told he had pancreatitis.

The court then found that the misrepresentation was material, noting that even Amy Plumbing had admitted that if the insurer’s underwriters had “known about [Krenz’s] weight loss, abdominal pain and tenderness, doctor’s visits, CT scans and/or diagnoses of pancreatitis,” the insurer would not have issued the policy.

Accordingly, the court granted the insurer’s motion for summary judgment.

The case is Riversource Life Ins. Co. v. Amy Plumbing, Heating & Cooling, Inc., No. 12 C 1388 (N.D. Ill. March 15, 2013).