Fisher v. Household Life Ins. Co.

RICHARD FISHER and BETTIE FISHER, Plaintiffs,

v.HOUSEHOLD LIFE INSURANCE CO., et al., Defendants.

CIVIL ACTION No. 10-2547-KHV

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

Dated: July 19, 2013

MEMORANDUM AND ORDER

Richard Fisher and Bettie Fisher bring this diversity action against Household Life Insurance Co. and Mortgage One Corporation d/b/a Household Finance Company Mortgage Corporation ("HFC"). Plaintiffs sue Household Life for breach of contract (Count I), failure to pay without just cause or excuse under K.S.A. § 40-256 or V.A.M.S. § 375.420 (Count IV) and fraud (Counts V, VI and VII). Plaintiffs sue HFC for negligent procurement of insurance (Count II), insurance malpractice (Count III) and fraud (Counts VI and VII). This matter comes before the Court on Defendants' Motion For Summary Judgment (Doc. #118) filed March 8, 2013. For reasons set forth below, the motion is sustained.

Facts¹

Richard Fisher and Bettie Fisher are married and live in Kansas City, Missouri. Household Life and HFC are Delaware corporations. In early May of 2006, Richard Fisher visited the HFC office at the Westfield Shopping Center in Kansas City, Kansas. He met with Barbara Oropeza, anaccount executive, to discuss refinancing the Fisher home with a second mortgage.

On May 23, 2006, plaintiffs went to the HFC office to sign refinancing documents. During the closing, Oropeza asked plaintiffs if they wanted to apply for credit disability insurance.² Fisher testified that he did not want disability insurance because he had always been healthy.³ He said that Oropeza "kind of had to talk us into that," as follows:

[S]he gave us an example of a couple that didn't take it and they got in - her husband got out of work or something like that, and then they needed it and they didn't have it so they ended up losing their home. So naturally once you hear that, you're going to be a little scared so we went ahead and took it. . . . She said that she would advise us to take this because in the event that I became disabled, it would make our mortgage payments for us.

Doc. #123-3 at 6. Oropeza told the Fishers that the insurance would cover Fisher if he became disabled, for as long as he was disabled. Doc. #123-3 at 14.⁴ He decided to purchase the insurance, which was underwritten by Household Life.

Fisher did not instruct Oropeza to go into the marketplace to procure credit disability insurance for him. He never agreed for her to act as his insurance broker or agent, and he did not pay her a commission. Doc. #119-2 at 6. Oropeza never tried to obtain insurance from an entity notaffiliated with HFC.

At the closing on May 23, 2006, Fisher executed an Application for Group Insurance for life and credit disability insurance underwritten by Household Life. See Doc. #119-8. Plaintiffs executed a Notice of Proposed Group Life Insurance and a Notice of Proposed Group Disability Insurance (the "Disability Notice"). The notices each state that "the amount of your insurance may not cover the full amount of your loan." See Doc. #119-9 at 2-3. The Disability Notice provides that "[u]pon approval, and within 30 days of the date of your application, subject to receipt of satisfactory evidence of insurability, a certificate of insurance will be delivered to you." Id. at 3. It also states that the policy has a "Critical Period of 24 months" and defines Critical Period as "the number of months benefits are payable during one period of disability." Id. It further states that "there is no limit to the number of Critical Periods for which benefits are payable." Id.

On May 23, 2006, Fisher executed the CE Optional Credit Insurance Disclosure (the "Disclosure"). See Doc. #19-10. The Disclosure states, "You understand that this is the only Credit Life, Disability [] Insurance we offer." Id. at 2. It further states as follows:

Your certificate may provide a Critical Period disability benefit. The Critical Period is the number of months for which monthly benefits are payable during any period of disability. There is no limit to the number of Critical Periods for which benefits may be payable during the term of insurance. However, this is a limited benefit, which may not be enough to pay off your loan. (See your certificate for details).

Id.⁵

HFC provided underwriting and claims services to Household Life. In December of 2002, on behalf of HFC, Household Life and other subsidiaries and affiliates, Household International hadentered into a consent judgment with state attorneys general including the Kansas and Missouri Attorneys General. Doc. #123-13. The Consent Judgment specifically addressed the disability insurance product and stated that defendant "shall establish procedures so that its employees fully explain credit coverage." Id. at 10.⁶

On June 13, 2006, Household Life mailed the Fishers an approval letter addressed to their residence in Kansas City, Missouri. It stated that "a" certificate was enclosed, but did not state whether it was the life insurance, the disability certificate or both. Doc. #119-13 at 4.⁷ Fisher testified that he did not receive the certificate in June of 2006, but that he "possibly" received the approval letter. Doc. #123-3 at 8. He did not contact Household Life during 2006 to request a certificate.

Household Life has presented as an exhibit the certificate of group disability insurance which it would have mailed to plaintiffs in the ordinary course of business.⁸ Doc. #119-13 at 9-12.Beneath the box which sets out the Group Policy Limits, the certificate states, "**Critical Period: 24 months." Id. at 9. The certificate then includes a notice which states, in part, that "CRITICAL PERIOD DISABILITY PAYS A LIMITED BENEFIT WHICH MAY NOT COVER PAYMENT OF ALL OF THE UNPAID SCHEDULED INSTALLMENTS, EVEN IF THE LOAN INSTALLMENTS WERE PAID ON A CURRENT BASIS." Id. The certificate then states "READ YOUR CERTIFICATE CAREFULLY. It is evidence that we insure you. This Certificate is subject to the provisions of the Group Policy under which it is issued and contains all details about the insurance as it applies to you." Id. On the next page, the certificate defines "Critical Period" as "the number of months for which monthly benefits are payable during any period of disability. There is no limit to the number of Critical Periods for which benefits may be payable during the Term of Insurance." Id. at 10.

The Group Policy (the "Policy") provides that disability coverage is subject to a Critical Period, defined as "the number of months for which monthly benefits are payable during one period of disability," see Id. at 39, and that "[t]here is no limit to the number of Critical Periods for which benefits may be payable during the Debtor's Term of Insurance." Id. The Policy states that monthly benefits "will stop on the earliest of (i) the date you are no longer disabled, (ii) the date you have received the number of monthly benefits in the Critical Period, or (iii) the date this insurance ends,as explained under the Termination of Insurance on Insured Debtors provision." Id. at 40. The Policy further provides as follows:

If payment of benefits ends because the Insured Debtor is no longer disabled or because the Insured Debtor has been paid the number of benefits in the Critical Period, insurance is not terminated and a new Critical Period will be covered as described in the Definitions Section of this policy. Successive periods of disability due to the same or related causes shall be considered one continuous period of disability unless the Insured Debtor has been actively employed full time for six consecutive months or, if not actively employed, has been engaged in normal activities for six consecutive months.

Id. Schedule A to the Policy lists the Critical Period of 24 months. Id. at 44.

In early December of 2007, Fisher became ill with scleroderma. See Doc. #119-2 at 12-13. He continued to make loan payments, although some payments were late. When Fisher was at an HFC branch, an employee reminded him that he had disability insurance and that he could submit a claim for benefits. In January of 2008, Fisher submitted a disability claim. Household Life accepted the claim and backdated Fisher's coverage to December 6, 2007.

On May 6, 2008, Household Life sent Fisher a letter which stated that "[d]ue to the nature of your disability, your claim has been placed on an automatic payment schedule. We will continue payments of $1,106.72 until January 12, 2009, when we will send you another claim form." Doc. #119-15 at 1. The letter further provided as follows:

[W]e ask that you carefully re-read the certificate of insurance you received at the inception of your disability coverage. Among other things, your certificate of insurance explains:

1. How long will benefits continue,

2. When we will cease paying a monthly benefit to your creditor on your behalf.

3. Why benefits paid may not completely pay off your loan.

If you are unable to locate a copy of your certificate of insurance, your creditor's representative can provide a specimen copy for yourreview. If you have any questions after reviewing your certificate, feel free to contact one of our representatives.

Id.

On January 29, 2009, Household Life sent Fisher a letter which reminded him that disability payments were payable for a maximum of 24 months for any one episode of total and continuous disability and advised that benefit payments for that period would stop on December 6, 2009. Fisher testified that he did not receive this letter.

In January of 2010, the Fishers contacted Household Life to ask why it had stopped making mortgage payments. Household Life responded that it intended to make only 24 months of payments. The Fishers reviewed their mortgage and insurance documents and believed that nothing limited their mortgage disability payments to 24 months.

Household Life provided the Fishers "Continuance Claim" forms after they inquired why benefits had ended. On March 7, 2010, Household Life sent plaintif...