Security Life Insurance Co. of America v. Meyling

FERNANDEZ, Circuit Judge

concurring in part and dissenting in part:

I agree with everything in the majority opinion except the last seven paragraphs, which conclude that Meyling gets to reap the benefits of his fraud.

I agree that Security Life did reserve the right to adjust the premium retroactively, but I cannot agree that it thereby gave up its right to rescind for egregious misrepresentations like the ones made by Meyling. In fact, Security Life did, in effect, reserve the right to contest entitlement to insurance benefits where there was fraud, and there surely was fraud here. The mere fact' that it also reserved the right to change the premium retroactively should not affect that.

Were there any doubt that Security Life was not giving up its recission rights, that doubt should have been wiped away when it wrote to Meyling. It sent him his certificate booklet and a copy of his application. It then exhorted him to review the application and to “make certain all questions have been answered accurately and completely....” The letter continued: “If, upon second review, you determine some answers were not correct, please notify us in writing within ten (10) days of receipt of the certificate. FAILURE TO DISCLOSE ACCURATE INFORMATION MAY RESULT IN A DENIAL OF BENEFITS OR RESCISSION OF COVERAGE.” But Meyling’s misrepresentations were not due to a mere bevue. They were carefully thought out. He was not about to reveal his fraud at that point.

The result that Meyling now argues for hatches the very cockatrice that the Second Circuit warned against when it said that failing to allow rescission “would reward the practice of misrepresenting facts critical to the underwriter’s task because the unscrupulous (or merely negligent) applicant ‘would have everything to gain and nothing to lose’ from making material misrepresentations in his application for insurance.” Mutual Benefit Life Ins. v. JMR Electronics Corp., 848 F.2d 30, 34 (2nd Cir.1988). That court could have been speaking of Meyling himself when it said that a lying claimant could then “rest assured not only that he may demand full coverage should he survive the contestability period ..., but that even in the event of a contested claim, he would be entitled to the coverage that he might have contracted for had the necessary information been accurately disclosed at the onset.” Id. I agree that “[the] law does not permit this anomalous result.” Id.

As I see it, reading the policy and the law in Meyling’s preferred way creates a strong incentive to defraud insurers. In fact, it leaves no legal (as opposed to moral) reason for anyone to give accurate health information to Security Life. I am unable to accept that result.

In sum, Meyling believes that if he had not been discovered he could have kept the benefits of a low premium, and now that he has been discovered the most that Security Life can do is exact the premium that it would have received if he had not made his misrepresentations. That is a peculiar view of how insurance works, and I see no sufficient reason to hold that his picaresque behavior tnust be rewarded in that manner. On the contrary, Security Life should be allowed to resile and to leave Meyling where he was before he induced it to enter into a contract with him.

Thus, I respectfully dissent from the portion of the majority opinion which allows Meyling to harvest the fruits of his fraud.