Unpublished Disposition, 842 F.2d 335 (9th Cir. 1982)

MEMORANDUM^* 

Appellant Roger Stokes appeals the judgment in favor of plaintiff-appellee Crown Life Insurance Company ("Crown Life") in its negligence and breach of contract action on the grounds that the jury was improperly instructed. The case is before this court for the second time, the first appeal having ended in reversal of summary judgment in favor of Crown Life. Crown Life Ins. Co. v. Stokes, 794 F.2d 501 (9th Cir. 1986). On this second appeal, we affirm the judgment entered after trial in favor of Crown Life.

FACTS

Roger Stokes is a licensed insurance agent who, at times pertinent to this law suit, was operating under an agreement by which he was appointed to solicit applications for life insurance policies to be issued by Crown Life. On March 15, 1982, he obtained an application from Janis Christensen. Although Crown Life received some medical information on Mrs. Christensen, it never received a required paramedical report, despite its inquiries. Consequently, on June 8, 1982, it refunded Mrs. Christensen's initial premium and sent notice that her application had been denied.

Upon receiving the rejection notice, Mr. Christensen informed Stokes that after the application date and before receipt of the notice, Mrs. Christensen had been diagnosed as having a serious form of cancer. Stokes then requested Crown Life to waive the medical report requirement; he did not disclose the diagnosis. Crown Life acceded and issued the policy on the condition that Mrs. Christensen sign an amendment to the application, which she did without disclosing the diagnosis. Mrs. Christensen died on December 24, 1982.

Crown Life concluded that it was liable on the policy because the policy had been issued after Stokes learned of Mrs. Christensen's cancer, and Stokes's knowledge would be imputed to the company. It paid the policy limit of $200,000 and filed suit seeking indemnification from Stokes under theories of negligence and breach of the duties he owed under the agency agreement. The jury returned a special verdict form finding that Stokes had been negligent and had breached his contractual obligations, and that his actions or inactions were the proximate cause of Crown Life's damages. Stokes timely filed this appeal, claiming error in the jury instructions. We have jurisdiction under 28 U.S.C. § 1291.

ANALYSIS

A. JURY INSTRUCTIONS CONCERNING TEMPORARY CONTRACT OF INSURANCE

In district court Stokes sought to avoid liability by showing that his failure to disclose the cancer diagnosis was not the proximate cause of Crown Life's damages, arguing that there was a temporary contract of insurance in existence which Crown Life could not terminate once Mrs. Christensen's condition was diagnosed. On appeal he claims the district court committed two errors in giving the jury instructions relating to this defense.

First, Stokes claims the district court erred in its jury instruction regarding temporary insurance contracts. The court instructed the jury that an insurance company may terminate or decline an insurance contract even though the insurability of the applicant changed and a temporary contract of insurance was in effect if the company had no notice or knowledge of the change in insurability when it declined the application. Stokes argues that any change in insurability forecloses termination, whether or not the insurer has notice. We review the district court's formulation of jury instructions for an abuse of discretion. U.S. v. Wellington, 754 F.2d 1457, 1463 (9th Cir.), cert. denied, 474 U.S. 1032 (1985).

The Idaho courts have not considered the notice issue, but decisions from other jurisdictions indicate that the jury instruction was a reasonable statement of the law of temporary contracts of insurance. There are a number of reported cases in which an applicant has died or been diagnosed with a serious illness before an insurance company has completed its investigation and made a decision on the application. When the insurer has established that, independent of the change in insurability, it would have made a good faith decision to deny coverage based on its standard underwriting practices, the insurer generally has not been held liable under the temporary contract of insurance. See e.g., Rivota v. Fidelity & Guaranty Life Ins. Co., 497 F.2d 1225 (7th Cir. 1974); Cortez v. Life Ins. Co., 408 F.2d 500 (8th Cir. 1969); Investors Syndicate Life Ins. & Annuity Co. v. Slayton, 429 S.W.2d 368 (Ky.Ct.App.1968). See generally Annotation, Temporary Life, Accident, or Health Insurance Pending Approval of Application or Issuance of Policy, 2 A.L.R.2d 943, Sec. 17.

There are some cases in which an insurer has been held liable despite its argument that the deceased applicant would have been denied coverage at the standard rates, but the facts of these cases suggest that had the applicant lived, the company would have offered coverage at higher rates, but would not have denied coverage altogether. Ransom v. Penn. Mutual Life Ins. Co., 43 Cal. 2d 420, 274 P.2d 633 (1954); Life Ins. Co. of North America v. De Chiaro, 68 N.J.Super. 93, 172 A.2d 30 (N.J.Super.Ct.Ch.Div.1961). In the latter cases the applicants had submitted to the required physical examinations and had been found to be in generally good health prior to their accidental deaths; however, coverage at standard rates possibly would have been denied due to higher than normal blood pressure readings. Id.

Where the company had notice of the death or change in insurability prior to accepting or rejecting the policy, courts have required proof that it would have rightfully denied coverage anyway. Evers v. Standard Sec. Life Ins. Co., 345 F. Supp. 1162, 1166 (W.D. Va. 1972), aff'd without opinion, 490 F.2d 1407 (4th Cir. 1974); Miller v. Republic Nat'l Life Ins. Co., 714 F.2d 958, 961-62 (9th Cir. 1983). One court explained the rationale as follows:

[T]he parties intended that the company would evaluate and either accept or reject this application without regard to an intervening death or other change in insurability ... In the normal rejection situation it may fairly be presumed that the company's determination was based upon insurability and acceptability, and as of the prior date. Where a significant intervening event does occur, however, a fair balancing of the competing interests requires that the insurer make some showing that its rejection was based solely upon considerations which are permissible under the terms of the receipt.

Rivota, 497 F.2d at 1227-28. If the insurer has no notice of the change in insurability, then the "normal rejection situation" obtains, and the company need not offer additional proof that it acted in good faith. The district court's instruction was an accurate shorthand description of this rule, tailored to the facts. It was not an abuse of discretion to give this instruction.

This case differs from others which have considered the effect of a rejection made prior to receiving notice of a change in insurability in that Crown Life rejected the application because Mrs. Christensen never provided the required medical report, not because it determined she was uninsurable as of the date of her application. However, this distinction does not make the policy or logic of the decided cases any less applicable. In both situations a rejection prior to notice is necessarily made without regard to an intervening change in insurability, so no additional proof of good faith is necessary.

Stokes also claims the district court erred by failing to give a jury instruction derived from Miller v. Republic Nat'l Life Ins. Co. stating that insurability depends not on the mere existence of a medical condition, but rather on whether the condition would have been discovered during the medical examination required by the insurer. 714 F.2d at 961-62. The district court must instruct on any legitimate theory of defense which is supported by the evidence, Wellington, 754 F.2d at 1463, but it is not required to "incorporate every proposition of law suggested by counsel or [to] amplify an instruction if the instructions as given allowed the jury to determine intelligently the issues presented." Los Angeles Memorial Coliseum Comm'n v. Nat'l Football League, 726 F.2d 1381, 1398 (9th Cir.), cert. denied, 469 U.S. 990 (1984). The jury heard testimony about the factors to be considered in determining insurability, and Crown Life presented evidence that Mrs. Christensen's condition was already symptomatic when she applied for the insurance policy. Given this evidence, it is unlikely that Stoke's proposed instruction was necessary for the jury to understand the nature of insurability. The district court's refusal to give the instruction was not an abuse of discretion.

B. JURY INSTRUCTIONS CONCERNING AGENCY STATUS

Stokes argues that he was acting on behalf of the Christensens in this matter, and not as an agent of Crown Life. He contends that the jury instructions concerning the nature of his relationship with Crown Life "failed to clearly indicate that the license requirements for the State of Idaho are not dispositive of the relationship" and "mislead (sic) the jury as to the weight to be placed on various evidentiary matters." Stokes relies heavily on a statement made by this court on the first appeal, where we said, " [t]he fact that Stokes was not licensed as a broker is not dispositive of the nature of his relationship with Crown Life nor is the fact that he was licensed as an agent and not a broker." 794 F.2d at 504. The jury instructions accurately reflected this ruling by stating, " [w]hile defendant was licensed as an agent and not as a broker, it is for you to decide whether defendant was an agent or broker, and if an agent, the scope of his agency." The fact that the district court also gave an instruction derived from Idaho statutes governing brokers did not mislead the jury and was not an abuse of discretion.

Finally, Stokes claims that the special verdict form utilized by the district court failed to address all relevant issues, apparently contending that it did not include direct questions or instructions about the temporary contract of insurance. The district court need not honor every request for special verdict instructions; it is sufficient that the special verdict form adequately addresses all the relevant contested issues of the case. Maddox v. Los Angeles, 792 F.2d 1408, 1418 (9th Cir. 1986). Here, the special verdict question on proximate cause and the instructions on temporary contracts of insurance adequately explained Stokes's theory in light of the applicable law. We find that the special verdict form, coupled with the jury instructions, adequately addressed those issues.

The judgment is AFFIRMED.