Unpublished Disposition, 931 F.2d 896 (9th Cir. 1991)

MEMORANDUM^* 

John Hancock Variable Life Insurance Company sued Dr. Jose A. Taboada for rescission of life and disability insurance policies. John Hancock claimed that material misrepresentations on Taboada's applications for the policies entitled John Hancock to rescission. After a bench trial, the district court entered judgment for John Hancock, rescinding both policies. Taboada appealed, and we affirm.

DISCUSSION

I. Excuse for Omissions and Misrepresentations

Taboada emphasizes the district court's finding that, while no one of Taboada's omissions or misrepresentations entitled John Hancock to rescission, the "total picture" of Taboada's T-cell tests, skin anergy, foot skin lesions and biopsy, lymph node swelling, and history of syphilis was material under John Hancock's own underwriting guidelines. Taboada then reasons that, if under California law he was excused from disclosing some of these facts, then no "total picture" entitled John Hancock to rescission. We disagree.

Under California law, "an insurer has a right to know all that the applicant for insurance knows regarding the state of his health and medical history.... Material misrepresentation or concealment of such facts are grounds for rescission of the policy, and an actual intent to deceive need not be shown." Thompson v. Occidental Life Ins. Co., 9 Cal. 3d 904, 915-16, 513 P.2d 353, ---- (1973) (en banc). See also Cal.Ins.Code Secs. 330-32. Courts determine materiality of an omission or misrepresentation "solely by the probable and reasonable effect which truthful answers would have had upon the insurer.... The fact that the insurer has demanded answers to specific questions in an application for insurance is in itself usually sufficient to establish materiality as a matter of law." Thompson, 9 Cal. 3d at 916, 513 P.2d at ----. See also Cal.Ins.Code Sec. 334.

In general, then, an insurance applicant's material omission or misrepresentation is grounds for rescission, and insurers themselves generally define materiality by the questions they pose in applications. If an applicant provides incorrect or incomplete answers because the applicant "had no present knowledge of the facts sought, or failed to appreciate the significance of information related to him," however, the insurer does not have grounds for rescission. Thompson, 9 Cal. 3d at 916, 513 P.2d at ----. Moreover, courts must construe an insurer's references to "illness or disease" to mean only those " 'serious ailments which undermine the general health.' " Id. (quoting Ransom v. Pennsylvania Mutual Life Ins. Co., 43 Cal. 2d 420, 427, 274 P.2d 633, 637 (1954)). Taboada argues that these exceptions to the general rule excuse his failure to disclose his entire medical history accurately and completely to John Hancock.

A. Specific Inquiry about Immune Disorders and Nondiagnostic Tests

Taboada argues that John Hancock's failure to inquire specifically about "known indications" of "immune disorders" and about "nondiagnostic" (that is, experimental) tests excused him from disclosing the T-cell tests, the test indicating skin anergy, his swollen lymph nodes, and his foot lesions. If John Hancock believed these were material facts for rescission, Taboada argues, it should have inquired specifically about them.

John Hancock did inquire specifically about any indication of any known blood, skin, or lymph gland disorder. In response to those specific inquiries, Taboada was obligated to disclose his swollen glands and foot lesions. Moreover, the questionnaire specifically asked about consultations with a personal physician for any matter not reported on the questionnaire. Taboada had consulted with Drs. Elkin and Mills about the T-cell tests and skin anergy. Therefore, Taboada was also obligated to disclose those test results to John Hancock, even if they were "nondiagnostic."

B. Minor Indispositions Not Undermining Taboada's Health

Taboada further argues that the T-cell tests, skin anergy, swollen glands, and foot lesions were not "serious ailments" undermining his general good health. Taboada reasons, therefore, that he was under no obligation to disclose them to John Hancock. Courts may excuse an applicant's failure to provide information about minor indispositions not affecting general good health. See Thompson, 9 Cal. 3d at 916, 513 P.2d at ----. The excuse arises, however, only when the insurer asks about nothing more specific than "illness or disease." Id. In Taboada's case, John Hancock asked specifically about any indications of disorders and about consultations with physicians about any matters, whether or not those indications and matters were serious. Given the specificity of John Hancock's questionnaire, John Hancock did not request information pertaining only to serious illness undermining the general health, and no excuse for Taboada' omissions arises.

Taboada argues that the foot skin lesions and biopsy were not "within his knowledge," as required by California insurance law, because he had forgotten about the incident by the time of his application for insurance. See Cal.Ins.Code Sec. 332. Taboada points out that, at the time of the biopsy, he was aware only of Mills' diagnosis of dermatitis, a minor condition resolving itself without treatment. Because Taboada did not subjectively recall the incident, he reasons, it was not "within his knowledge," and he was under no obligation to disclose it to John Hancock. See Thompson, 9 Cal. 3d at 916.

The district court specifically discredited Taboada's testimony that the biopsy was "casual" and only part of a "research project." The district court did not make any specific finding on any allegation that Taboada had forgotten about the biopsy by the time of his application. The district court did find, however, that there was "no evidence to suggest that Taboada was either ignorant of the facts regarding his medical history or that he failed to understand the questions being asked." Instead, the district court found that "Taboada's testimony at trial lacked credibility in significant matters." Reviewing these credibility determinations with deference, we conclude that the district court did not clearly err in disbelieving Taboada's testimony that he forgot about the foot skin problems.

Taboada argues further that he was not obligated to disclose facts he believed were medically insignificant. California law, Taboada argues, focuses on the insured's actual, subjective knowledge and understanding. Cf. Cohen v. Pennsylvania Mutual Life Ins. Co., 48 Cal. 2d 720, 726, 312 P.2d 241, 244 (1957) (applicant may be excused for failing to understand medical terms). Given Taboada's subjective understanding as a physician, Taboada testified he believed that the skin anergy, T-cell tests, and swollen lymph nodes were medically insignificant.

We reject this argument on both legal and factual grounds. As a matter of law, insurance applicants, even when medical doctors, cannot unilaterally decide that information requested on an application is immaterial. Instead, by virtue of requesting specific information, John Hancock established its materiality. See Thompson, 9 Cal. 3d at 916, 513 P.2d at ----. Thus, John Hancock's specificity obligated Taboada legally to respond accurately, regardless of his subjective view of the materiality. Id.

Taboada argues further that, if the court may charge Taboada with special knowledge as a doctor, then it ought also credit Taboada's medical assessment of the insignificance of facts. While this principle may hold in other circumstances, the district court's fact findings make it inapplicable here. The district court found that, far from accurately assessing his condition, "Taboada tended to minimize symptoms that a reasonable person would know are significant and which Taboada himself found significant enough that he sought medical advice concerning their appearance. His answers in regard to several of these matters were not straightforward or were evasive." Viewing the district court's credibility findings with deference, we reject Taboada's argument that he was ignorant of facts or believed them medically insignificant.

Taboada's argument of last resort is that the district court's credibility findings are clearly erroneous.

We need not assume that Taboada has an immune disorder in order to affirm the district court's credibility findings. We may assume, as Taboada asserts, that his health is excellent and all the omitted facts are medically insignificant. Nonetheless, we conclude that the district court did not clearly err in its credibility findings, and for two reasons.

First, Taboada offered no explanation for concealing his long history of syphilis. Nor did he disclose that as late as 1985, his syphilis proved intractable against antibiotic treatment. Second, just prior to applying to John Hancock, Taboada was on notice of the medical significance of the T-cell tests to insurers, if not to himself. Northwestern Mutual Life had rejected Taboada's application because of the abnormal T-cell results. Taboada even underwent an insurance physical and had Elkin write to Northwestern to try to address those abnormal T-cell results. At the same time, Taboada concealed his syphilis and T-cell tests from John Hancock. These facts support the district court's finding that Taboada knew the objective significance of his medical history and the significance of John Hancock's questions. The district court did not clearly err, then, in finding that Taboada's false answers to John Hancock's questions resulted not from ignorance, but rather from Taboada's deliberate concealment.

Taboada argues that John Hancock's January 1988 letter notifying him of rescission gave him narrower notice of the grounds for rescission than John Hancock relied on at trial. Taboada argues that John Hancock was estopped from relying on any grounds for rescission not noticed in its letter to him. In support of estoppel, Taboada advances policy arguments and analogous law on notice of grounds for rejection of insurance claims.

Taboada apparently failed to raise this argument before the district court, however. We have discretion to review an issue not raised in district court if it is purely an issue of law. Telco Leasing, Inc. v. Transwestern Title Co., 630 F.2d 691, 693 (9th Cir. 1980). We will review an issue not raised below, however, only to prevent manifest injustice. International Union of Bricklayers & Allied Craftsman Local Union No. 210, AFL-CIO v. Martin Jaska, Inc., 752 F.2d 1401, 1404 (9th Cir. 1985). Only "exceptional circumstances" excuse a failure to raise a factual issue below. Id. Taboada argues that the issue of notice is either purely legal or a mixed question of fact and law.

Our addressing the issue of notice, even if it is purely legal, is not necessary to prevent manifest injustice in this case. Taboada argues for an extension of existing California law governing notice for rejection of insurance claims to notice for rejection of coverage. Taboada thus asks us to determine an issue never considered by either the district court or any California court. Under these circumstances, it is jurisprudentially sound for us to decline review and not unnecessarily declare new California law from our federal appellate bench.

Taboada argues that John Hancock was under a duty to investigate his insurability promptly and thoroughly, particularly once John Hancock realized Taboada's answers to the questionnaire were incomplete or inaccurate. See Rutherford v. Prudential Ins. Co., 234 Cal. App. 2d 719, 734-35, 44 Cal. Rptr. 697, 705-06 (1965). Taboada alleges that John Hancock failed to investigate promptly and adequately. Under California law, if an insurer fails in its duty to investigate, it waives its right to rely on an applicant's inaccurate information for rescission. Id., 44 Cal. Rptr. at 707; see also Cal.Ins.Code Sec. 336.

Taboada argues that his revelation of two surgeries on the questionnaire put John Hancock on notice of the inaccuracy of his answers to such questions as his history of diagnostic testing. Diagnostic tests are implied in the fact of surgery. The first Medical Information Bureau report also notified John Hancock that Taboada's denial of having a personal physician was false. John Hancock thus had a duty to investigate, and it could not rely on Taboada's false answers to the questionnaire.

We affirm the district court's conclusion that John Hancock did not waive its right to accurate information from Taboada. John Hancock followed up on the first report of Taboada's inaccuracy with a paramedical exam of Taboada and a call to Elkin. The district court found that "Dr. Elkin gave an incomplete and false medical report, thereby leading John Hancock to believe that Taboada was in good health and that no further investigation was necessary." John Hancock did not receive notice of Elkin's misrepresentations until after it issued Taboada the policies. At that point, John Hancock reviewed and obtained Elkin's records and, after review, attempted rescission.

Taboada objects that John Hancock should have obtained Elkin's records at the outset instead of relying on a brief telephone contact with him. Taboada points out that John Hancock all along had Taboada's authorization for release of those records. John Hancock waived the right to information it had the means of ascertaining early, Taboada argues, especially information in Elkin's records. See Cal.Ins.Code Sec. 336.

Taboada argues persuasively as a matter of policy that insureds should not bear the risk of insurers' failure to investigate insurability adequately. Taboada does not argue that John Hancock's investigation in his case was inadequate as a matter of law, however. Nor does Taboada overcome the district court's fact finding that John Hancock justifiably relied on a deliberately false report from Elkins, and reasonably and promptly rescinded later when it learned the truth. We therefore affirm the district court's rejection of Taboada's waiver argument.

CONCLUSION

Taboada advances several logical arguments for excusing his omissions and misrepresentations on the John Hancock applications. The district court's credibility findings, however, undermine these arguments. Taboada raised concern about the scope of John Hancock's notice of rescission too late for our review. Finally, John Hancock did not waive its right to accurate information. Accordingly, the judgment of the district court is

AFFIRMED.