Meier v. Pacific Life Insurance Co., No. 22-1607 (7th Cir. 2023)
Ron Meier applied for a life insurance policy from Pacific Life Insurance Policy. After applying for the policy, but prior to being issued the policy, Ron was diagnosed with terminal cancer. He did not disclose this to Pacific Life, given that he had already applied for the policy. His widow Lorrie, attempted to collect on the policy after he died. Pacific Life denied coverage, stating Ron’s failure to disclose the diagnosis amounted to a material misrepresentation, which allowed for the policy to be rescinded. The Northern District of Illinois agreed with Pacific Life, allowing the insurer to deny the policy; reasoning that the failure to disclose the cancer diagnosis amounted to a material misrepresentation, which allows the rescission of the policy under Illinois law.
The parties first disputed whether Ron’s failure to disclose his cancer diagnosis amounted to a material misrepresentation. Under Illinois law, an unambiguous insurance contract is interpreted according to its plain language. The Pacific Life application that Ron completed in July 2018 contains several unambiguous terms imposing equally unambiguous obligations. Ron knowingly and voluntarily agreed to inform Pacific Life in writing of any changes in his health. By not disclosing his cancer diagnosis before the policy was issued, Ron’s failure constituted a material misrepresentation.
The most pertinent, and unambiguous part of the policy, reads as follows:
“I must inform the Producer or [Pacific Life] in writing of any changes in the health of any Proposed Insured(s). If any of the statements or answers previously provided on the ticket/request (if applicable), applications, and medical forms change prior to delivery of the policy, I am obligated to notify [Pacific Life] of the changes in writing no later than at the time the application is signed by the Proposed Insured(s).”
If Material Misrepresentation Exists, Illinois Insurance Code Governs
The Illinois Insurance Code allows insurers to rescind a policy when an insured makes a misrepresentation that materially affects the insurer’s acceptance of risk. The statute imposes no intent requirement, and a misrepresentation, even if innocently made, can serve as the basis to void a policy. All an insurer must show is a material misrepresentation by the insured. In this case, Pacific Life was able to rescind the policy because Ron’s failure to disclose his cancer diagnosis was a material misrepresentation.
Meier appealed the Northern District of Illinois’ finding for Pacific Life. The Seventh Circuit Court of Appeals affirmed the ruling, agreeing with the district court’s determination that the failure to disclose the cancer diagnosis constituted a material misrepresentation. The court found that Pacific Life was within its rights to rescind the policy and return the premiums to Lorrie, pursuant to the Illinois Insurance Code.