Fifth Circuit reverses summary judgment in rescission case

In Guzman v. Allstate, the Fifth Circuit reversed a summary judgment the trial court granted to a life insurance company.. A gentleman applied for and was approved for a life insurance policy. In the application he was asked whether he was a smoker. He responded "no."  The insurance company obtained some limited medical records and ordered a urine test.  None of those records apparently showed that he was a smoker. Neither did the test. 

After he passed away,  the insurance company - doing what insurance companies often do -  decided to take a closer look. They ordered more medical records and found notations in those records that the insured was actually a smoker.  The insurance company wrote a letter to his wife, the beneficiary,  rescinding the policy.  They also returned the premium payments. 

The wife hired a lawyer and sued the insurance company. The trial judge dismissed the case on summary judgment. The judge found that the insurance company as a matter of law had properly rescinded the insurance policy. The judge based that decision on the medical records that the insurance company had obtained after the insured died, showing he was a smoker. 

 On the other hand the insured's wife and another family member submitted affidavits to the court in which they stated he had not been a smoker.  The judge discounted those affidavits, noting that they were interested witnesses and had a stake in the outcome. 

The spouse appealed to the Fifth Circuit court of appeals, which found that the trial judge had committed error and reversed the decision.  The court of appeals agreed that the affidavits were from interested witnesses. But for summary judgment purposes interested witness affidavits to could still provide a fact issue.  And  a fact issue is supposed to be decided by a jury and not a judge. 

The court of appeals said that the judge should have given some credence to those affidavits and should have found that there was a fact issue for a jury to decide. The court of appeals also noted that there was some conflict in the medical records and noted that the urinalysis test conducted by the life insurance company did not show nicotine. The court of appeals was mot convinced that the insurance company's evidence was sufficient for the trial court to find simply as a matter of law  that the insured had been a smoker. 

This case highlights the importance of obtaining an experienced lawyer can evaluate the status of the law regarding material misrepresentations.