Pruco Life Insurance Company v. Wilmington Trust Company, 1st Cir. (2013)

7/26/2019 Pruco Life Insurance Company v. Wilmington Trust Company, 1st Cir. (2013)

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United States Court of AppealsFor the First Circuit

Nos. 12- 2227, 12- 2228

PRUCO LI FE I NSURANCE COMPANY,

Pl ai nt i f f , Appel l ee,

v.

WI LMI NGTON TRUST COMPANY, Tr ust ee under t he Paul E. L' Ar chevesqueSpeci al Revocabl e Trust - 2006; J AY L' ARCHEVESQUE, Co- Trust ee under

t he Paul E. L' Ar chevesque Speci al Revocabl e Trust - 2006,

Def endant s, Appel l ant s.

APPEALS FROM THE UNI TED STATES DI STRI CT COURTFOR THE DI STRI CT OF RHODE I SLAND

[ Hon. Wi l l i am E. Smi t h, U. S. Di st r i ct J udge]

Bef or e

Lynch, Chi ef J udge,Tor r uel l a and Howar d, Ci r cui t J udges.

F. War r en J acoby, wi t h whom Cozen O' Connor , Mary CavanaghDunn, and Bl i sh & Cavanagh LLP wer e on br i ef , f or appel l antWi l mi ngt on Tr ust Company.

Rober t M. Duf f y, wi t h whom St acey P. Nakasi an and Duf f y &Sweeney, Lt d. wer e on br i ef , f or appel l ant J ay L' Ar chevesque.

Laur i e E. Fost er , wi t h whom Al l yson N. Ho, Mor gan, Lewi s &

Bocki us LLP, Rober t C. Shi ndel l , Angel a L. Car r , and Tayl or DuaneBar t on & Gi l man, LLP wer e on br i ef , f or appel l ee.

J une 28, 2013


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LYNCH, Chief Judge. Wi l mi ngt on Trust Company and J ay

L' Ar chevesque, co- t r ust ees of t he Paul E. L' Ar chevesque Speci al

Revocabl e Tr ust - 2006, chal l enge t he di st r i ct cour t ' s gr ant of

summary j udgment t o Pr uco Li f e I nsurance Company on Pruco' s cl ai m

f or a j udgment of mut ual r esci ssi on of a l i f e i nsur ance pol i cy,

owned by t he t r ust , on t he l i f e of Paul L' Ar chevesque.

Thi s case t urns on a l i mi t ed set of mat er i al f act s. Pr uco

sought r esci ssi on of t he pol i cy af t er i t di scover ed t hat t he pol i cy

appl i cat i on had cont ai ned mater i al mi sr epr esent at i ons about t he

heal t h of t he i nsur ed. I t t ender ed t o Wi l mi ngt on a check i n t he

amount of t he pol i cy pr emi ums pai d ( pl us i nt er est ) , al ong wi t h a

l et t er cl ear l y stat i ng t hat t he pur pose of t he check was t o ef f ect

r esci ssi on of t he pol i cy. Under t he t r ust agr eement , Wi l mi ngt on

had ceded deci si onmaki ng aut hor i t y t o Covent r y Capi t al I LLC, a

pr emi um f i nanci ng company, whi ch was act i ng as t he ser vi ci ng agent

f or a bank t hat had t aken a secur i t y i nt er est i n t he pol i cy.

Wi l mi ngt on accor di ngl y f or war ded the check and the l et t er t o

Covent r y, and af t er t hr ee weeks of i nvest i gat i on and consul t at i on

wi t h i n- house counsel , Covent r y sent t he check back t o Wi l mi ngt on

wi t h i nst r uct i ons t o cash i t . Wi l mi ngt on di d so. At no t i me

bef ore or si nce has anyone at t empt ed t o r et ur n t he money to Pr uco.

Under t hese ci r cumst ances, t he di st r i ct cour t concl uded

t hat , as a mat t er of l aw, a mut ual r esci ssi on had t aken pl ace, and

Pr uco was ent i t l ed t o a j udgment decl ar i ng t he pol i cy voi d ab

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i ni t i o. I n an ef f or t t o avoi d t hi s concl usi on, Wi l mi ngt on and J ay

L' Ar chevesque r ai se a ser i es of argument s t hat at t empt t o obscure

t he r el evant f act s. We r ej ect t hese ar gument s and af f i r m t he

di st r i ct cour t ' s j udgment .

I .

I n t he f al l of 2005, on t he advi ce of hi s account ant ,

Paul L' Ar chevesque met wi t h an i nsurance br oker , Vi ncent

Passanant i , t o di scuss pur chasi ng a l i f e i nsur ance pol i cy.

Passanant i expl ai ned t o Paul 1 t hat he coul d pur chase t hi s i nsur ance

usi ng non- r ecour se pr emi umf i nanci ng: Paul woul d t ake a l oan t o pay

t he pr emi ums, and when t he l oan mat ur ed he coul d sel l t he pol i cy on

t he open market , usi ng the pr oceeds t o pay of f t he l oan and

r et ai ni ng any excess pr oceeds f or hi msel f . Paul t est i f i ed t hat hi s

i nt ent i on was t o sel l t he pol i cy af t er about t wo year s.

To obt ai n t he l oan, Passanant i submi t t ed Paul ' s medi cal

r ecor ds t o Covent r y, a company wi t h whi ch Passanant i had a cont r act

t o pr oduce pr emi um f i nanci ng t r ansact i ons. At l east one of t hese

r ecords not ed t hat Paul had been exper i enci ng some memory l oss.

Af t er conduct i ng i t s own medi cal under wr i t i ng, Covent r y appr oved

t he pr emi um f i nanci ng on J anuar y 4, 2006, and ar r anged f or a l oan

t hr ough LaSal l e Bank.

1 Si nce J ay and Paul L' Ar chevesque shar e t he same l ast name,t hi s opi ni on wi l l r ef er t o t hem by t hei r f i r st names.

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Lat er t hat mont h, Paul cr eat ed t wo t r ust s t hat woul d be

used t o t ake out t he pr emi um f i nance l oan and event ual l y hol d the

l i f e i nsur ance pol i cy. The f i r st was t he Paul E. L' Ar chevesque

Speci al Tr ust - 2006, of whi ch J ay was t he sol e t r ust ee. The second

was t he Paul E. L' Ar chevesque Speci al Revocabl e Trust - 2006, of

whi ch t he f i r st t r ust was t he set t l or and J ay and Wi l mi ngt on wer e

co- t r ust ees. Wi l mi ngt on i s a pr of essi onal t r ust company t hat act s

as t r ust ee f or appr oxi mat el y 800 t r ust s i n connect i on wi t h

Covent r y' s pr emi um f i nance l oans. The t wo t r ust s and Wi l mi ngt on

t hen ent er ed i nt o a suppl ement t o t he t r ust agr eement , whi ch

pr ovi ded, i nt er al i a, t hat Wi l mi ngt on woul d creat e a sub- t r ust t o

ent er i nt o t he l oan agr eement wi t h LaSal l e.

The sub- t r ust agreement provi ded t hat J ay and Wi l mi ngt on

woul d per f or m t hei r dut i es as t r ust ees at t he di r ect i on of LaSal l e

or i t s desi gnees f or t he dur at i on of t he l oan. The not e and

secur i t y agr eement bet ween t he sub- t r ust and LaSal l e st ated t hat

Covent r y woul d act as LaSal l e' s ser vi ci ng agent and conf i r med that

J ay and Wi l mi ngt on woul d f ol l ow Covent r y' s i nst r uct i ons unt i l

LaSal l e deci ded ot her wi se. Fur t her , J ay and Paul each si gned a

power of at t or ney desi gnat i ng Covent r y as hi s at t or ney- i n- f act f or

pur poses of , r espect i vel y, t he sub- t r ust and t he l i f e i nsur ance

pol i cy.

Meanwhi l e, Passanant i began maki ng i nqui r i es on Paul ' s

behal f t o a number of l i f e i nsur ance compani es, i ncl udi ng Pr uco.

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He sent an i nf ormal i nqui r y t o Pruco on J anuary 24, 2006. Pur suant

t o a HI PAA aut hor i zat i on si gned by Paul , Passanant i al so gat her ed

and sent Paul ' s medi cal r ecor ds t o Pr uco and ot her i nsur er s. The

par t i es vi gor ousl y cont est whi ch medi cal r ecor ds wer e sent t o Pr uco

and when. I t i s at l east common gr ound, however , t hat at no t i me

bef or e or dur i ng i t s under wr i t i ng pr ocess di d Pr uco r ecei ve a copy

of an ear l i er l et t er f r om a neur ol ogi st t o Paul ' s pr i mar y car e

doct or , dat ed J anuar y 11, 2006, whi ch st at ed t hat t he neur ol ogi st

bel i eved Paul had " [ p] r obabl e mi l d Al zhei mer ' s di sease" and t hat

Paul had been gi ven a medi cat i on, Razadyne ER, used t o t r eat

Al zhei mer ' s di sease. I t i s uncont est ed t hat Paul act ual l y r ecei ved

t hi s medi cat i on. Fur t her , t he i nqui r y Passanant i sent t o Pr uco

i ncl uded a medi cal exam r eport t hat al so di d not ment i on memory

l oss or Al zhei mer ' s di sease. Whi l e t he r ecor ds t hat Pr uco

undi sput edl y r ecei ved di d show t hat Paul had at t i mes compl ai ned of

depr essi on and di zzi ness, t hey di d not r ef l ect any pr obabl e or

act ual di agnoses t hat Pr uco woul d consi der "mat er i al l y adver se"

heal t h condi t i ons. Al zhei mer ' s di sease or ot her f or ms of dement i a

woul d have been consi dered mat er i al .

Based on t he i nf or mat i on i t had r ecei ved, Pr uco i ssued a

t ent at i ve of f er of l i f e i nsur ance, subj ect t o t he r ecei pt of

addi t i onal i t ems, i ncl udi ng a f or mal appl i cat i on. On Febr uar y 16,

2006, Paul , t hr ough Passanant i , submi t t ed an appl i cat i on t o Pr uco

f or a $10 mi l l i on l i f e i nsur ance pol i cy ( an amount t hat was l at er

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i ncr eased t o $15 mi l l i on) . The appl i cat i on cont ai ned a number of

yes- or - no quest i ons about t he i nsur ed' s medi cal hi st or y; Paul

i nst r uct ed Passanant i t o "mar k ' No' on ever yt hi ng. " The par t i es do

not di sput e t hat some of t hese "no" answer s const i t ut ed

mi sr epr esent at i ons. Speci f i cal l y, Paul answer ed "no" t o t he

quest i on of whet her he had "been di agnosed wi t h or t r eated f or

. . . any di sorder of t he br ai n or ner vous syst em, " even t hough he

had recent l y compl ai ned of memor y pr obl ems and r ecei ved a di agnosi s

of " [ p] r obabl e mi l d Al zhei mer ' s di sease" al ong wi t h medi cat i on t o

t r eat t hat condi t i on. He al so answer ed "no" t o t he quest i on of

whet her he was "cur r ent l y t aki ng any pr escr i pt i on medi cat i ons, "

even t hough he had been gi ven the Razadyne.

On March 7, 2006, Pruco i ssued a $15 mi l l i on pol i cy on

Paul ' s l i f e. The pol i cy was i ssued t o J ay as t r ust ee of t he

Speci al Tr ust - 2006. Wi l mi ngt on, as co- t r ust ee of t he Speci al

Revocabl e Tr ust - 2006, was added as an owner and benef i ci ary of t he

pol i cy on Mar ch 21, 2006. LaSal l e t hen t ook a secur i t y i nt er est i n

t he pol i cy as col l at er al f or i t s pr emi um f i nance l oan.

Appr oxi mat el y a year and a hal f l at er , i n t he f al l of

2007, Pr uco r ecei ved an i nqui r y f r om Covent r y rel at i ng t o t he

pol i cy. Thi s i nqui r y suggest ed t o Pr uco t hat Paul i nt ended t o sel l

t he pol i cy, whi ch r ai sed the under wr i t i ng manager ' s suspi ci on t hat

"somet hi ng el se was goi ng on" wi t h Paul ' s heal t h. Pr uco t hen

order ed Paul ' s updated medi cal r ecords, whi ch r eveal ed t he

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pr evi ousl y undi scl osed i nf or mat i on about Paul ' s memor y l oss,

" [ p] r obabl e mi l d Al zhei mer ' s" di agnosi s, and Razadyne pr escr i pt i on.

Af t er r evi ewi ng t he r ecords, Pruco concl uded t hat Paul had made

mat er i al mi sr epr esent at i ons about hi s heal t h and t hat t hese

mi sr epr esent at i ons const i t ut ed gr ounds f or r esci ndi ng t he pol i cy.

On Febr uary 5, 2008, Pruco sent Wi l mi ngt on a l et t er and

a check f or $845, 964. 60. Pr uco al so copi ed t he l et t er t o Paul , and

J ay l earned about t he l et t er f r om conver sat i ons wi t h Paul ' s

f i nanci al advi sor s. The l et t er st at ed, i n per t i nent par t :

We recent l y r ecei ved i nf ormat i on about[ Paul ] ' s medi cal hi st or y t hat was notdi scl osed on t he appl i cat i on f or i nsur ancedat ed Febr uar y 16, 2006 . . . . I f we hadknown t hi s i nf ormat i on at t he t i me ofappl i cat i on, we woul d not have i ssued thePol i cy. We ar e wr i t i ng t o i nf or myou t hat t hePol i cy i s not i n f or ce and i s voi d as of t hePol i cy' s cont r act dat e of Mar ch 7, 2006. Wehave encl osed wi t h t hi s l et t er [ Pr uco] ' s check. . . payabl e to you i n t he amount of$845, 964. 60 as t he ret ur n of t he t otal amountof pr emi ums, i ncl udi ng i nt er est , pai d undert he Pol i cy.

The l et t er went on t o detai l t he r epresent at i ons Paul had made i n

t he appl i cat i on t hat wer e cont r adi ct ed by t he r ecent l y obt ai ned

medi cal r ecor ds, and i t st at ed t hat Pr uco was accor di ngl y ent i t l ed

" t o r esci nd t he Pol i cy on t he gr ounds of mat er i al

mi sr epr esent at i on. "

As soon as i t r ecei ved t he r esci ssi on l et t er , Wi l mi ngt on

f orwarded both t he l et t er and t he check t o Covent r y al ong wi t h a

r equest f or i nst r uct i ons. Covent r y' s i n- house counsel t hen began

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assessi ng t he si t uat i on, i ncl udi ng by cont act i ng Passanant i and J ay

and by del i ber at i ng wi t h anot her Covent r y at t orney and Covent r y' s

Chi ef Execut i ve Of f i cer . Covent r y al so al r eady had i n i t s

possessi on var i ous medi cal r ecor ds of Paul ' s t hat i t had r ecei ved

i n t he cour se of i t s under wr i t i ng pr ocess f or t he pr emi um f i nance

l oan. Covent r y' s cor por at e r epr esent at i ve t est i f i ed t hat t he

company di d not assume t he t r ut h of t he st at ement s i n Pruco' s

l et t er when deci di ng whet her t o agr ee to resci ssi on, but r at her

r el i ed on the assessment of i t s i n- house counsel .

On Febr uary 27, 2008, Covent r y r etur ned t he check t o

Wi l mi ngt on wi t h i nst r uct i ons t o deposi t i t . The next day,

Wi l mi ngt on deposi t ed t he check i nt o t he account of t he Speci al

Revocabl e Tr ust - 2006, t hen wi r ed t he f unds f r om t hat account t o

LaSal l e Bank. At no t i me di d Covent r y, Wi l mi ngt on, or J ay i nf or m

Pr uco t hat t he Speci al Revocabl e Tr ust - 2006 di d not agr ee to

r esci ssi on or di d not i nt end t o accept r esci ssi on by deposi t i ng t he

check. 2

I I .

Pr uco f i l ed a compl ai nt i n t he Rhode I sl and f eder al

di st r i ct cour t on Febr uar y 29, 2008, i nvoki ng t he cour t ' s di ver si t y

j ur i sdi ct i on. The compl ai nt sought r esci ssi on of t he pol i cy and a

2 Wi l mi ngt on and J ay l ater made such an asser t i on i n t hei rpl eadi ngs i n t hi s l i t i gat i on, but t her e i s no r ecor d evi dence t oi ndi cat e that ei t her of t hem made any such st at ement t o Pr ucocont empor aneousl y wi t h t he recei pt , i nvest i gat i on, or cashi ng oft he pr emi um r ef und check.

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decl ar at i on t hat t he pol i cy was voi d ab i ni t i o, on t he basi s t hat

Paul had made mat er i al mi sst at ement s i n hi s appl i cat i on, whi ch

i nduced Pr uco t o i ssue t he pol i cy. Pr uco l at er amended i t s

compl ai nt t o add a cl ai m f or a decl ar at i on t hat mut ual r esci ssi on

had been ef f ect uat ed by Wi l mi ngt on' s accept ance of t he ret ur ned

pr emi ums, as wel l as a cl ai m f or r esci ssi on f or l ack of an

i nsur abl e i nt er est , based on t he al l egat i on t hat t he t r ue

benef i ci ar y of t he pol i cy was a t hi r d- par t y i nvest or wi t h no

i nsur abl e i nt er est i n Paul ' s l i f e. The f i r st amended compl ai nt

named Wi l mi ngt on and Paul as def endant s; Pr uco amended i t s

compl ai nt a second t i me t o name J ay as a def endant . Paul l at er

f i l ed a mot i on t o di smi ss t he cl ai ms as t o hi m on t he gr ound t hat

he was not an owner or benef i ci ar y of t he pol i cy. The di st r i ct

cour t gr ant ed t hi s mot i on on May 19, 2009.

Af t er di scover y, t he part i es cr oss- moved f or summary

j udgment . 3 On Sept ember 7, 2012, t he di st r i ct cour t i ssued an

opi ni on and or der gr ant i ng summary j udgment t o Pr uco on i t s cl ai m

f or mut ual r esci ssi on and denyi ng Wi l mi ngt on' s and J ay' s mot i ons

f or summary j udgment . Ci t i ng t he semi nal Rhode I sl and case on

mut ual r esci ssi on, Kl ani an v. New Yor k Li f e I nsur ance Co. , 26 A. 2d

608 ( R. I . 1942) , t he di st r i ct cour t det er mi ned t hat t he undi sput ed

3 I n i t s mot i on f or summary j udgment , Pruco of f er ed t ost i pul at e t o t he di smi ssal of i t s cl ai m f or r esci ssi on based onl ack of an i nsur abl e i nt er est . I n i t s r ul i ng on t he summar yj udgment mot i ons, t he di st r i ct cour t di d di smi ss t hi s count , and nopar t y chal l enges t hat r ul i ng on appeal .

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f act s compel l ed t he concl usi on t hat a mut ual r esci ssi on had

occur r ed as a mat t er of l aw. Pruco had t ender ed t he pr emi umr ef und

check wi t h a l et t er expl i ci t l y st at i ng t hat t he check was f or t he

pur pose of r esci ssi on, usi ng l anguage common i n mut ual r esci ssi on

cases. Covent r y had consi der ed t he of f er f or t hr ee weeks and t hen

di r ect ed Wi l mi ngt on t o cash t he check, and Wi l mi ngt on di d so.

Af t er cashi ng t he check, no part y had expr essed any i nt ent i on not

t o resci nd, and t her e had never been an of f er t o r et ur n t he r ef und

t o Pr uco.

I n t he f ace of t hese f act s, t he di st r i ct cour t hel d t hat

Wi l mi ngt on' s and J ay' s mer e asser t i ons of t hei r subj ect i ve i nt ent

not t o r esci nd wer e i mmat er i al . The cour t al so r ej ect ed t he

argument t hat any agr eement t o r esci nd was i nval i d because Pruco

had, i t was al l eged, obt ai ned t he r esci ssi on by f r aud. The

undi sput ed f act s demonst r at ed t hat Covent r y, a sophi st i cat ed par t y

i n t he i nsur ance i ndust r y, had i ndependent l y assessed t he si t uat i on

and consul t ed wi t h counsel , and had not assumed the t r ut h of t he

st at ement s i n Pr uco' s l et t er . As such, t her e was no genui ne i ssue

of mat er i al f act as t o whet her Covent r y had r el i ed at al l , l et

al one j ust i f i abl y r el i ed, on Pr uco' s al l eged mi sr epr esent at i ons.

J udgment on t he di st r i ct cour t ' s or der enter ed on

September 10, 2012, and Wi l mi ngt on and J ay each t i mel y appeal ed.

Thei r appeal s ar e consol i dat ed bef or e us.

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I I I .

Summar y j udgment i s appr opr i at e where "t he movant shows

t hat t her e i s no genui ne di sput e as t o any mat er i al f act and t he

movant i s ent i t l ed t o j udgment as a mat t er of l aw. " Fed. R. Ci v.

P. 56( a) . We r evi ew a di st r i ct cour t ' s gr ant of summary j udgment

de novo, "dr awi ng al l r easonabl e i nf er ences i n f avor of t he

non- movi ng par t y whi l e i gnor i ng ' concl usor y al l egat i ons, i mpr obabl e

i nf er ences, and unsuppor t ed specul at i on. ' " Sut l i f f e v. Eppi ng Sch.

Di st . , 584 F. 3d 314, 325 ( 1st Ci r . 2009) ( quot i ng Sul l i van v. Ci t y

of Spr i ngf i el d, 561 F. 3d 7, 14 ( 1st Ci r . 2009) ) . We may af f i r m on

any basi s appar ent i n t he r ecor d. I d. On an appeal f r om cr oss-

mot i ons f or summary j udgment , t he st andar d does not change; we vi ew

each mot i on separ at el y and dr aw al l r easonabl e i nf er ences i n f avor

of t he r espect i ve non- movi ng par t y. See OneBeacon Am. I ns. Co. v.

Commerci al Uni on Assur ance Co. of Can. , 684 F. 3d 237, 241 ( 1st Ci r .

2012) .

On appeal , Wi l mi ngt on and J ay of f er di f f er ent but of t en

over l appi ng ar gument s f or over t ur ni ng t he di st r i ct cour t ' s

deci si on. Wi l mi ngt on f i r st ar gues t hat t he di st r i ct cour t

mi si nt er pr et ed Rhode I sl and l aw and i mpr oper l y rel i ed on out - of -

st at e l aw r egar di ng t he st andar d f or mut ual r esci ssi on. I t t hen

ar gues t hat t her e ar e genui ne i ssues of mat er i al f act concer ni ng

whet her Pr uco made mat er i al mi sr epr esent at i ons i n i t s r esci ssi on

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l et t er , whi ch shoul d have precl uded summary j udgment . 4 J ay

l i kewi se ar gues t hat t her e ar e genui ne i ssues of mat er i al f act f or

t r i al , but he f r ames hi s argument as addr essi ng Pr uco' s al l egedl y

"bad f ai t h" conduct , whi ch J ay cont ends shoul d equi t abl y bar Pr uco

f r om obt ai ni ng a r esci ssi on. We t ake each ar gument i n t ur n.

A. Rhode I sl and Mut ual Resci ssi on Law

"Resci ssi on i s . . . [ an] abr ogat i on or undoi ng of [ a

cont r act ] f r om t he begi nni ng. I t seeks t o creat e a si t uat i on t he

same as i f no cont r act ever had exi st ed. " Dool ey v. St i l l son, 128

A. 217, 218 ( R. I . 1925) . I n Kl ani an, t he Rhode I sl and Supr eme

Cour t st at ed t hat "[ m] ut ual r esci ssi on r est s upon i nt ent i on; i t

depends bot h upon t he act s of t he par t i es and t he i nt ent i on wi t h

whi ch t hose act s ar e done. " 26 A. 2d at 613. Whi l e t he quest i on of

i nt ent i on t o r esci nd i s "or di nar i l y a quest i on f or t he j ur y, . . .

i t may become a quest i on f or t he cour t wher e t he f act s are admi t t ed

or cl ear l y est abl i shed. " I d. Her e, t he f act s sur r oundi ng t he

cashi ng of t he pr emi um r ef und check wer e undi sput ed, wi t h t he onl y

di f f er ence among t he par t i es bei ng t he appr opr i at e i nf er ences t o

dr aw f r om t hose f act s.

4 Wi l mi ngt on al so ar gues, i n t he al t er nat i ve, t hat anyr esci ssi on was based on a mut ual mi st ake of f act t hat r ender s t he

agr eement voi dabl e. Thi s argument appears t o be premi sed on t heunsuppor t ed t heor y t hat Pruco i t sel f was mi st aken as t o t he al l egedf al si t y of t he st at ement s i n t he r esci ssi on l et t er . Besi des bei ngunr el at ed to recor d evi dence and maki ng l i t t l e sense, t hi s ar gumentwoul d f ai l f or t he same r easons expl ai ned bel ow as t o Wi l mi ngt on' sasser t i on t hat Pr uco del i ber at el y made mi sr epr esent at i ons i n t heresci ssi on l et t er .

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As i n Kl ani an, t he i nsurance company her e sent a l et t er

t o t he pol i cyhol der cl ear l y st at i ng i t s i nt ent t o r esci nd t he

pol i cy and i ncl udi ng a check t ender i ng t he pr emi ums pai d, wi t h

i nt er est . See i d. at 609- 10. As i n Kl ani an, t he r eci pi ent her e

cashed t he check. See i d. at 610. The Kl ani an cour t s t at ed t hat

t hese f act s r ai sed a "r easonabl e i nf er ence" of mut ual r esci ssi on.

I d. at 613. The di f f er ence bet ween Kl ani an and t hi s case i s t hat ,

i n t he f or mer , t he pol i cyhol der was i l l i t er at e and di d not

under st and t he cont ent s of t he l et t er or t he not at i on on t he

t ender ed check. I d. at 610. When he l earned what t he l et t er sai d,

he i mmedi at el y di ct at ed a r esponse l et t er t o t he i nsur er st at i ng

t hat he had not i nt ended t o agr ee t o resci ssi on and of f er i ng t o

r et ur n t he r ef unded pr emi ums. I d. Days l at er , hi s counsel sent

t he i nsur er a check i n t he amount of t he pr emi ums. I d. Under

t hese ci r cumst ances, t he cour t deter mi ned t hat t her e was a j ur y

quest i on as t o t he pol i cyhol der ' s i nt ent t o r esci nd. I d. at 613.

Wi l mi ngt on ar gues t hat Kl ani an st ands f or t he pr oposi t i on

t hat , i f a par t y has an unexpr essed, subj ect i ve i nt ent not t o

r esci nd, t hen t hat i nt ent can def eat a cl ai mof mut ual r esci ssi on.

Thi s i s not an accurat e r eadi ng. I ndeed, t he Kl ani an cour t st at ed

t hat , wer e i t not f or Kl ani an' s pr ompt l et t er and at t empt t o r et ur n

t he ref und, t her e woul d have been "mer i t i n t he [ i nsur er ] ' s

cont ent i on t hat t her e was not hi ng t o go t o t he j ur y and t hat [ t he

i nsur er ] was ent i t l ed t o a di r ect i on of a ver di ct as a mat t er of

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l aw. " I d. ; see al so Reccko v. Cr i ss Cadi l l ac Co. , 551 A. 2d 20, 21-

22 ( R. I . 1988) ( f i ndi ng j ur y i ssue on i nt ent t o r esci nd wher e

pl ai nt i f f had sent l et t er t o def endant st at i ng t hat she was maki ng

an "of f er i n mi t i gat i on of damages" t hat shoul d not "be i nt er pr et ed

as a[ ] . . . r esci ssi on") . The Kl ani an cour t al so speci f i cal l y

di st i ngui shed Kl ani an' s si t uat i on f r omt hose i n ot her cases hol di ng

t hat a mut ual r esci ssi on had occur r ed based on the t ender and

cashi ng of a ref und check, on t he gr ounds t hat t he ot her cases had

i nvol ved pol i cyhol der s who wai t ed a si gni f i cant amount of t i me

bef or e cashi ng the check and ther eaf t er of f er ed no evi dence to

over come t he i nf er ence of an i nt ent t o r esci nd. See 26 A. 2d at

612- 13 ( ci t i ng Ki ncai d v. N. Y. Li f e I ns. Co. , 66 F. 2d 268 ( 5t h Ci r .

1933) ; War r en v. N. Y. Li f e I ns. Co. , 58 P. 2d 1175 ( N. M. 1936) ;

Pet er son v. N. Y. Li f e I ns. Co. , 240 N. W. 659 ( Mi nn. 1932) ) .

Kl ani an never suggest s t hat a par t y' s unexpr essed i nt ent i ons,

evi denced by nothi ng more t han t hat par t y' s bar e, post hoc

asser t i ons, can over come t he i nf er ence of mut ual r esci ssi on. Cf .

Newport Pl aza Assocs. v. Dur f ee At t l eboro Bank ( I n r e Newport Pl aza

Assocs. ) , 985 F. 2d 640, 643- 44, 646 ( 1st Ci r . 1993) ( not i ng t hat ,

under Rhode I sl and l aw, " [ c] ont r act s ordi nar i l y depend on obj ect i ve

i ndi ci a of consent , not on a par t y' s subj ect i ve expect at i ons") .

Her e, of cour se, Wi l mi ngt on di d not t ake any act i ons

ei t her bef or e or af t er i t cashed Pr uco' s r ef und check t o i ndi cat e

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t hat i t di d not i nt end t o agr ee t o r esci ssi on. 5 Wi l mi ngt on does

not poi nt t o any record evi dence showi ng t hat i t ever expr essed any

di ssent t o Covent r y or t o Pr uco. Nor does i t pr esent any evi dence

t o suppor t a f i ndi ng t hat Covent r y had any i nt ent other t han t o

agr ee t o r esci ssi on when i t i nst r uct ed Wi l mi ngt on t o cash t he

check. Cf . Dool ey, 128 A. at 218 ( "An i mpl i ed r esci ssi on i s as

ef f ect i ve as an expr ess one. " ) . To t hi s day, Wi l mi ngt on has never

at t empt ed t o r etur n t he pr emi ums t o Pruco. These f act s ar e

undi sput ed, and Wi l mi ngt on' s bare asser t i ons are not enough t o

over come t he r easonabl e i nf er ence t hat a mut ual r esci ssi on t ook

pl ace.

The out - of - st at e cases ci t ed by t he di st r i ct cour t

suppor t t hi s r esul t , and none of t hem ar e i n conf l i ct wi t h Rhode

I sl and l aw. I n f act , t he case at whi ch Wi l mi ngt on ai ms t he br unt

of i t s at t ack - - Avemco I nsur ance Co. v. Nor t her n Col or ado Ai r

Char t er , I nc. , 38 P. 3d 555 ( Col o. 2002) - - ci t es Kl ani an f or t he

ver y pr oposi t i on t hat " i n or der t o over come t he i nf er ence of

r esci ssi on, t he i nsur ed must of f er evi dence, beyond a subj ect i ve

i nt ent not t o r esci nd, t o r ebut t he act s of t he i nsur er and t he

5 That Wi l mi ngt on was t aki ng i nst r uct i ons f r om Covent r y doesnot change t he si t uat i on. I t i s undi sput ed t hat Wi l mi ngt on hadagr eed t o act at Covent r y' s di r ect i on f or al l mat t er s r el at i ng t ot he pol i cy f or as l ong as t he pr emi umf i nance l oan was out st andi ng.The f act t hat Covent r y di r ect ed Wi l mi ngt on t o act i n a manner t hatWi l mi ngt on now cl ai ms was agai nst i t s pref er ences has no ef f ect ont he r esci ssi on anal ysi s.

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i nsur ed. " I d. at 563. Wi l mi ngt on' s ar gument t hat t he di st r i ct

cour t i gnor ed Rhode I sl and l aw i s wi t hout mer i t .

B. Rel evance of Pr uco' s Al l eged Mi sr epr esent at i ons

Wi l mi ngt on next argues t hat , even i f cashi ng t he r ef und

check rai ses an i nf er ence of an agr eement t o r esci nd, t her e wer e

genui ne i ssues of mat er i al f act t hat shoul d have pr ecl uded t he

concl usi on, at t he summary j udgment st age, t hat such an agr eement

was val i d. Speci f i cal l y, Wi l mi ngt on ar gues t hat t her e wer e

mater i al f actual di sput es as t o whet her Pruco made

mi sr epr esent at i ons i n i t s r esci ssi on l et t er concer ni ng what Pr uco

knew about Paul ' s medi cal condi t i on and t he ext ent t o whi ch Pruco

had r el i ed on t he st at ement s i n Paul ' s appl i cat i on. Wi l mi ngt on

suggest s t hat Pruco made t hese mi sr epr esent at i ons i n order t o

f r audul ent l y i nduce r esci ssi on; i f so, Wi l mi ngt on says, t he

agr eement t o resci nd i s voi dabl e.

As t he di st r i ct cour t cor r ect l y concl uded, r egar dl ess of

whet her t he st at ement s i n t he l et t er wer e accur at e as t o Pr uco' s

knowl edge of Paul ' s medi cal condi t i on, t he undi sput ed f act s r eveal

t hat Covent r y di d not r el y on t hese st at ement s i n r eachi ng i t s

deci si on t o consent t o r esci ssi on. Covent r y i s a sophi st i cat ed

ent i t y t hat had t he advi ce of i n- house counsel on t hi s mat t er . The

deci si onmaki ng pr ocess i nvol ved Covent r y' s CEO. Covent r y had

possessi on of Paul ' s medi cal r ecords and had per f ormed i t s own

under wr i t i ng, so i t had no need t o r el y on Pr uco' s char act er i zat i on

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of t he r ecor ds; i ndeed, Covent r y' s r epr esent at i ve expl i ci t l y

t est i f i ed t hat i t di d not assume t he t r ut h of Pr uco' s st at ement s.

Covent r y cont act ed Passanant i f or addi t i onal i nf or mat i on6 and

consi der ed i t s opt i ons f or appr oxi mat el y t hr ee weeks. Based on al l

of i t s i nf or mat i on and advi ce, Covent r y deci ded t o i nst r uct

Wi l mi ngton t o cash t he check, and Wi l mi ngt on was obl i gat ed t o

f ol l ow t hat di r ecti on.

Under t hese ci r cumst ances, any di sput e about t he t r ut h of

Pr uco' s st at ement s i n t he l et t er cannot be consi der ed mat er i al t o

t he out come of t hi s case. No r easonabl e j ur y coul d have concl uded

t hat Covent r y r el i ed, l et al one j ust i f i abl y r el i ed, on Pr uco' s

st at ement s i n r eachi ng i t s deci si on t o i nst r uct Wi l mi ngt on t o cash

t he check.

Nor i s t he i ssue of Pr uco' s r el i ance on t he st at ement s i n

Paul ' s appl i cat i on mat er i al t o t he out come her e. Wi l mi ngt on' s

ar gument goes t o Pr uco' s cause of act i on f or uni l at er al r esci ssi on,

6 We rej ect t he argument , advanced by bot h Wi l mi ngt on and J ay,t hat Passanant i was act i ng as an "agent " of Pruco ( and t hus,pr esumabl y, t hat he shoul d be t r eat ed as par t of t he al l egedf r aud) . The r ecor d i s cl ear t hat Passanant i had cont r act ualr el at i onshi ps wi t h bot h Pr uco and Covent r y but was an empl oyee ofnei t her . Fur t her , Passanant i ' s non- excl usi ve cont r act wi t h Pr ucoonl y gr ant ed hi m t he aut hor i t y t o "sol i ci t , pr ocur e and submi tappl i cat i ons f or Pol i ci es, " al ong wi t h l i mi t ed r el at ed dut i es; he

was speci f i cal l y bar r ed f r om, i nt er al i a, "mak[ i ng] r epr esent at i onsas an agent of [ Pruco] i n any manner or f or any pur pose except asspeci f i cal l y aut hor i zed" by t he cont r act . Nei t her Wi l mi ngt on norJ ay poi nt s t o any r ecor d evi dence showi ng t hat Passanant i made anyst at ement s t o Covent r y at Pr uco' s di r ect i on or r equest , or t hat anyst at ement s Passanant i made wer e "speci f i cal l y aut hor i zed" by hi sPr uco cont r act .

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whi ch i ncl uded an al l egat i on t hat Pr uco had r el i ed on t he t r ut h of

t he st at ement s i n the appl i cat i on when deci di ng whet her t o i ssue

t he pol i cy. Pr uco' s cause of act i on f or mut ual r esci ssi on di d not

cont ai n, nor was i t r equi r ed t o cont ai n, such an al l egat i on. The

di st r i ct cour t r esol ved t he case on t he mut ual r esci ssi on count , as

do we.

Wi l mi ngt on at t empt s t o ar gue - - al t hough not ver y cl ear l y

- - t hat Pr uco coul d not have obt ai ned a mut ual r esci ssi on i f i t was

not ent i t l ed t o a uni l at er al r esci ssi on. But i n Kl ani an, t he Rhode

I sl and Supr eme Cour t noted t hat t he quest i on of whet her a part y t o

a cont r act has a val i d r i ght t o r esci nd i s r el evant onl y "i n t he

case of a uni l at er al r esci ssi on cl ai med as of r i ght by t he

r esci ndi ng par t y, " not "i n a case of mut ual r esci ssi on. " 26 A. 2d

at 613. The cour t expr essl y r ej ect ed t he ar gument t hat t her e coul d

not have been a mut ual r esci ss i on because t he ter ms of t he pol i cy

woul d have pr event ed uni l at er al r esci ssi on ( speci f i cal l y, because

t he cont est abl e per i od had expi r ed) . See i d.

Thi s r easoni ng al one suppor t s t he di st r i ct cour t ' s

deci si on, wi t hout needi ng t o addr ess t he mer i t s of Wi l mi ngt on' s

f act ual al l egat i ons. Even i f t he f act s her e ar e di sput ed, t hey ar e

not mater i al . Once Covent r y and Wi l mi ngt on t ook t he st eps t o

ef f ect a mut ual r esci ssi on, Pr uco' s i ndependent r i ght t o r esci nd

ceased t o be l egal l y rel evant .

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C. "Bad Fai t h"

J ay ar gues t hat t here wer e genui ne i ssues of mat er i al

f act f or t r i al r egar di ng whet her Pr uco' s of f er t o r esci nd was made

i n bad f ai t h, and t hat i f Pr uco di d act i n bad f ai t h, i t woul d have

been equi t abl y bar r ed f r om obt ai ni ng t he r emedy of r esci ssi on. He

asser t s t hat t he di st r i ct cour t er r ed i n f i ndi ng t hese ar gument s

i r r el evant t o t he r esci ssi on anal ysi s. We agr ee wi t h t he di st r i ct

cour t .

Fi r st , many of J ay' s ar gument s nomi nal l y based on "bad

f ai t h" are f unct i onal l y i dent i cal t o Wi l mi ngt on' s ar gument s

concer ni ng whet her Pr uco had a r i ght t o uni l at er al r esci ssi on.

Regar dl ess of t he l abel J ay pl aces on t hese ar gument s, t he r esul t

i s t he same. As we have expl ai ned, t he uncont est ed evi dence shows

t hat Covent r y di d not r el y on t he st at ement s i n t he r esci ssi on

l et t er when i t consi der ed whet her t o agr ee t o r esci ssi on. Thus,

even i f J ay wer e cor r ect t hat t her e was a genui ne f act ual di sput e

as t o whet her Pruco act ed i n bad f ai t h by maki ng t he st atement s i n

t he l et t er - - and we expr ess no opi ni on on t hat poi nt - - t he

di sput e woul d not be mat er i al . The same goes f or J ay' s al l egat i ons

t hat Pr uco act ed i n bad f ai t h by asser t i ng t hat i t had a r i ght t o

uni l at er al r esci ssi on. Whet her or not Pr uco bel i eved i n good f ai t h

t hat i t had such a r i ght , t he quest i on i s not mat er i al wher e mut ual

r esci ssi on occur r ed as a mat t er of l aw.

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Second, J ay of f er s no Rhode I sl and l aw suppor t i ng hi s

t heor y that an i nsur er act s i n "bad f ai t h, " and t hat any agr eed-

upon mut ual r esci ssi on i s t her ef or e voi d, i f t he i nsur er of f er s t o

r esci nd an i nsur ance cont r act when t he i nsur er ( al l egedl y) coul d

not have obt ai ned uni l at er al r esci ssi on. The onl y aut hor i t y J ay

ci t es f or t hi s pr oposi t i on i s a Mi nnesot a case, based on Mi nnesot a

pr ecedent , whi ch has never been ci t ed by a Rhode I sl and cour t . See

Ki l t y v. Mut . of Omaha I ns. Co. , 178 N. W. 2d 734 ( Mi nn. 1970) . And

i n any event , t he case i s di st i ngui shabl e. I n Ki l t y, t he Mi nnesot a

cour t not ed that t her e was no evi dence of mi sr epr esent at i on i n

connect i on wi t h t he i nsur ed' s appl i cat i on, whi ch r ai sed a f act ual

quest i on as t o whet her t he i nsur er had "pr ocur [ ed] consent t o the

r esci ssi on" by f r aud or bad f ai t h. I d. at 736. Her e, by cont r ast ,

Paul undi sput edl y mi sr epr esent ed hi s medi cal hi st or y i n hi s

appl i cat i on, and Covent r y' s agr eement t o t he mut ual r esci ssi on was

not i nduced by any of t he al l egedl y bad- f ai t h st at ement s i n t he

resci ssi on l et t er . 7 Even i f t he Rhode I sl and cour t s wer e t o

r equi r e an i nsur er t o have a good- f ai t h basi s f or bel i evi ng t hat i t

7 Moreover , t he i nsurance company i n Ki l t y di d not seek adecl ar at i on of r esci ssi on bef or e t he i nsur ed had made a cl ai m f orbenef i t s. See 178 N. W. 2d at 736. Her e, Pruco began i nvest i gat i ng

t he possi bi l i t y of r esci ssi on not when a cl ai m was made on t hepol i cy, but when i t r ecei ved i nf or mat i on suggest i ng t hat t he pol i cywas desi gned t o be sol d on t he open market . As Pruco' s counselexpl ai ned at or al ar gument , l i f e i nsur ance pol i ci es ar e mor eval uabl e on t he market when t he i nsur ed has heal t h pr obl ems,because t hat means t he buyer wi l l l i kel y r ecoup i t s i nvest mentsooner .

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coul d obt ai n a uni l at er al r esci ssi on i n or der t o make an of f er f or

mut ual r esci ss i on ( and we do not assume t hey woul d) , no reasonabl e

j ury coul d have concl uded i n t hi s case t hat Pr uco l acked even an

ar guabl e basi s f or seeki ng r esci ssi on of t he pol i cy. Paul

admi t t edl y made mi sr epr esent at i ons about hi s bei ng di agnosed wi t h

and t r eated f or a degenerat i ve br ai n di sease, and t he medi cal

r ecor ds t hat Pr uco recei ved omi t t ed any document at i on of t hi s f act .

J ay' s r el i ance on gener al pr i nci pl es of equi t y i s

unavai l i ng under t hese ci r cumst ances. The i mpl i ed covenant of good

f ai t h and f ai r deal i ng and t he "cl ean hands" doct r i ne si mpl y ar e

not r el evant her e. Wher e i t was Paul who or i gi nal l y mi sr epr esent ed

hi s medi cal hi st or y i n or der t o obt ai n a $15 mi l l i on l i f e i nsur ance

pol i cy, J ay cannot be heard t o compl ai n t hat Pruco came to cour t

wi t h uncl ean hands. 8

Fi nal l y, J ay ar gues t hat t her e i s a genui ne di sput e of

mat er i al f act concer ni ng whet her Pr uco act ed i n bad f ai t h because

i t di d not at t ach Paul ' s appl i cat i on t o t he or i gi nal pol i cy, and

t hus woul d not have been ent i t l ed t o r esci nd based on any st at ement

i n t he appl i cat i on. Ther e ar e at l east t hr ee pr obl ems wi t h t hi s

8 J ay' s argument based on Rhode I sl and st at ut or y l aw i s al so

mi spl aced. As J ay hi msel f admi t s, t he st at ut e he r el i es on, R. I .Gen. Laws 27- 4- 10, does not appl y to cl ai ms f or r esci ssi on madeby t he i nsur er whi l e t he i nsur ed i s al i ve. See Pr udent i al I ns. Co.of Am. v. Tanenbaum, 167 A. 147, 149- 50 ( R. I . 1933) . Paul wasst i l l al i ve when Pr uco f i l ed t he i nst ant sui t . The f act t hat Pr ucosought r esci ssi on whi l e Paul was al i ve, r at her t han af t er hi sdeat h, cer t ai nl y i s not evi dence of bad f ai t h.

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ar gument . Fi r st , J ay admi t t ed i n hi s answer t o Pr uco' s second

amended compl ai nt t hat t he appl i cat i on was at t ached t o t he pol i cy. 9

"A par t y' s asser t i on of f act i n a pl eadi ng i s a j udi ci al admi ssi on

by whi ch i t nor mal l y i s bound thr oughout t he cour se of t he

pr oceedi ng. " Schot t Motorcycl e Suppl y, I nc. v. Am. Honda Mot or

Co. , 976 F. 2d 58, 61 ( 1st Ci r . 1992) ( quot i ng Bel l ef ont e Re I ns.

Co. v. Ar gonaut I ns. Co. , 757 F. 2d 523, 528 ( 2d Ci r . 1985) )

( i nt er nal quot at i on mar ks omi t t ed) . Second, J ay st at es t hat

Covent r y i s i n possessi on of t he or i gi nal pol i cy, so Covent r y woul d

have had an oppor t uni t y dur i ng i t s t hr ee- week i nvest i gat i on t o f i nd

out whet her t he appl i cat i on was at t ached t o the pol i cy and t o

deci de what , i f any, wei ght t o gi ve t hat f act i n r eachi ng i t s

deci si on t o agr ee t o r esci ssi on. Thi r d, as expl ai ned above,

Kl ani an f or ecl oses t he ar gument t hat , i n or der f or a mut ual

r esci ssi on t o be ef f ect i ve, a pol i cy must by i t s t er ms aut hor i ze a

uni l at er al r esci ssi on. See 26 A. 2d at 613. Thus, even i f t he

f i r st t wo pr obl ems wer e not pr esent , J ay' s ar gument woul d be

l egal l y i r r el evant .

I V.

The j udgment of t he di st r i ct cour t i s af f i r med.

9 J ay ar gues i n hi s r epl y br i ef t hat hi s r ef er ence t o an"appl i cat i on" i n hi s answer di d not r ef er t o t he par t i cul arappl i cat i on he now cont ends was absent . Thi s i s a st r ai ned r eadi ngof t he pl eadi ngs, and r egar dl ess, hi s gener al ar gument f ai l s f ort he addi t i onal r easons expl ai ned i n t he t ext .

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Pruco Life Insurance Company v. Wilmington Trust Company, 1st Cir. (2013)

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