Life Insurance Company Denies Claim Based on Policyholder’s Alleged Misrepresentation of Drinking History
“No Bad Faith,” Says the Court, but Denial May Still Have Been Wrongful
On July 9, 2024, the United States District Court for the Middle District of Georgia issued a pivotal ruling in the case of Blalock v. Pacific Life Insurance Company. The dispute centered on two life insurance policies, each valued at $1 million, issued by Pacific Life on the life of Jimmie Long. Following Long’s death in a collision with a drunk driver on May 24, 2022—within the policies’ two-year contestability period—Pacific Life denied the claim, alleging material misrepresentations in Long’s application regarding his alcohol consumption history. This denial led the beneficiary to file a lawsuit alleging breach of contract and bad faith on the part of the insurance company. Although the bad faith portion of the lawsuit has been dismissed, the case might still proceed to trial on the breach of contract theory.
Background of the Case
In early 2022, Long applied for two life insurance policies to fund a partnership buy-sell agreement. During the underwriting process, Pacific Life reviewed five years of medical records from Long’s primary care physician, Dr. Collier Gladin, which indicated “social” alcohol consumption. However, after Long’s death, a contestable claim investigation revealed earlier records from 2012 to 2014 documenting episodes of binge drinking and recommendations for rehabilitation from other healthcare providers. Based on this information, Pacific Life rescinded the policies and denied the claim, prompting the beneficiary, Ronald Blalock, to file a lawsuit alleging breach of contract and bad faith refusal to pay the death benefits.
Court’s Analysis and Rulings
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Breach of Contract Claim: Pacific Life sought summary judgment, asserting that Long’s misrepresentations about his alcohol use were material and justified policy rescission. The court acknowledged discrepancies in Long’s application responses but found that Pacific Life’s underwriting guidelines lacked clear definitions of “alcohol abuse” and its materiality. Given the conflicting expert opinions on whether Long’s past alcohol use constituted material misrepresentation, the court denied summary judgment on the breach of contract claim, allowing it to proceed to trial.
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Bad Faith Claim: The court granted summary judgment in favor of Pacific Life on the bad faith claim. It concluded that, despite the unresolved issues regarding the breach of contract claim, Pacific Life had reasonable grounds to contest the claim based on the information obtained during the contestable claim investigation. This reasonable basis precluded a finding of bad faith as a matter of law.
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Daubert Motion: Pacific Life filed a motion to exclude the testimony of Blalock’s expert, Vera Dolan, particularly her opinion criticizing the insurer’s reliance on ten years of medical records during the claim investigation when only five years were reviewed during underwriting. The court granted this portion of the motion, determining that Dolan’s opinion lacked a reliable foundation. Other aspects of her testimony were limited by mutual agreement of the parties.
Plaintiff’s Motion to Reconsider Denied
The court’s ruling granted Pacific Life’s motion for summary judgment on plaintiff’s bad faith claim but denied the insurer’s motion for summary judgment on plaintiff’s breach of contract claim. The plaintiff quickly followed up by filing a motion asking the court to reconsider its ruling. The court, in turn, quickly ruled on this motion, denying it in a ruling just three weeks later.
In denying the motion for reconsideration, the court cited its Local Rules, which supplement the Federal Rules of Civil Procedure governing proceedings in federal court. The court’s Local Rule 7.6, Motions for Reconsideration, states, “Motions for Reconsideration shall not be filed as a matter of routine practice.” The court further cited precedent that “reconsideration of a previous order is an extraordinary remedy to be employed sparingly.” To succeed on a motion for reconsideration, the court explained that the movant must demonstrate one of the following:
- An intervening change in the law since the first decision was issued
- New evidence has been discovered which was not previously available in the exercise of due diligence
- The court made a clear error of law
Moreover, the movant cannot merely restate previous arguments or make new arguments that could have and should have already been made during the original proceeding.
Here, the plaintiff argued Pacific Life intentionally drafted contradictory and vague underwriting guidelines to avoid paying death claims during the first two years of a policy (the contestability period). The court, however, said it found no evidence of such deliberate conduct.
Implications
These rulings underscore the necessity for insurers to maintain clear and precise underwriting guidelines, especially concerning definitions of conditions like “alcohol abuse.” Ambiguities in such definitions can lead to protracted legal disputes and challenges in enforcing policy rescissions. Additionally, the decision highlights that while insurers may have a reasonable basis to contest claims—thereby avoiding bad faith liability—such grounds do not automatically validate policy rescissions if material facts remain in dispute.
As the breach of contract claim advances to trial, the case will further explore the complexities surrounding material misrepresentations and the standards insurers must meet to justify policy rescission.
