721 F.3d 1
1st Cir.2013Background
- Pruco sought mutual rescission of a life policy owned by the trust after discovering material misrepresentations in Paul's health on the application.
- Wilmington Trust and Jay L'Archevesque served as co-trustees; Coventry Capital acted as servicing agent for the premium-financing lender.
- Wilmington forwarded Pruco's rescission petition package to Coventry, which directed cashing the refund and had three weeks to decide.
- Pruco tendered a refund of premiums with a rescission letter; the money was deposited after Coventry’s directive.
- Coventry relied on its in-house counsel and underwriting information, not Pruco's letter alone, before instructing Wilmington to cash the check.
- District court granted summary judgment for Pruco finding mutual rescission as a matter of law; on appeal, defendants challenge the Rhode Island rescission standard and the facts surrounding Coventry’s reliance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Rhode Island mutual rescission standard applied | Klanian controls; objective acts prove mutual rescission | Rhode Island law requires inquiry into intent; misrepresentations disputed | Rhode Island standard applied; inference supports mutual rescission |
| Whether Coventry’s reliance on Pruco’s letter was material | Coventry relied on Pruco's statements in deciding to rescind | Coventry relied on its own underwriting; statements were not controlling | Coventry did not rely on those statements; no material reliance by Coventry |
| Bad faith claim affects mutual rescission | Bad faith would bar rescission | Bad faith arguments irrelevant where mutual rescission occurred | Bad faith arguments irrelevant to mutual rescission; affirmed |
Key Cases Cited
- Klanian v. New York Life Insurance Co., 26 A.2d 608 (R.I. 1942) (mutual rescission rests on objective acts and intention; inference from tender and cashing of refund)
- Dooley v. Stillson, 128 A. 217 (R.I. 1925) (intent to rescind may be for the court where facts are undisputed)
- Newport Plaza Assocs. v. Durfee Attleboro Bank (In re Newport Plaza Assocs.), 985 F.2d 640 (1st Cir. 1993) (contractual consent and objective indicia govern rescission decisions)
- Avemco Insurance Co. v. Northern Colorado Air Charter, Inc., 38 P.3d 555 (Colo. 2002) (cites Klanian on inference from acts and lack of divergent evidence)
- Kilty v. Mutual of Omaha Ins. Co., 178 N.W.2d 734 (Minn. 1970) (distinguishes unilateral vs mutual rescission; misrepresentation present)