PHL VARIABLE INSURANCE COMPANY, Plaintiff-Appellee v. 2008 CHRISTA JOSEPH IRREVOCABLE TRUST, by and through its trustee, BNC NATIONAL BANK, Defendant, Midas Life Settlements LLC, Intervenor Defendant-Appellant.
No. 13-3255.
United States Court of Appeals, Eighth Circuit.
Submitted: Oct. 8, 2014. Filed: April 9, 2015.
Rehearing Denied June 17, 2015.
First, for the reasons discussed above, the face of the complaint does not establish that no constitutional violation occurred. A correctional officer‘s power to strip search an inmate may be broad, but it is not unfettered. See Franklin v. Lockhart, 769 F.2d 509, 510 (8th Cir.1985) (reversing summary judgment entered against an inmate who alleged violations of his Fourth Amendment rights based on twice a day strip searches). Second, a reasonable correctional officer would have known an overly-intrusive and unnecessary strip search was unconstitutional at the time Story was strip searched. It was clearly established law that unreasonable strip searches violate the Fourth Amendment. Bell, 441 U.S. at 558, 99 S.Ct. 1861. Perhaps after the completion of discovery and briefing by the parties, it will be appropriate to find the correctional officers entitled to qualified immunity against Story‘s claims; however, the time for such a finding is not now.
III
Accordingly, I would reverse the preservice dismissal of the Fourth Amendment strip-search claim, and remand for the district court to conduct the proper balancing test. In all other respects, I would affirm.
SHEPHERD, Circuit Judge.
PHL Variable Insurance Company brought this action to rescind a $10 million life-insurance policy after it discovered the policy application grossly misrepresented the insured‘s finances. Following a bench trial, the district court1 granted rescission. Midas Life Settlements LLC now appeals. We affirm.
Robert Mark Loeb, argued, Washington, DC, Thomas Franklin Nelson, Kadee J. Anderson, Minneapolis, MN, Philipp Smaylovsky, Silvia Araxie Babikian, Marc R. Shapiro, Alec Orenstein, New York, N.Y., William A. Molinski, Los Angeles, CA, Khai LeQuang, I, Irvine, CA, on the brief, for Intervenor Defendant-Appellant.
Thomas F.A. Hetherington, argued, David T. McDowell, Jarrett E. Ganer, Erin E. Bennett, Rebecca A. Muff, on the brief, Houston, TX, for Plaintiff-Appellee.
I.
Although this was not a simple case below—proceedings before the district court spanned three years, required over two-hundred-fifty docket entries, and included a six-day bench trial—the district court developed the record well. We begin with the relevant facts, as found by the district court, which are not contested here. The insured was a retired seamstress named Christa Joseph. Joseph was of modest means. Her annual household income never exceeded $40,000 and her most valuable property was a condominium worth $169,990, which had gone into foreclosure. Joseph was born in Haiti. Although she had lived in the United States for some years, she did not speak English well.
A man named Johann John Jean indirectly referred Joseph to the insurance agency Diverse Financial. Joseph did not know Jean, and they had never met. Jean referred retirees to Diverse for a fee. In April 2008, Diverse submitted an application for a $10 million life-insurance policy on Joseph‘s life to PHL. The application falsely stated Joseph‘s net worth was
The false financial information was inserted into the application as part of a larger scheme to defraud PHL. Diverse—and in particular one of its principals, Roy Dekel—was “ground zero” for this fraud: Dekel arranged to have Joseph sign a blank application, after which he caused flagrantly false information about Joseph‘s net worth and income to be inserted into the application. . . . Dekel likely worked in conjunction with Amir, who also played some role in procuring the Policy and who asked Jean to serve as the trust protector. . . . Dekel and Amir acted with fraudulent intent for the purpose of inducing PHL to issue a high-value life-insurance policy that would generate a large commission for Diverse. PHL Variable Ins. Co. v. 2008 Christa Joseph Irrevocable Trust, 970 F.Supp.2d 932, 938 (D.Minn.2013). Further, “[i]n his capacity as trust protector, Jean knowingly participated in this fraudulent scheme and knew that Diverse submitted willfully false and intentionally misleading financial information to PHL in order to obtain a high-value life-insurance policy on the life of Joseph.” Id. However, “Joseph did not personally know of the misrepresentations on the insurance applications. . . . It is likely that she signed at least some documents—including the Policy application—in blank.” Id. at 937. It is also unlikely Joseph “understood much more than that a policy in some amount had been taken out on her life.” Id.
PHL issued a $10 million life-insurance policy on Joseph‘s life in July 2008 (the “Policy“). The Trust was named as beneficiary. Although “PHL‘s financial underwriting of the [Policy] left a lot to be desired,” PHL “did not deliberately turn a blind eye” to the application‘s problems. Id. at 940. “Moreover, any underwriter at the time would have had trouble grasping the magnitude and audacity of the fraud that was being perpetrated against PHL.”2 Id. The Trust financed the Policy
PHL brought this action against the Trust in July 2010, within the Policy‘s two-year contestability period, seeking to rescind the Policy for fraud in the Policy application.4 The Trust did not appear in the action, and Estate Planning intervened as a defendant. The district court later substituted Midas as intervenor-defendant after it acquired the Policy. After Joseph died from cancer in September 2011, Midas filed a counterclaim for the Policy proceeds. Following a bench trial, the district court granted rescission and held that PHL could keep the Policy premium. Midas now raises two arguments on appeal: (1) that PHL cannot rescind the Policy because its own agent completed the Policy application and Joseph was unaware of the misrepresentations; and (2) that PHL is estopped from rescinding the Policy because it had reason to know of the misrepresentations.
II.
Following a bench trial, we review the district court‘s legal conclusions de novo and its factual findings for clear error. Urban Hotel Dev. Co. v. President Dev. Grp., L.C., 535 F.3d 874, 879 (8th Cir.2008). “As a diversity case, we must apply Minnesota law.” Integrity Floorcovering, Inc. v. Broan-Nutone, LLC, 521 F.3d 914, 917 (8th Cir.2008). “If the Minnesota Supreme Court has not spoken on a particular issue, we must attempt to predict how the Minnesota Supreme Court would decide an issue and ‘may consider relevant state precedent, analogous decisions, considered dicta . . . and any other reliable data.‘” Id. (alteration in original) (quoting Kovarik v. Am. Family Ins. Grp., 108 F.3d 962, 964 (8th Cir.1997)).
We first address Midas‘s argument that PHL cannot rescind the Policy because Joseph was unaware of the misrepresentations PHL‘s own agent made in the Policy application. The parties agree that Minnesota common law controls our resolution of this issue because, as the district court put it, this case “fall[s] between statutory cracks.” PHL Variable Ins. Co., 970 F.Supp.2d at 941; see
Midas does not appeal the district court‘s determination that the financial misrepresentations in the Policy application were material. But it contends PHL cannot avail itself of the general rule permitting rescission because PHL‘s own agent, Diverse, was responsible for the misrepresentations. Even assuming Diverse was PHL‘s agent, a point PHL contests, we disagree.
Midas relies on Pomerenke v. Farmers Life Insurance Co., 228 Minn. 256, 36 N.W.2d 703 (1949), where the Minnesota Supreme Court explained that in certain circumstances insurers are prohibited from rescinding policies on the basis of material misrepresentations:
Where an application for insurance is made out by an insurance agent in the course of his agency and the insured truthfully gives the agent the correct answers, but the agent records the answers in the application incorrectly without the fault, knowledge, or collusion of the insured, and the insured signs the application without first having read it—although he had the opportunity to do so—in reliance upon the good faith of the agent, the insurance company is not relieved from liability on the policy, and the act of the agent in recording incorrect answers is deemed the act of the insurer and not that of the insured.
Id. at 706. This proposition is well-established in Minnesota law, and in fact predates Pomerenke. See, e.g., Kansel v. Minn. Farmers’ Mut. Fire Ins. Ass‘n, 31 Minn. 17, 16 N.W. 430, 430 (1883). For convenience, we refer to it as the “Pomerenke rule.”
After careful review, we predict the Minnesota Supreme Court would not apply the Pomerenke rule to this case. The Pomerenke rule requires the insured to provide truthful answers to the agent. See Zimmerman v. Bankers’ Cas. Co., 138 Minn. 442, 165 N.W. 271, 272 (1917) (stressing that Pomerenke rule applies “[i]f, at the time of giving the application in question, the [insured] made to the agent a full, fair, and truthful statements of facts“). That is not what happened here. Rather, Dekel arranged for Joseph to sign a blank policy application, falsified Joseph‘s financial information, and did so as part of a larger scheme to defraud PHL. Midas does not argue any facts on appeal that would support a claim that Joseph provided truthful answers. And after independently reviewing the record, we find none. Cf. Dahlke v. Metro. Life Ins. Co., 218 Minn. 181, 15 N.W.2d 524, 525 (1944) (placing burden on defendant to prove defense); Gude v. Exch. Fire Ins. Co. of N.Y., 53
The purpose of the Pomerenke rule is to protect an insured who “relie[s] in good faith on the agent‘s completing the application correctly.” Ser Yang v. W.-S. Life Assurance Co., 713 F.3d 429, 433 (8th Cir. 2013). It would not serve that purpose to apply the Pomerenke rule here because an insured who signs a blank application without providing the agent truthful answers cannot trust in the agent‘s faithful transcription. See Smith v. Benefit Ass‘n of Ry. Emps., 187 Minn. 202, 244 N.W. 817, 818 (1932) (stating that the Pomerenke rule applies where the insured “is without knowledge that the answers are incorrectly written and is not at fault in not knowing“) (emphasis added).
Midas cites no cases, and we find none, where the Minnesota Supreme Court applied the Pomerenke rule where the insured signed a blank policy application without providing truthful answers. To the contrary, in the one case we did find addressing an application “signed in blank,” the Minnesota Supreme Court emphasized that the Pomerenke rule applied only because the jury could have found “when the applications were taken, [the insured] stated facts to [the agent] which he failed to mention in the answers he filled in, although [the insured] had requested him to do so.” Schmitt, 210 N.W. at 848.
Midas nevertheless insists two cases, Hafner v. Prudential Insurance Co. of America, 188 Minn. 481, 247 N.W. 576 (1933), and Ser Yang, show that the Pomerenke rule applies even where the insured fails to provide any truthful answers. We disagree. Hafner is inapposite because it was decided under a statute permitting rescission only where the insured made “willfully false or intentionally misleading” statements. 247 N.W. at 578 (internal quotation marks omitted). And the citation to Ser Yang is unpersuasive. In that case we held the Pomerenke rule could apply where testimony suggested the agent failed to ask the insured one question about her medical history. See Ser Yang, 713 F.3d at 432-33. Yet because the insured provided answers to all the other questions the agent asked, we held “a reasonable jury could find that [the insured] relied in good faith on the agent‘s completing the application correctly.” Id. at 433. Ser Yang thus shows an agent‘s failure to ask one question does not defeat the insured‘s good-faith reliance on the agent‘s accurately recording the insured‘s answers to the questions the agent did ask. It does not suggest insureds need provide no answers at all.
Midas further argues the Pomerenke rule should apply in this case because under Minnesota law “the risk of loss is properly placed with insurance companies for any errors and misrepresentations by the insurance agents.” Appellant Br. 24 (emphasis added). We believe Midas overstates Minnesota law. Midas relies on Kansel, yet Kansel never made as broad a statement as Midas makes here. The question there was whether insurers could escape the Pomerenke rule by stipulating in their policies that all statements in the application would be charged to the insured. Kansel, 16 N.W. at 430-31. In holding the stipulations insufficient, the Minnesota Supreme Court noted that insurance agents “must be deemed the agents of the insurers and not of the insured in all that they do in preparing the applications.” Id. at 430. But Kansel never held that insurers would bear responsibility for all their agents’ misdeeds. Instead, it stated that insurers would be held responsible for misrepresentations in policy applications where the circum-
Moreover, another Minnesota Supreme Court case directly contradicts Midas‘s assertion that the Minnesota Supreme Court holds insurers liable for all their agents’ misdeeds. In Bratley v. Brotherhood of American Yeomen, 159 Minn. 14, 198 N.W. 128 (1924), the Minnesota Supreme Court held that an insurer may rescind a policy where the insurance agent and the insured both know of the material misrepresentations. Id. at 131-32. The Minnesota Supreme Court reasoned in Bratley it could not “hold that the insurer is bound by statements contained in an application when not only the agent, but the [insured], knows they are untrue. . . . To do so would put the [insurer] completely at the mercy of dishonest and unscrupulous agents.” Id. at 132. We find the facts at hand more closely resemble Bratley than Pomerenke. We do not believe the Minnesota Supreme Court would hold PHL responsible for the misrepresentations where Joseph signed a blank application without providing truthful answers to Diverse. Cf. Cedar Rapids Nat‘l Bank v. Mottle, 115 Minn. 414, 132 N.W. 911, 912 (1911) (“[W]here one of two innocent parties must suffer the loss, the one whose negligence contributed to cause the loss must stand it.“). As this case well makes clear, “[t]o do so would put [PHL] completely at the mercy of dishonest and unscrupulous agents.” Bratley, 198 N.W. at 132.
It follows that PHL may rescind the Policy based on the application‘s material misrepresentations of Joseph‘s finances. To the extent the district court took its analysis further—concluding that Jean‘s knowledge of the misrepresentations could be attributed to Joseph or the Trust because Jean was an agent of either Joseph or the Trust—we find this discussion unnecessary to the resolution of the case.
III.
We next address Midas‘s argument that PHL is estopped from rescinding the Policy because it had reason to know of the misrepresentations in the application. Midas claims two Minnesota Court of Appeals cases, Domke v. Farmers & Mechanics Savings Bank, 363 N.W.2d 898 (Minn.Ct.App.1985), and Alwes v. Hartford Life & Accident Insurance Co., 372 N.W.2d 376 (Minn.Ct.App.1985), “stand for the proposition that an insurer has a duty to reasonably investigate the facts stated in a policy application.” Appellant Br. 44. Simply put, these cases do not stand for so broad a proposition. Cf. Grinnell Mut. Reinsurance Co. v. DeCamp, No. C1-93-2195, 1994 WL 193763, at *2 (Minn.Ct.App. May 9, 1994) (unpublished) (“In Alwes and Domke, waiver applied because the insureds indicated specific physical impairments which the insurers ignored and granted coverage, but later denied claims based on the pre-existing impairments.“). Nor are they on point here, because neither involved a material misrepresentation. See Domke, 363 N.W.2d at 900 (finding that trial court did
We further note Midas claims, in its opening brief, that the duty to investigate arises from Domke and Alwes. Appellant Br. 44-47. There, it argues Minnesota suitability law6 “underscore[s]” the district court‘s alleged misreading of Alwes. Appellant Br. 48. In its reply brief, Midas argues Minnesota suitability law provides an “independent ground[] for imposing upon insurance companies a duty to inquire.” Appellant Reply Br. 24 (citing, for the first time,
Because Minnesota law does not impose a duty on PHL to reasonably investigate the financial information contained in the Policy application, PHL cannot be equitably estopped from rescinding the Policy. See Alwes, 372 N.W.2d at 379 (reciting elements of equitable estoppel).
IV.
For the foregoing reasons, we affirm the district court‘s judgment. We deny PHL‘s motion to strike portions of Midas‘s reply brief or, in the alternative, for leave to file a sur-reply brief.
SHEPHERD
CIRCUIT JUDGE
UNITED STATES of America, Plaintiff-Appellee v. Bradley COOK, Defendant-Appellant.
No. 13-3331.
United States Court of Appeals, Eighth Circuit.
Submitted: Nov. 14, 2014. Filed: April 9, 2015.