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HOROWITZ v. FED. KEMPER LIFE ASSUR. CO.

November 27, 1996

DONA W. HOROWITZ, et al., Plaintiffs,
v.
FEDERAL KEMPER LIFE ASSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: ROBRENO

 EDUARDO C. ROBRENO, J.

 November 27, 1996

 Plaintiff Dona Horowitz is the named beneficiary of a $ 1,000,000.00 life insurance policy which defendant Federal Kemper Life Assurance Company ("Kemper"), issued on the life of her now deceased husband, Dr. Leonard N. Horowitz. *fn1" Following Dr. Horowitz's death, Kemper refused to pay the proceeds of the policy contending that Dr. Horowitz committed fraud by failing to disclose that he was dying of cancer in a December 20, 1991, amendment to the policy application. Plaintiffs brought suit to recover the insurance proceeds and defendant counterclaimed for rescission. *fn2"

 The parties filed cross-motions for summary judgment. The Court granted plaintiffs' motion on Count III of the complaint, plaintiffs' breach of contract claim, and entered judgment in their favor for $ 1,000,000.00. *fn3" The Court reasoned that pursuant to section 441 of Pennsylvania's Insurance Company Law of 1921, 40 P.S. § 441, Kemper was barred as a matter of law from asserting a fraud defense based on alleged misrepresentations in the application and December 20, 1991, amendment because of the undisputed failure of Frederick Raffetto, an independent insurance agent who sold Dr. Horowitz the Kemper policy, to physically attach the amendment to the policy at the time of delivery. See Horowitz v. Federal Kemper Life Assurance Co., 861 F. Supp. 1252, 1258-61 (E.D. Pa. 1994), aff'd in part and vacated in part, 57 F.3d 300 (3d Cir. 1995).

 On appeal, the Third Circuit reversed finding that the Court's interpretation of the term "attach" as used in section 441 was too restrictive. See Horowitz v. Federal Kemper Life Assurance Co., 57 F.3d 300, 305-07 (3d Cir. 1995). The Third Circuit concluded that if after Dr. and Mrs. Horowitz read and signed the amendment, Mr. Raffetto had in fact placed the amendment inside a sleeve in the pocket binder which contained the policy and application and gave the binder to Dr. Horowitz as defendant alleged, then the amendment was "attached" to the policy at the time of delivery within the meaning of section 441. Id. at 306. The Third Circuit remanded the case for trial on plaintiffs' breach of contract claim as well as on defendant's counterclaim for rescission.

 Following an eight day trial, the jury answered special interrogatories finding that (1) Dr. Horowitz had not made material misrepresentations either knowingly or in bad faith in his initial application to Federal Kemper; (2) Dr. Horowitz or Mrs. Horowitz made material misrepresentations either knowingly or in bad faith in the December 20, 1991, amendment to the application to Federal Kemper; and (3) the December 20, 1991, amendment to the application was not attached to the application at the time Mr. Raffetto delivered the policy to Dr. Horowitz. (See Jury Verdict, doc. no. 98) The Court then entered judgment in favor of plaintiffs and against defendant.

 Post-trial motions were subsequently filed, with defendant claiming various points of legal and trial error. For the reasons stated herein, defendant's motion for judgment as a matter of law or in the alternative for a new trial will be denied.

 I. STANDARD OF REVIEW

 Similar concerns restrict the Court's discretion in ordering a new trial pursuant to Federal Rule of Civil Procedure 59. "Such an action effects a denigration of the jury system and to the extent that new trials are granted the judge takes over, if he does not usurp, the prime function of the jury as the trier of the facts." Lind v. Schenley Indus., Inc., 278 F.2d 79, 90 (3d Cir.) (in banc), cert. denied, 364 U.S. 835, 81 S. Ct. 58, 5 L. Ed. 2d 60 (1960). A new trial on the basis that the verdict is against the weight of the evidence can be granted "'only where a miscarriage of justice would result if the verdict were to stand.'" Klein v. Hollings, 992 F.2d 1285, 1290 (3d Cir. 1993) (quoting Williamson v. Consolidated Rail Corp., 926 F.2d 1344, 1352 (3d Cir. 1991)). Where the proffered basis is trial error, "the court's inquiry . . . is twofold. It must first determine whether an error was made in the course of the trial, and then must determine whether that error was so prejudicial that refusal to grant a new trial would be inconsistent with substantial justice." Farra v. Stanley-Bostitch, Inc., 838 F. Supp. 1021, 1026 (E.D. Pa. 1993) (citations and internal quotation marks omitted), aff'd without op., 31 F.3d 1171 (3d Cir. 1994); see Fed. R. Civ. P. 61. An error in jury instructions must be so substantial that, viewed in light of the evidence in the case and the charge as a whole, "'the instruction was capable of confusing and thereby misleading the jury.'" Link v. Mercedes-Benz of N. Am., Inc., 788 F.2d 918, 922 (3d Cir. 1986) (quoting United States v. Fischbach & Moore, Inc., 750 F.2d 1183, 1195 (3d Cir. 1984), cert denied, 470 U.S. 1029, 105 S. Ct. 1397, 84 L. Ed. 2d 785 (1985)).

 II. DISCUSSION

 
A. The Jury's Verdict on the Attachment Issue Prevents Kemper from Rescinding the Insurance Contract on the Basis of Fraud.

 Under Pennsylvania law, in order for Kemper to void its insurance policy with the Horowitzes on the basis of fraud, it must show "(1) that Dr. or Mrs. Horowitz's representations in the policy application and the application amendment were false, (2) that Dr. or Mrs. Horowitz knew their representations were false or made them in bad faith, and (3) that the representations were material to the risk insured." Horowitz, 57 F.3d at 304-05 (citations omitted). In satisfying its burden, however, Kemper is limited by section 441 of the Pennsylvania Insurance Company Law of 1921 which provides in relevant part,

 
all insurance policies . . . in which the application of the insured . . . form[s] part of the policy or contract between the parties thereto, or has any bearing on said contract, shall contain, or have attached to said policies, correct copies of the application as signed by the applicant . . .; and, unless so attached and accompanying the policy, no such application . . . shall be received in evidence in any controversy between the parties to, or interested in, the policy . . . .

 40 P.S. § 441. Pursuant to section 441, if an insurer fails to attach the insurance application or any amendments thereto to the insurance policy at the time the policy is delivered, the insurer is barred from asserting any fraudulent misrepresentations contained in the application or the amendments as justification for its failure to pay the policy proceeds. See Sandberg v. Metropolitan Life Ins. Co., 342 Pa. 326, 328-29, 20 A.2d 230, 231 (1941); Frost v. Metropolitan Life Ins. Co., 337 Pa. 537, 12 A.2d 309 (1940); Horowitz, 57 F.3d at 305.

 Following section 441's mandate, therefore, in the present case, because the jury found that the December 20, 1991, amendment to Dr. Horowitz's insurance application was not attached to the policy at the time of delivery, Kemper can not claim that anything contained in the application or the amendment allows it to avoid payment. Kemper does not argue otherwise, but instead contends that "there is nothing in the statute which states that an insurer may not introduce other admissible evidence not contained in the application. No case states that an insurer may not introduce other evidence of fraud." *fn4" See Def.'s reply to Pl.'s Response to Def.'s Mem. Law Supp. J. as Matter of Law, doc. no. 115 at 2) (emphasis in original)). According to Kemper, here, this "other evidence of fraud" consists of "(a) the Horowitzes' awareness that they had an obligation to tell of any change in health and (b) the ...


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