The opinion of the court was delivered by: Judge Sylvia Rambo
This case comes to the court based on its diversity jurisdiction found in 28 U.S.C. § 1332, and concerns a dispute over a term life insurance policy ("the policy") purchased by Larry Null, now deceased, from Defendants.*fn1 Upon Mr. Null's death on February 22, 2006, Defendants refused to pay the insurance proceeds. Defendants contend that Mr. Null knowingly or in bad faith concealed information concerning his medical history, and that this information was material to its decision to insure Mr. Null. Defendants contend that had they known of Mr. Null's true medical history they would have rated him higher, thereby increasing his premiums, or declined coverage altogether. Plaintiff, Mr. Null's step-son and beneficiary under the policy, brought suit for breach of contract and insurance bad faith. (Doc. 1.) Defendants asserted a counterclaim seeking a declaratory judgment that the policy was void ab initio due to Mr. Null's alleged material misrepresentations. (Doc. 6.) The parties conducted discovery, and on September 11, 2009, Defendants filed a motion for summary judgment. (Doc. 17.) The parties have briefed the issues, and the motion is ripe for disposition.
1. Application for Insurance
The facts of this case are relatively uncomplicated. On March 22, 2006, Larry Null died of lung cancer. Eight months prior to his death, on July 12, 2005, Larry Null and his wife, Joan Null, met with Richard Rohrbaugh, an agent from American General. With the assistance of Mr. Rohrbaugh, Mr. Null completed a life insurance application seeking the issuance of a "Freedom Term 20 Year" life insurance policy with a face amount of $150,000. The application was taken by Mr. Rohrbaugh using a Smart Pad computer, which he described as a laptop computer slightly smaller than an 8.5" x 14" legal pad that "has a screen on top that lights up." (Doc. 24-2 at 14 of 78, Richard Rohrbaugh Dep., 39:17-18.) Specifically, Mr. Rohrbaugh asked Mr. Null the questions on the application which both Mr. Null, and his wife Joan Null, answered. (Doc. 24-2 at 20 of 78, Richard Rohrbaugh Dep., 63:24-64:16.) The answers were then recorded on the Smart Pad by Mr. Rohrbaugh. (Id.) At the time the application was completed, Mr. Rohrbaugh was sitting across a table from the Nulls. (Id. at 19 of 78, Rohrbaugh Dep, 58:1-6.)
It is undisputed that the application asked the following questions, among others, and that the answers were recorded by Mr. Rohrbaugh who testified at his deposition that they were the answers provided by Mr. Null:
4. Within the past 10 years, has any proposed insured been diagnosed as having or been treated for mental illness or brain disorder, diabetes, high blood pressure, stroke, chest pain, disease or disorder of the heart, blood, blood vessels, lungs or respiratory system, muscoloskeletal system, digestive system, liver, kidneys or nervous system, alcohol use or drug use?
NO. 15. Within the past 10 years, has any proposed insured consulted a doctor or been a patient in a hospital, clinic or treatment facility?
NO. (Doc. 19-2 at 3 of 166; 20 of 166.)
Defendants contend that if Mr. Null had answered "yes" to either of these questions that he would have been asked to provide additional information. The parties disagree about what, if any, discussion took place between the Nulls and Mr. Rohrbaugh when he asked these questions. At his deposition, Mr. Rohrbaugh stated that the Nulls told him that Mr. Null had a "sore throat or sniffles" and that he was using some sort of nose spray, and "[i]t just appeared to [him] that [Mr. Null] had a cold." (Doc. 24-2 at 21 of 78, Rohrbaugh Dep., 66:18-67:23.)In contrast, Joan Null testified at her deposition that the parties had a more in-depth discussion about Mr. Null's health problems. She contends that she told Mr. Rohrbaugh that Mr. Null had a "sinus infection and this was our reason for calling him to take life [insurance]; in case he should ever become real ill." (Doc. 24-2 at 59 of 78, Joan Null Dep., 72:24-73:2.) According to Mrs. Null, Mr. Rohrbaugh told them that question number fifteen meant "have you had any surgeries or have you had any, you know, really serious illnesses such as emphysema and-- or cancer were you hospitalized." (Id., Null Dep., 73:11-13.) Mrs. Null also testified that in the course of this conversation, she told Mr. Rohrbaugh that a few days before the application Mr. Null had an x-ray, and, in response, Mr. Rohrbaugh said "they mean is there anything seriously wrong with you; do you have cancer, do you have -- you know, he repeated a lot of illnesses." (Id. at 60 of 78, Null Dep., 74:15-18.)
After completing the application, both Mr. Null and Mr. Rohrbaugh signed the application on the Smart Pad. Mr. Rohrbaugh does not know whether Mr. Null actually read the answers that had been recorded before he signed his name, but stated that he had the opportunity to do so. (Doc. 24-2 at 23 of 78, Rohrbaugh Dep., 75:1-11.) According to Mrs. Null, she told Mr. Null to read what he was signing before he signed it. She does not know if he did or not, but testified that Mr. Rohrbaugh told them that "you can read it if you'd like, he said, but it's what we just went over. He said that it's everything we just did." (Doc. 24-2 at 56 of 78, Null Dep., 61:8-10.) Directly above the place for Mr. Null's signature appeared the following text, in relevant part:
I . . . [a]gree to the following:
(a) All statements and answers in this application are complete and true to the best of my knowledge and belief.
(b) Except as stated in the Conditional
Receipt, the insurance shall take effect on the Policy Date shown in the policy if the first full premium has been paid within 31 days of the Policy Date.
(c) No agent has authority to waive any answer to otherwise modify this application, or to bind American General Life and Accident Insurance Company ("Company") in any way by making any promise or representation which is not set out in writing in this application.
(Doc. 19-2 at 3 of 166; 20 of 166.)
After the initial application, on July 20, 2005, Mr. Null was visited by a nurse who performed a medical examination, and asked additional questions. The parties refer to this as the Paramedical Supplement. (Doc. 19-2, 6-7 of 166.) During this visit, the nurse again asked Mr. Null a series of questions about his health, including the following:
2. Have you ever been diagnosed or treated for . . .
c. Shortness of breath, persistent hoarseness or cough, blood spitting, bronchitis, pleurisy, asthma, emphysema, tuberculosis or ...