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Michael Sadel v. Berkshire Life Insurance Company of America

January 28, 2011


The opinion of the court was delivered by: Goldberg, J.


Plaintiff, Michael Sadel, brings claims against Defendants, Berkshire Life Insurance Company of America (Berkshire) and the Guardian Life Insurance Company (Guardian),*fn1 for breach of contract and bad faith based on a failure to pay disability insurance benefits under two individual disability policies.*fn2 Defendants counter-claimed for declaratory relief seeking rescission of the two policies, alleging fraudulent statements made by Plaintiff on the disability insurance applications.

Before the Court are Defendants' motion for summary judgment, Plaintiff's counter motion for partial summary judgment, and Defendants' motion in limine to preclude the testimony of Plaintiff's expert. For the reasons stated below, I will grant Defendants' motion for summary judgment and deny Plaintiff's motion for partial summary judgment. Defendants' motion in limine will also be denied.


A. Relevant Facts

Unless otherwise specified, the following facts are undisputed.

Plaintiff is a licensed pharmacist who, in 2002, was the sole proprietor of two pharmacies in North Philadelphia. In September of 2002, Plaintiff sought treatment with Linda May, a licensed clinical social worker, reporting to her that he had been abusing opiates including Percocet, Oxy Contin, Vicodin, Lorcet, Xanax and Soma. Plaintiff indicated he had been taking these unprescribed narcotics from his pharmacy's supply for about three months. (Pl.'s Br. Summ. J. 3; Defs.' St. of Facts ¶¶ 89, 98.)*fn3

May opined that Plaintiff had a "substance abuse disorder" and thereafter Plaintiff began individual therapy sessions with May which continued through February 8, 2006. Plaintiff also began group sessions in May 2003, which were ongoing as of the date of the summary judgment submissions. (Pl.'s Br. Summ. J. 4; Defs.' Br. Summ. J. 11, 12.) A mandatory requirement for admittance into the group sessions (conducted by May), was that the patient have some sort of substance problem. (Defs.' St. of Facts ¶ 118.)

Plaintiff alleges that May never issued a formal diagnosis and that he did not go through any detoxification program. He further notes that only the first two weeks of his time with May pertained to his drug use and that his treatment evolved into addressing other personal problems. (Pl.'s Br. Summ. J. 3-4.)

B. Plaintiff's Insurance Policies

In January of 2005, Plaintiff purchased a disability insurance policy from Berkshirethrough its agent Jason Giorgio. Giorgio filled out Plaintiff's disability insurance application based on information provided by Plaintiff. (Pl.'s Br. Summ. J. 5.) Plaintiff responded "no" to the following three questions asked by Giorgio: (1) "Have you ever used stimulants, hallucinogens, narcotics or any other controlled substance?"; (2) "Have you ever had or been advised to have counseling or treatment for alcohol or drug use?"; and (3) "In the last ten years, have you had, been treated for or received consultation or counseling for anxiety, depression, nervousness, stress, mental or nervous disorder, or other emotional disorder?" (Application for Disability Income, Policy Number Z0713330, Questions 5(k)(I), 5(k)(ii), 5(g)(x)).

Plaintiff alleges that he did not disclose that he had ever used controlled substances, obtained counseling for drug use, or received treatment for emotional disorders because his drug abuse and treatment were not on his mind as he "breezed through" the questions with Giorgio. Plaintiff explains that his treatment with May was a small matter that occurred years prior to his applying for insurance and had been addressed in just a few weeks. Additionally, he claims that he was embarrassed about his treatment and wanted to keep it confidential because of the stigma in society associated with non-prescription drug use. (Pl.'s Br. Summ. J. 5.)

After Giorgio completed the application, he mailed it to Plaintiff for his signature. On January 18, 2005, Plaintiff signed the application, which read: "Those parties who sign below, agree that . . . All of the statements that are part of the application . . . are correctly recorded, and are complete and true to the best of the knowledge and belief of those persons who made them." (Defs.' Br. Summ. J. 7, Ex. A, p. 02104, "Representations of the Proposed Insured and Owner.")*fn4

The disability insurance policy - No. Z0713330 - was issued on February 5, 2005. (Pl.'s Br. Summ. J. 5.) The policy contains an "Incontestable" provision which states that: "This policy will be incontestable as to the statements, except fraudulent statements, contained in the application after it has been in force for a period of two years during your lifetime." (Policy No. Z0713330, 9.) The policy also contained a Future Increase Rider Option (FIRO) which allowed Plaintiff to apply for additional coverage during an annual option period without medical underwriting. (Pl. Memo Summ. J. 4-5.)*fn5

C. Plaintiff's Claim for Disability Benefits

On January 13, 2007, Plaintiff was the unfortunate victim of an armed robbery at one of his pharmacies where he was shot in the hand as he attempted to move a gun away from his head. Plaintiff's three middle fingers on his left hand were amputated, and his thumb and pinky finger were injured. He was hospitalized at Thomas Jefferson Hospital and, upon arrival, Plaintiff advised the emergency room physicians that he had taken unprescribed narcotics in the past. He provided this information because he was afraid the hospital would prescribe him pain medication which could cause a relapse. (Pl.'s Br. Summ. J. 5-6.)

Plaintiff returned to work three weeks after the shooting, working approximately 2-3 days per week, 7 hours per day. He claims that he suffered from extreme stress, fear and anxiety and that he was limited in his work functions. Plaintiff hired two pharmacy technicians for assistance, an armed security guard to protect himself, his employees and inventory, and discontinued Saturday store hours. (Pl.'s Br. Summ. J. 6.)

In addition to his continuing group therapy, Plaintiff resumed his individual counseling with May on January 25, 2007, where he was diagnosed with post-traumatic stress disorder. (Pl.'s Br. Summ. J. 7.) In the first individual session after his injury, May wrote in her chart notes: "insurance claim, lied on application for the policy, Chuck found examples of exceptions." When asked why she wrote the note, May testified: "I wrote that because he told me that he had lied on his application for his disability policy, that he had indicated that he never had a problem with drugs, and I didn't know that." She continued: "Michael lied." (Defs.' Br. Summ. J. 9; Defs.' St. of Facts ¶¶ 83, 84.)

In February 2007, the option to exercise the Future Increase Option (FIO) of Plaintiff's disability insurance became available. Again, Berkshire agent Giorgio completed the application based on information provided by Plaintiff. The application indicated that Plaintiff was working full time, and that he was not disabled. Plaintiff alleges that he believed that this information was correct because he had assumed full administrative duties and his job was "24/7." He claims he did not know what the term "disabled" meant but he did not think it applied to him because he was working. Giorgio mailed the application to Plaintiff, which he signed on February 6, 2007. The policy doubled Plaintiff's indemnity benefits. It included an "Endorsement Amending 'Incontesable' Provision" which stated:

In consideration of the issuance of this policy it is understood and agreed that, except for representations made at the time of exercising the Future Increase Option to purchase this policy, the time period stated in the incontestable provision of this policy will be measured from the effective date or from the date of last reinstatement, if later, of the policy to which the Future Increase Option Rider is attached. (Pl.'s Br. Summ. J. 6; FIO Policy.)

Plaintiff continued working at the pharmacy until June of 2007 when a customer approached him from behind and said "stick 'em up." Plaintiff claims he saw his life flash before his eyes and he realized he could no longer work at the pharmacy. On August 16, 2007, Plaintiff telephoned Berkshire to put them on notice of a disability claim. In May of 2008, he sold one of his pharmacies. (Pl.'s Br. Summ. J. 7.)

According to Defendants, on August 20, 2007, four days after receiving Plaintiff's claim, Berkshire sent Plaintiff a "Claim Form" and an "Attending Physician's Statement" (APS) with a letter stating the importance of providing the information that supported his claim. Berkshire claims to have contacted Plaintiff many times attempting to acquire this information. On November 12, 2007, Berkshire received notice that Plaintiff had retained counsel. Thereafter, on December 24, 2007, Berkshire received Plaintiff's Claim Form, four months after it was requested. On the Claim Form, Plaintiff indicated he was totally disabled as of June 2007 but also stated that he was working fifteen hours a week, performing duties that were part of his occupation. (Defs.' Br. Summ. J. 5.)

On January 28, 2008, Berkshire claims adjuster, Kelly Reagan, obtained Plaintiff's medical records from Thomas Jefferson Hospital, which reflected that Plaintiff had a history of opiate dependency, and attachment and adjustment disorders for which he obtained outpatient therapy. After spending several months attempting to obtain May's treatment notes, Berkshire received a report and chart prepared by May indicating that she began treating Plaintiff in September 2002 for narcotics use. The chart established that May had fifty-seven individual and seventy-eight group treatment sessions with Plaintiff between September 2002 and the date the Disability Application was signed - January 18, 2005. (Defs.' Br. Summ. J. 5)

On June 9, 2008, Reagan notified Plaintiff that Berkshire had found inconsistencies in his policy application. Reagan also forwarded a memorandum on this issue to Defendant's legal department. (Pl.'s Br. Summ. J. 7-8.) Thereafter, through correspondence to Plaintiff dated October 29, 2008, November 20, 2008, and January 23, 2009, Berkshire advised that it was still reviewing the validity of the policies and considering rescission. Plaintiff claims that between June 9, 2008 and January 23, 2009, Berkshire did not take any action or ...

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