Monday, July 28, 2008
Undiagnosed Illness Not Grounds to Rescind Annuity—C.A.
By KENNETH OFGANG, Staff Writer
An annuity purchaser’s lack of awareness that she was terminally ill was not grounds for rescission, the First District Court of Appeal ruled Friday.
Div. One upheld a Marin Superior Court judge’s grant of summary judgment to United of Omaha Life Insurance, rejecting arguments by Jean Simes’ estate that a triable issue existed as to whether the annuity contract was subject to rescission due to mistake of fact.
Simes purchased a single premium immediate annuity in October 2001 for $321,000, with a right to rescind within 30 days. The annuity entitled her to payments of $3,000 monthly for the rest of her life.
Three months later, in January 2002, she was diagnosed with ovarian cancer. She died five days later, but United of Omaha did not learn of her death, and did not stop making payments, until April 2003.
In an action seeking damages for breach of contract, and declaratory relief, the estate contended that it was entitled to have payments continue “until the sum of the benefit payments equals the single premium.”
United of Omaha moved for summary judgment, arguing that the terms of the contract did not provide for payments beyond the insured’s lifetime. The estate responded that the annuity was a contract of adhesion and was procedurally and substantively unconscionable.
Judge James Ritchie initially ruled that there was a triable issue as to whether Simes made a unilateral mistake in agreeing to the life annuity option, justifying reformation, and whether rescission and restitution based on a mistake of fact or law was called for under the circumstances.
After additional discovery, however, the judge concluded that because Simes did not know of her condition when she purchased the annuity, and did not learn of it during the 30-day rescission period, she was not acting under a mistake of fact and assumed the risk that she would die without recouping her premium.
The judge was correct, Justice William Stein explained, rejecting the estate’s contention that a trial was necessary to determine whether Simes’ undiagnosed illness affected her ability to make decisions and whether the insurer’s failure to provide her with a copy of the policy until mid-November 2001 formed a basis for rescission.
A unilateral mistake of fact, Stein wrote, is no basis for rescission unless the other party had reason to know of, or caused, the mistake. The estate, he said, presented no evidence that the insurer had knowledge of any facts suggesting that Simes was terminally ill.
“The contract in this case does not expressly assign the risk of the alleged mistake. Nonetheless, parties who contract for ‘life contingent’ benefits necessarily do so based on limited knowledge of the very facts about which Simes was mistaken. We cannot fix the length of our lives or even the state of our health with certainty, and the parties knew that their expectations in this regard were at best an educated guess.”
The justice cited a 1935 case in which a federal appeals court explained that life annuity contracts are read “in the light of the knowledge of all mankind, that death may come tomorrow.” While the insurer takes the risk that the insured will live beyond normal life expectancy, he noted, the insured takes the risk of dying sooner, and such risks “are an integral part of their bargain.”
The fact that Simes was already ill when she purchased the annuity, Stein continued, does not distinguish her case from those, in California and other jurisdictions, in which a beneficiary under an insurance policy or another contract—such as an agreement for lifetime care—assumed the risk of dying before receiving all of the benefits that were otherwise due.
“[A]llocation of the risk to the annuitant in these circumstances is not only reasonable but a practical necessity,” Stein wrote.
The case is Grenall v. United of Omaha Life Insurance Company, 08 S.O.S. 4461.
Copyright 2008, Metropolitan News Company