Luther v. Choice Plus of New England, No. 423-8-03 Wncv (Katz, J., July
15, 2005)

[The text of this Vermont trial court opinion is unofficial. It has been
reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is
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STATE OF VERMONT                                     SUPERIOR COURT
Washington County, ss.:                         Docket No. 423-8-03 Wncv


WILLIAM LUTHER

v.

CHOICE PLUS OF NEW ENGLAND


                                  ENTRY


       Plaintiff Luther seeks coverage under his employer-provided health
plan for medical bills incurred by the daughter of his ex-wife; coverage was
denied on the ground that the daughter was not a covered dependent under
the policy.

       At the time Luther filled out the application to enroll in the health
plan, he was divorced from his ex-wife, though he continued to live with
her and her two daughters. He listed all three as dependents on the
enrollment form; the daughters have a last name different from that of their
natural mother or Luther.

      The plan covers employees and certain dependents. Among other
dependents, the plan covers “[s]tep-children who reside in the Employee’s
household . . . as long as a natural parent remains married to the Employee
and also resides in the Employee’s household.” Plan at 2. The plan also
provides that “At any time, the Plan may require proof that a Spouse or a
child qualifies or continues to qualify as a Dependent as defined by this
Plan.” Id. at 3. There is no dispute that Luther characterized his ex-wife’s
daughters as his step-daughters on the enrollment form. The
characterization was incorrect under the unambiguous terms of the plan
because, as noted, Luther was divorced from the daughters’ mother at the
time of application.

        The following year, one of the daughters incurred significant
medical bills, which the provider submitted to the plan for payment. It was
then first discovered by administrators of the plan that the daughter was not
a “step-daughter” and therefore was not a covered dependent. The claim
was denied. The plan then promptly refunded all related premiums and
commissions to the bank account of the employer, as plan sponsor. No
premiums were retained as earned.

        Luther makes what we consider essentially a waiver argument: the
plan should not be able to rescind the policy and deny the claim because he
filled out the application in good faith (honestly considering the daughter to
be his step-daughter), and the plan accepted the premiums on that basis and
then failed to deny coverage until after the medical services were provided.
See Merit Behavioral Care Corp. v. State Independent Panel of Mental
Health Providers, 2004 VT 12, ¶ 19 (noting that equitable estoppel and
waiver “are often used interchangeably in insurance law”).

        Before addressing whether it might be waived, we evaluate the right
to rescind in these circumstances. “When a party relies on the doctrine of
equitable rescission to avoid a contract, five elements must be proven: ‘(1)
a representation, (2) falsity, (3) materiality, (4) an intent to induce the other
to act or refrain from acting, and (5) justifiable reliance.’” Rubes v. MEGA
Life and Health Ins. Co., Inc., 642 N.W.2d 263, 269 (Iowa 2002) (quoting
Hyler v. Garner, 548 N.W.2d 864, 872 (Iowa 1996)). There is no real
dispute about whether Defendant has proven these elements in this case,




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only whether it matters that the false representation (the status of the
alleged dependent as a step-daughter) on the application was made in good
faith. Generally, it does not matter. Defendant need not prove any “intent
to deceive” to support a right to rescind. See id.

        An insurer may waive a right to rescind “by recognizing the validity
of the policy and continuing it in force after knowledge of circumstances
entitling it to avoid the policy.” Wilson v. State Farm Fire and Casualty
Co., 761 So.2d 913, 920 (Miss. Ct. App. 2000). Retaining the premiums as
earned after knowledge of grounds to rescind strongly suggests that the
policy is treated as valid, and the right to rescind is waived. Thompson v.
Permanent General Assurance Corp., 519 S.E.2d 249, 251 (Ga. Ct. App.
1999).

       The undisputed facts of this case show that the plan took action to
rescind the policy as soon as it learned of the grounds for doing so. It then
retained no premiums or commissions as earned. Its right to rescind was
not waived. Given this conclusion, we need not address Defendant’s other
arguments.


      Defendant’s motion for summary judgment is granted. All other
motions are denied as moot.


         Dated at Montpelier, Vermont, __________________________,
20___.




                                            __________________________
                                                                 Judge




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