                                                                           FILED
                            NOT FOR PUBLICATION                             MAY 26 2011

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS




                            FOR THE NINTH CIRCUIT



MICHAEL LOZA, a single man,                      No. 10-15651

              Plaintiff - Appellant,             D.C. No. 2:09-cv-01118-DGC

  v.
                                                 MEMORANDUM *
AMERICAN HERITAGE LIFE
INSURANCE COMPANY, a Florida
corporation,

              Defendant - Appellee.



                   Appeal from the United States District Court
                            for the District of Arizona
                   David G. Campbell, District Judge, Presiding

                        Argued and Submitted May 12, 2011
                             San Francisco, California

Before: GOODWIN and PAEZ, Circuit Judges, and O’GRADY, District Judge.**

       After Arizona resident Michael Loza filed an insurance claim related to his

diagnosis of prostate cancer, American Heritage Life Insurance Company (“AHL”)


        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
             The Honorable Liam O’Grady, U.S. District Judge for the Eastern
District of Virginia, sitting by designation.
rescinded his cancer insurance policy. AHL contends Loza misrepresented whether

he was undergoing a diagnostic test for cancer at the time he applied for coverage and

that his claim is based on an uncovered preexisting condition. Loza filed suit alleging

claims for (1) breach of contract, (2) bad-faith denial of coverage, (3) negligent

infliction of emotional distress, and (4) intentional infliction of emotional distress.

      The district court granted AHL’s motion for summary judgment as to all claims,

finding that AHL was entitled to rescission as a matter of law and dismissing Loza’s

separate request for punitive damages. The district court also denied Loza’s cross-

motion for partial summary judgment as to his breach of contract claim, finding that

AHL had not waived its right to rescission. Loza now appeals the district court’s

ruling as to both motions.

      We review de novo a district court’s grant or denial of summary judgment. City

of L.A. v. San Pedro Boat Works, 635 F.3d 440, 446 (9th Cir. 2011). For the reasons

that follow, we reverse the district court’s order and remand for further proceedings.

Because the parties are familiar with the facts and procedural history of the case, we

do not recite them here except as necessary to our decision.

      1.     Breach of Contract

      To support a claim to rescission of an insurance contract under Arizona law,

AHL must establish that Loza made a fraudulent misrepresentation in his insurance


                                           2
application. A RIZ. R EV. S TAT. § 20-1109; see also James River Ins. Co. v. Hebert

Schenk, P.C., 523 F.3d 915, 920–21 (9th Cir. 2008).

       Question six of AHL’s cancer insurance application asked in pertinent part: “Is

any person to be insured currently undergoing any diagnostic test for, now being

treated for, or ever been treated for, cancer or any malignancy . . . .” AHL argues that

“diagnostic test for cancer” should be defined as any test that is part of a diagnostic

process used to identify cancer. Thus AHL alleges that Loza’s answer of “no” was

a misrepresentation because he had recently undergone a prostate-specific antigen test

(“PSA test”), which AHL contends is part of the diagnostic process for identifying

prostate cancer and should have been disclosed in response to question six.

       Loza counters that “diagnostic test for cancer” should be defined as a test that

could itself identify or rule out the presence of cancer. Accordingly, he argues that

his response to question six was not a misrepresentation because a PSA test cannot

identify or rule out cancer. To assess whether Loza’s answer was false, therefore, the

court must determine the scope of “diagnostic test for cancer” as used within the

application, which does not itself define the term. See Sparks v. Republic Nat’l Life

Ins. Co., 647 P.2d 1127, 1132 (Ariz. 1982) (“The interpretation of an insurance

contract is a question of law to be determined by the Court independent of the findings

of the trial court.”).


                                           3
      We hold that AHL was not entitled to rescission because the term “diagnostic

test for cancer” is ambiguous under the facts here. To evaluate ambiguity in an

insurance contract, Arizona law applies “a rule of common sense,” requiring a court

to consider whether “conflicting reasonable interpretations” are presented and whether

“legislative goals, social policy, and examination of the transaction as a whole”

support a finding of ambiguity. Employers Mut. Cas. Co. v. DGG & CAR, Inc., 183

P.3d 513, 515 (Ariz. 2008) (internal quotation marks and citations omitted).

“Moreover, the ‘ambiguity’ rule applies only after the court is unable to determine

how the language of the policy applies to the specific facts of the case.” Id. (internal

quotation marks and alteration omitted). The undisputed medical evidence presented

here is that a PSA test is used as a screening test in conjunction with other

examination results to evaluate whether a cancer biopsy of the prostate is warranted,

but could indicate a range of other medical issues. It is undisputed that a PSA test

cannot itself diagnose or rule out prostate cancer. Thus, the medical evidence would

reasonably support both AHL’s broad reading of “diagnostic test for cancer” and




                                           4
Loza’s narrow reading of the same term, as these definitions apply to a PSA test.1

Further, neither interpretation conflicts with standard definitions of this term.

      The facts surrounding Loza’s PSA test also fail to clarify whether he should

have considered it to be a diagnostic test for cancer when answering question six.

While AHL’s underwriters testified it is “common knowledge” that a PSA test is used

to detect prostate cancer, Loza testified that he did not know what a PSA test was, and

there is no further evidence about public understanding of a PSA test. See Sparks, 647

P.2d at 1132 (“In determining whether an ambiguity exists in a policy, the language

should be examined from the viewpoint of one not trained in law or in the insurance

business.”).   While Loza’s physical symptoms and medical history indicated a

heightened potential for prostate cancer, his primary care physician did not tell him

he was being tested for cancer either before or after the PSA test. Indeed, a PSA test

is recommended for all men of Loza’s age, regardless of their symptoms. Finally, the

transaction here was initiated by AHL, and the application’s language was prepared

by AHL. We see no social policy or legislative goal that would conflict with our

finding question six to be ambiguous under the circumstances here.



      1
       AHL’s reliance on Eley v. Boeing Co., 945 F.2d 276, 279 (9th Cir. 1991), to
support its interpretation is unavailing because our decision in that case centered
on the broad discretion afforded to administrators under ERISA to interpret
provisions of employee health plans.

                                           5
      Under Arizona law, an ambiguous term in an insurance document is construed

against the insurer. First Am. Title Ins. Co. v. Action Acquisitions, LLC, 187 P.3d

1107, 1110 (Ariz. 2008) (“If an ambiguity remains after considering [all relevant]

factors, we construe it against the insurer.”); State Farm Mut. Auto Ins. Co. v. Wilson,

782 P.2d 727, 733 (Ariz. 1989) (“Once a court finds the requisite ambiguity, it is then

compelled to construe the provision against the insurer.”); Sparks, 647 P.2d at 1132

(“Where the language employed is unclear and can be reasonably construed in more

than one sense, an ambiguity is said to exist and such ambiguity will be construed

against the insurer.”). Because there is no dispute that a PSA test cannot itself identify

the presence of cancer, Loza’s response to question six was not false under his narrow

definition of “diagnostic test for cancer.”      Accordingly, AHL is not entitled to

rescission pursuant to § 20-1109.

      We therefore reverse summary judgment as to Loza’s breach of contract claim.

Loza may now himself be entitled to summary judgment on this claim, but the district

court did not address AHL’s second argument that his insurance claim was based on

an uncovered preexisting condition. We decline to address on appeal an argument not

decided in the district court. Accordingly, we remand this issue to the district court

for a determination of whether this issue precludes entry of summary judgment as to

Loza’s breach of contract claim.


                                            6
       2.     Bad Faith

       The district court found that AHL was entitled to summary judgment on Loza’s

claim to bad-faith denial of coverage because his misrepresentation in the application

was a reasonable basis upon which to rescind the policy. Because we hold that Loza

made no misrepresentation, we reverse summary judgment and remand this claim for

further proceedings. See Zilisch v. State Farm Mut. Auto. Ins. Co., 995 P.2d 276, 279

(Ariz. 2000) (“While an insurer may challenge claims which are fairly debatable, its

belief in fair debatability ‘is a question of fact to be determined by the jury’”) (quoting

Sparks, 647 P.2d at 1137) (internal citation omitted). Loza may also be entitled to

punitive damages on the basis of this claim. See Filasky v. Preferred Risk Mut. Ins.

Co., 734 P.2d 76, 82–83 (Ariz. 1987).

       3.     Negligent Infliction of Emotional Distress

       The district court granted AHL summary judgment on Loza’s claim to negligent

infliction of emotional distress because “[i]t is undisputed that Loza received no

physical injury from the actions of [AHL].” In Arizona, the tort of negligent infliction

of emotional distress requires that emotional distress result in illness or bodily harm.

Keck v. Jackson, 593 P.2d 668, 669 (Ariz. 1979). Under Arizona law, however,

“bodily harm” can include “substantial, long-term emotional disturbances

unaccompanied by any physical injury.” Harris v. Maricopa Cnty. Superior Court,


                                            7
631 F.3d 963, 978 (9th Cir. 2011) (internal quotation marks and citation omitted).

Accordingly, we reverse summary judgment and remand for further proceedings to

determine if Loza has sufficient evidence of long-term emotional disturbance to

support a triable issue of fact on this claim.

      4.      Intentional Infliction of Emotional Distress

      Because Loza conceded that his claim to intentional infliction of emotional

distress could not succeed if AHL validly rescinded the policy, the district court

entered summary judgment without addressing whether there was evidence to support

all the necessary elements of this claim. See Citizen Publ’g Co. v. Miller, 115 P.3d

107, 110 (Ariz. 2005) (identifying necessary elements of this claim under Arizona

law). Accordingly, we reverse summary judgment and remand for further proceedings

to determine whether Loza has sufficient evidence to support a triable issue of fact on

this claim.

      Reversed and Remanded.




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