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By Adrienne Kvello

 

Recently, a representative of Heath Ledger’s daughter sued ReliaStar Insurance Company for breach of good faith and fair dealing.  In addition, the claim alleges that Reliastar caused the plaintiff severe emotional distress.  (how a trust suffers emotional distress is beyond me)  The complaint can be found here: http://www.aolcdn.com/tmz_documents/0929_ledger_1_opt.pdf

 (hat tip to www.tmz.com for the documents). 

 

The Batman star applied for a $10 million life insurance policy with the company in June 2007 and named a trust for the benefit of his 3 year-old daughter as the primary beneficiary.  Six months later, in January 2008, Ledger was found dead in his apartment of an apparent overdose of prescription drugs.  The trustee claims the insurance company has acted in bad faith by failing to pay the claim in a timely manner, by investigating a death that was clearly accidental, and by engaging in “post-claim underwriting” by investigating Ledger’s health after a claim had been filed. 

 

Reliastar has answered, stating that it is entitled to investigate whether the death was a suicide and whether Ledger made material misrepresentations on the application—both of which could relieve it of liability on the policy.  It further claims that it has been impeded in its investigation because the beneficiary has not cooperated in answering questions about Ledger’s health history.  Its answer can be found here: http://www.aolcdn.com/tmz_documents/0929_ledger_2_opt.pdf.  Prior to the suit, Reliastar had not attempted to rescind the policy under California Insurance Code §§ 330-359.  It appears Reliastar has not cross-claimed for rescission yet, but is simply claiming it is still investigating the claim.  (Under California law, insurance companies are entitled to rescind policies based on material misrepresentations even after the death of the insured.  See O’Riordan v. Federal Kemper Life Assur., 114 P.3d 783 (Cal. 2005)). 

 

When the beneficiary is a three year old child, the insured was a beloved young actor, and the death has been ruled an accident, it is easy to jump to the conclusion that the insurance company is wrong for not paying the claim.  But is this right? 

 

Under California law, insurers have a duty of good faith and fair dealing in paying out insurance claims.  Part of this duty is codified in the prohibited acts section of the unfair competition and deceptive trade practices act.  Section 790.003 of the insurance code outlines prohibited acts, which include “[n]ot attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear” and “[f]ailing to affirm or deny coverage of claims whithin a reasonable time after proof of loss requirements have been completed and submitted by the insured.”  

 

The question then becomes, is liability “reasonably clear,” and is seven months an unreasonable amount of time to withhold payment and not affirm or deny the claim?  In my opinion, the answer is “yes” on both accounts.


Post-claim Underwriting

 

Plaintiff cites Hailey v. California Physician’s Service, 69 Cal. Rptr.3d 789 (Cal. Ct. App. 2007) for the proposition that post-claim underwriting is barred by California law.  However, this case involves an interpretation of California Health & Safety Code § 1389.3, which prohibits post-claim medical underwriting for health insurance claims only.  Section 10384 of the insurance code prohibits post-claim underwriting for disability insurance, but no such statutory protection is provided for life insurance policies.  I’m not sure what the plaintiff’s attorney was thinking with this claim, but it’s a clear stinker unless the judge decides to invent statutory protection that doesn’t exist.  Insurance companies retain the right to investigate claims and even rescind policies after a claim has been made.  O’Riordan v. Federal Kemper Life Assur., 114 P.3d 783 (Cal. 2005)). 

 

Material Misrepresentations

 

Reliastar claims that Ledger made two material misrepresentations in his application.  First, it claims he lied about not taking prescription drugs, when he had a prescription for Ambien at the time of the application.  Second, it claims Ledger lied about not taking illegal drugs.  Ledger’s death was reportedly caused by prescription drugs, and it does not appear that Reliastar has any credible evidence that Ledger took illegal drugs.  Therefore, I think they lose on this claim.  Reliastar does, however, appear to have some evidence that Ledger had a prescription for Ambien at the time of the application.  Ledger also had traces of other prescription drugs in his system.  So it must be determined whether lying about the prescription would be a material misrepresentation.  Under California law, “materiality is determined soley by the probably and reasonable effect which truthful answers would have had upon the insurer.”  Thompson v. Occidental Life Ins. Co., 513 P.2d 353 (Cal. 1973).  “The test to determine materiality is a subjective one; the critical question is the effect truthful answers would have had on the particular insurer, not on some “average reasonable insurer.“”  West Coast Life Ins. Co. v. Ward, 133 Cal. App. 4th 181 (Cal. Ct. App. 2006)(internal quotations and citations omitted).  In my opinion, Reliastar would have issued the policy even if Ledger had revealed his prescription for Ambien.  Ambien is a commonly prescribed sleep aid and its use does not connote poor health on the part of one who takes it.  Even if Ledger had prescriptions for a few drugs at the time of the application it is unlikely the company would have denied the policy when the insured was clearly young and in good health.  While it is a close call with the subjective test, I think Reliastar is liable on the policy.     

 

Suicide

 

Because Ledger’s death was within two-years of the issuance of the policy, if Ledger committed suicide, Reliastar would only be liable for the premiums paid.  The New York medical examiner has ruled Ledger’s death an accident.  However, the life insurance company is not bound by this determination.  Under California law, however, Reliastar bears the burden of proving that Ledger had suicidal intent.  Searle v. Allstate Life Ins. Co., 696 P.2d 1308 (Cal. 1985).  In other words, the company has to prove that Ledger intended to commit suicide and appreciated the nature of his actions.  It appears that Reliastar has no evidence that Ledger had suicidal intent, and certainly not enough to meet its burden.  As a young successful actor with a great family and career, the evidence seems to point the other way.  In my opinion, Reliastar’s liability seems “reasonably clear” here.

 

Non-cooperation

 

Finally, Reliastar claims that it has not breached its duty of good faith in paying the claim because the plaintiff has not cooperated in its investigation.  Under California law, “there can be no “unreasonable delay” until the insurer receives adequate information to process the claim and reach an agreement . . .”  Globe Indemnity Co. v. Superior Court, 8 Cal.Rptr.2d 251 (Cal. Ct. app. 1992).  Based on the pleadings alone, it is difficult to determine how much information Reliastar has and how much the plaintiff has cooperated in the investigation.  However, based on the information widely available on Ledger’s life, Reliastar should have enough information to determine if liability is “reasonably clear.”  In my opinion, attempting to depose individuals and search through medical records which plaintiff does not have access to is a fishing expedition and Reliastar is simply hoping it can find something to support its position.  This would be a breach of good faith.    

 

Conclusion

 

In my opinion, liability on Ledger’s policy is reasonably clear and Reliastar should have paid the claim by now.  While seven months is not necessarily an unreasonable amount of time to investigate a claim, given the incredible amount of widely available information on Ledger, Reliastar should have made a determination on the claim by now and at least affirmed or denied coverage.  Failing to do so is a breach of good faith and fair dealing. 

 

Thoughts?

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One Comment

  1. I hope they give Matilda the money that’s owned to her.


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