A California Appellate Court has ruled that disclaimers placed inconspicuously in an insurance policy sales brochure did not preclude an insured’s claim of justifiable reliance on the promises made on the face of the brochure. In 1993, an agent for the Guardian Life Insurance Company of America sold David Powell a $500,000 whole life insurance policy. The agent allegedly told Mr. Powell that earnings from the policy would be sufficient to pay the premium costs by the 12th year of the policy’s life, thus eliminating any out-of-pocket premium costs after the 11th year. As we have reported, such a policy is referred to as a “vanishing premium” policy. As part of his effort to sell the policy, the agent provided Mr. Powell a three-page illustration that depicted the elimination of out-of-pocket premium in the 12th year of the policy’s life.
The third page of the document contained a single, lengthy endnote — 39 single-spaced lines, all capitalized — with various conditions, qualifications and limitations about the life insurance product being offered. In the middle of the page – not set apart in any way from the surrounding text by contrasting type, font, color, border or spacing – the following disclaimer appeared:
Figures depending on dividends are neither estimated nor guaranteed, but are based on the 1993 dividend scale. Actual future dividends may be higher or lower than those illustrated depending on the company’s actual future experience.
Following another dozen lines of explanation in the document furnished to the prospective policyholder — all in the same type face — a further caution was provided:
The number of years of required cash outlays depends upon age at issue, policy class, face amount, and continuation of The Guardian’s current dividend scale, and assumes no policy loans.
Mr. Powell allegedly did not discover he had been deceived until 2004, when, after paying premiums for 11 years, he was billed for additional premium costs. The policyholder was told that lower-than-anticipated dividend earnings necessitated the additional payments. Mr. Powell sued Guardian and Davidson for fraud and negligent misrepresentation among legal theories.
A California state court dismissed the complaint, saying that Mr. Powell’s claims accrued when he purchased the policy in 1993 and thus were barred by the statute of limitations. The court also ruled that the policyholder would be unable to establish justifiable reliance on the alleged misrepresentations because of inconsistent language in the policy itself and in footnote disclosures to the marketing materials. Mr. Powell appealed the trial court’s decision to the California Court of Appeals.
The court first determined that the claims were not time-barred since the three-year limitations period for fraud and negligent misrepresentation claims begins to run only when the aggrieved party discovers the facts constituting the fraud. Thus, Mr. Powell’s right to sue depended on when he discovered the alleged misrepresentation. On the merits, the court rejected Guardian’s contention that the disclaimers, which were part of the agent’s three-page illustration, were so clear and obvious as to preclude, as a matter of law, the claims of delayed discovery and reasonable reliance. The court found a question of fact as to the presence or absence of a manifest unreasonableness in Mr. Powell’s reliance on the allegedly deceptive policy illustration and the promises of Guardian’s agent.
The court felt that if the evidence ultimately established that the disclaimers were read and understood, they might be sufficient to defeat the claims. “But the placement of the disclaimers, buried in a sea of same-sized, capitalized print, coupled with the absence of any cautionary language on the first page of the policy illustration, precluded a determination that the disclaimers were adequate as a matter of law,” according to the court. Nor did reference in the policy itself to premiums payable “for life” also necessarily bar the claims. It wasn’t alleged that Mr. Powell was told “that premiums would stop, rather that premiums after the 11th year would be paid from earnings from the policy and that no further out-of-pocket payments would be required.” This was a well-reasoned opinion recognizing that in the real world matters hidden in an insurance policy or supporting documents aren’t always noticed by policyholders.
Source: CAL law
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