Standard Life & Accident Insurance v. Dewberry & Davis, LLC

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 05-2159

STANDARD LIFE & ACCIDENT INSURANCE COMPANY,

Plaintiff - Appellant,

versus

DEWBERRY & DAVIS, LLC; DEWBERRY & DAVIS,
INCORPORATED,

Defendants - Appellees.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (CA-05-956)

Argued: October 25, 2006 Decided: December 19, 2006

Before KING, GREGORY, and SHEDD, Circuit Judges.

Affirmed by unpublished opinion. Judge Gregory wrote the opinion,
in which Judge King and Judge Shedd joined.

ARGUED: Craig Lawrence Mytelka, WILLIAMS MULLEN, Virginia Beach,
Virginia, for Appellant. Stephen Michael Sayers, HUNTON &
WILLIAMS, L.L.P., McLean, Virginia, for Appellees. ON BRIEF: James
A. Gorry, III, WILLIAMS MULLEN HOFHEIMER NUSBAUM, P.C., Norfolk,
Virginia; William R. Poynter, WILLIAMS MULLEN, Virginia Beach,
Virginia, for Appellant.

Unpublished opinions are not binding precedent in this circuit.
GREGORY, Circuit Judge:

Standard Life & Accident Insurance Co. appeals the dismissal

of its complaint under Rule 12(b)(6) of the Federal Rules of Civil

Procedure. Because we agree with the district court that the

attachments to Standard's complaint belie any legal claims

contained therein, we affirm the ruling of the district court and

dismiss Standard's action.

I.

Dewberry & Davis, LLC, is an engineering, architectural, and

surveying business with its headquarters in Fairfax, Virginia.1

Dewberry provides health insurance to its employees through a self-

insured plan, using CoreSource, Inc., as its third party

administrator. In September 2004 Dewberry applied for reinsurance

from Standard, an Oklahoma corporation with its principal place of

business in Galveston, Texas. Standard was to provide reinsurance

coverage for members of Dewberry's health plan from October 1,

2004, through October 1, 2005.

As part of the reinsurance application process, Standard

required Dewberry to fill out an Employer Disclosure Statement. The

disclosure statement inquired into the medical condition of

1
Because this case was dismissed for failure to state a claim
on which relief may be granted, the facts are taken as true from
Standard's complaint and the exhibits attached to it. See Veney v.
Wyche, 293 F.3d 726, 730 (4th Cir. 2006).

2
Dewberry employees whom Standard would cover and was signed by

Dewberry on September 22, 2004. While Dewberry and Standard were

still negotiating the terms of coverage for Dewberry's employees,

Dewberry acquired Philip Swager Associates. Dewberry notified

Standard of the acquisition on December 15, 2004; Dewberry wished

to add excess loss reinsurance coverage for its new employees, to

be effective January 1, 2005.

At Standard's behest, Dewberry signed an Employer Disclosure

Statement regarding its new employees on January 12, 2005.

CoreSource signed the disclosure statement a few days later, on

January 21, 2005. The statement is four pages long and contains

nine questions. Its directions indicate that the reinsurance

applicant should use the reverse side of the form or attach

additional paper if it needs more space to complete the form. If a

question is inapplicable, the applicant should so indicate with

"N/A." On its signature page, the form stated:

The Reinsurer is entitled to rely upon this information
when setting terms and conditions of stop loss coverage
as of the effective date; and to the extent such
information is inaccurate or incomplete, the Reinsurer
reserves the right to rescind coverage as of the
effective date, or to adjust the terms and conditions to
levels that the Reinsurer would have established if the
information provided had been correct; including the
right to exclude coverage for any person who should have
been identified as a result of this review but was not
disclosed herein.

Dewberry left all but three questions of this second Employer

Disclosure Statement blank. It listed one name after question

3
three, one name after question six, and answered question eight

with: "See above, those are only two people to have been in case

management." Below the signatures on the final page of the form,

CoreSource added the following:

Disclaimer: CoreSource has signed the Disclosure
Statement as required by Standard Life & Accident. Please
note that we make no representation on behalf of the new
division added effective 1/1/05. CoreSource has no
knowledge of large claims prior to this date.
Attached is additional information for the existing group
only.

Attached to the form were approximately twenty pages of

computer-generated medical history reports, current to the date of

CoreSource's signature, for Dewberry employees and their covered

dependents. The woman around whom this case centers ("the

Dependent"), was the dependent of one of the new Dewberry

employees. She is mentioned in two locations in those attached

pages. Her name first appears, along with minimal additional

information, on a document entitled "Case Management Log - Active."

Her diagnosis is listed as "Complicated Pregnancy" and her

prognosis as "Good." The second time her name appears, extensive

information about her medical condition and treatment history is

listed in a document entitled "HCM Reinsurance Report." The

Dependent's entry includes the January 10, 2005, note: "WILL OPEN

[the Dependent's case] FOR ASSESSMENT FOR CASE MANAGEMENT." The

next day's entry indicates that the Dependent was or would be

admitted to a high-risk obstetrics unit. At that time, four of the

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Dependent's six unborn children were transverse, and one was

breech. On January 14, 2005, according to the attachment, a

physician told the Dependent one of the babies would probably live

only two to three weeks. The doctor noted "INCREASED SUSPICION OF

PROBLEMS."

The Dependent was admitted to the hospital on January 6, 2005,

for early onset of delivery of her sextuplets and for other

unspecified complications. She was released January 21, 2005, the

day CoreSource signed the disclosure statement pertaining to the

new Dewberry employees. She delivered five live children on

February 4, 2005, each of whom required extended hospitalization

over the next few months.

On February 3, 2005, Dewberry signed Standard's Treaty of

Excess Loss Reinsurance in Dewberry's Virginia office. The Treaty

was to cover (retroactively, to some extent) the one-year period

beginning October 1, 2004. On June 6, 2005, Benmark, Inc.,

Standard's managing general underwriter, received a letter from

CoreSource notifying Standard that the Dependent had "reached the

potential for a large claim and is currently being monitored for

large case management . . . ." Later in June, Benmark received

requests for reinsurance reimbursement from Dewberry relating to

the Dependent's five surviving children. Standard brought an action

for declaratory judgment on June 30, 2005, in the Eastern District

5
of Virginia, seeking to avoid payment for the Dependent and her

children.

Standard's complaint contains five counts.2 The first, labeled

"AVOIDANCE OF COVERAGE," contends simply that Dewberry was not

entitled to excess loss reinsurance coverage for the Dependent or

"any dependents." This count relies on the language of the Employer

Disclosure Statement relating to Standard's freedom to change or

rescind coverage if Dewberry inaccurately reported relevant

information. The second count ("DECLARATION OF NON-LIABILITY")

seems a reiteration of the first: as a result of Dewberry's

misrepresentations, Standard is not obligated under the Treaty to

pay for the Dependent or her children. Count Three relies on

fraudulent concealment, and Count Four on breach of a duty of

utmost good faith. Finally, Count Five states that, “[i]n the

alternative, coverage under the Treaty of the medical expenses of

[the Dependent] and her dependents should be rescinded for all of

the foregoing reasons."

In response to a motion by Dewberry under Rule 12(b)(6), the

district court dismissed all of Standard's claims. The court found

every claim hinged upon the non-disclosure of the Dependent's

medical information. Because the court found that "Dewberry did

disclose both [the Dependent] and her condition during the

2
By the parties’ agreement, Standard’s claims should be
adjudged under Virginia law. See Smith v. McDonald, 895 F.2d 147,
148 (4th Cir. 1990).

6
application process," it concluded that Standard could not state a

claim for relief. We review the district court’s dismissal de novo.

Partington v. American Intern. Specialty Lines Ins. Co., 443 F.3d

334, 338 (4th Cir. 2006).

II.

We agree with the district court. Standard's success is

contingent upon Dewberry’s failure to disclose the Dependent and

her medical situation. Despite the allegations to the contrary in

Standard’s complaint, the relevant information about the Dependent

was, of course, disclosed—it was included in the pages attached to

the second Employer Disclosure Statement submitted by Dewberry. See

Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462,

1465 (4th Cir. 1991) (“[I]n the event of conflict between the bare

allegations of the complaint and any exhibit attached pursuant to

Rule 10(c), Fed. R. Civ. P., the exhibit prevails.”). Standard does

not allege that the information contained in the computer printouts

was insufficient for its purposes. Rather, it claims that the

information was not there at all or was not accessible to Standard

when it needed to be.3 Because the Dependent’s information was

3
For example, Standard maintains that the disclaimer on the
Employer Disclosure Statement “prevented Standard and its agent
Benchmark from learning about the Dependent,” a statement that,
without further explanation, we find impossible to countenance.

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quite plainly disclosed to Standard, we affirm the ruling of the

district court.

Despite the presence of the Dependent’s information in the

attachments to the second Employer Disclosure Statement, Standard

contends that Dewberry has violated its duty of uberrimae fidae, or

“utmost good faith,” and that this violation entitles Standard to

the relief it requests. More accurately, Standard invites us to

adopt, on behalf of the Commonwealth of Virginia, the doctrine of

uberrimae fidae in reinsurance cases and then find that Dewberry

violated the doctrine. Regrettably for Standard, we must decline.

Virginia has embraced uberrimae fidae in some areas of the

law, see, e.g., Stiers v. Hall, 197 S.E. 450, 454 (Va. 1938)

(“uberrima fides” exists between attorney and client), but not yet

in the reinsurance context. In addition to our usual reluctance to

decide important, novel issues of state law, we avoid deciding more

than is necessary to settle the disputes before us. See Chawla v.

Transamerica Occidental Life Ins. Co., 440 F.3d 639, 648 (4th Cir.

2006). In the instant case, we need not decide whether or not

uberrimae fidae applies because the doctrine would require no more

of Dewberry than would ordinary Virginia insurance law or

Standard’s Treaty itself.

Under longstanding Virginia law, an insured is required to

disclose information asked of him that is material to the insurance

coverage. See St. Paul Fire & Marine Ins. Co. v. Jacobson, 48 F.3d

8
778, 780–81 (4th Cir. 1995) (citing Greensboro Nat'l Life Ins. Co.

v. Southside Bank, 142 S.E.2d 551, 555 (Va. 1965)). Information

pertaining to matters that would substantially increase the risk of

loss to the insurer, such that the insurer would reject the risk or

charge an increased premium, is material. See Buckeye Union Cas.

Co. v. Robertson, 147 S.E.2d 94, 96 (Va. 1966). The Dependent’s

medical condition and status as a covered individual were certainly

material to Standard’s agreement to reinsure Dewberry, and Standard

asked for information about individuals like her in its Employer

Disclosure Statements. Consequently, Dewberry had a duty under

ordinary Virginia insurance law to disclose the Dependent’s

information.

The agreement between Standard and Dewberry also obligated

Dewberry to disclose the Dependent’s information. The Employer

Disclosure Statement Dewberry submitted detailed the contractual

consequences of incomplete or incorrect disclosure. Those

consequences included rescission of the reinsurance contract and

exclusion of coverage for the person whose information was

incompletely or improperly disclosed. Dewberry’s agreement with

Standard, then, demanded that Dewberry disclose the Dependent’s

information. Uberrimae fidae would demand no more.

The uberrimae fidae doctrine, as Standard itself describes it,

obligates the insured to volunteer information that might bear on

the scope of the risk assumed by the insurer. See, e.g.,

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Contractors Realty Co. v. Ins. Co. of N. Am., 469 F. Supp. 1287,

1294 (S.D.N.Y. 1979) (noting also that there is "a reciprocal duty

on the part of the insurer to deal fairly, [and] to give the

assured fair notice of his obligations"). In this case, then,

settled Virginia law, the terms of the Employer Disclosure

Statement, and the uberrimae fidae doctrine all would require

Dewberry to disclose information material to Standard's reinsurance

coverage. There is no need for us to decide whether uberrimae fidae

applies in this case, just as there would be no need to decide the

case using that doctrine were we certain the standard applied.

Even if uberrimae fidae did apply, Standard never explains how

it would affect the outcome of this case. Standard did not allege

that Dewberry disclosed the information in a manner that violated

its duty of utmost good faith (whatever manner that might be).4

Rather, it alleged that Dewberry's "failure to identify [the

4
In its brief Standard adds a new complaint: that the computer
printouts did not identify the Dependent as a new employee. The
“BREACH OF DUTY OF GOOD FAITH” portion of its complaint focuses
only on Dewberry’s alleged failure to identify the Dependent and
her high-risk pregnancy at all, not Dewberry’s failure to identify
her as a new employee. Because this claim is raised only in the
brief and not in the complaint itself, we do not consider it on
appeal. See Minyard Enters., Inc. v. Se. Chem. & Solvent Co., 184
F.3d 373, 387 n.15 (4th Cir. 1999). In any event, the Dependent’s
association with the new employees was not material under the
circumstances. Because the new Dewberry employees were covered for
a shorter term than the old, the Dependent’s association with the
new employees, as opposed to the old, would not have substantially
increased Standard’s risk. It would have decreased it. What was
material was whether the Dependent was covered at all, not whether
she was covered as a new or old Dewberry employee. See Buckeye
Union, 147 S.E.2d at 96.

10
Dependent] and her complicated high-risk pregnancy on Dewberry's

Employer Disclosure Statement" violated that duty. Such a failure

to identify the Dependent in response to a direct query would

violate the clearly-established, lesser duty under Virginia law and

permit relief under the Treaty as well.

Here Dewberry is not an especially sympathetic defendant, but

its inconsiderately-answered disclosure statement does not excuse

Standard’s obligations as reinsurer. Dewberry did not organize the

data in its attachments to reflect the questions asked on the

Employer Disclosure Statement, and its answers to some of the

form’s questions could create confusion as to how the attachments

related to the form. Standard exaggerates, though, when it

complains that Dewberry gave the impression that all questions were

completely answered by leaving blank questions on the form when the

Dependent’s name should have been listed. If all of the questions

purported to be answered completely, and the Disclosure Statement

itself constituted Dewberry’s only disclosure, Standard might have

a claim that principles of insurance law require avoidance of the

policy. See Phoenix Mut. Life Ins. v. Raddin, 120 U.S. 183, 189–90

(1887) (“Where an answer of the applicant to a direct question of

the insurers purports to be a complete answer to the question, any

substantial misstatements or omission in the answer avoids a policy

issued on the faith of the application.”); Williams v. Metro. Life

Ins. Co., 123 S.E. 509, 511 (Va. 1924) (adopting a significant

11
portion of the doctrine espoused in Phoenix Mutual). Standard is

disingenuous to suggest, however, that a nearly blank disclosure

statement appeared to be completely answered such that Standard did

not even have to read the attached medical information.

The district court rightly observed that all of Standard’s

claims rest upon Dewberry’s non-disclosure of medical information

that Dewberry, in fact, disclosed. Standard’s complaint cannot,

therefore, state a claim for relief and was properly dismissed. See

Venkatraman v. REI Sys., Inc., 417 F.3d 418, 420 (4th Cir. 2005)

(permitting dismissal of a claim under Rule 12(b)(6) when “a

plaintiff can prove no set of facts which would support his claim

and entitle him to relief").

III.

For the foregoing reasons, the district court’s order is

affirmed. Standard’s complaint is dismissed.

AFFIRMED

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