IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 96-30235
Summary Calendar
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GOLDEN RULE INSURANCE COMPANY,
Plaintiff-Appellant-
Cross-Appellee,
VERSUS
DONALD B. STRAUSS,
Defendant-Appellee-
Cross-Appellant.
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Appeal from the United States District Court
for the Eastern District of Louisiana
(93-CV-4067-I)
_________________________
March 5, 1997
Before SMITH, DUHÉ, and BARKSDALE, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
Golden Rule Insurance Company (“Golden Rule”) appeals the
denial of attorneys’ fees stemming from its successful claim of
material misrepresentation against Donald Strauss. Strauss cross-
appeals, alleging that the district erred in finding that Golden
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion
should not be published and is not precedent except under the limited circumstances
set forth in 5TH CIR. R. 47.5.4.
Rule had sufficiently proven its material misrepresentation claim.
We affirm with respect to Strauss’s cross-appeal and reverse and
remand for an award of attorneys’ fees on the direct appeal.
I.
Golden Rule brought this action against Donald Strauss seeking
rescission of a permanent medical insurance policy it had issued to
Strauss in February 1993. According to Golden Rule, Strauss
misrepresented his medical history on the enrollment application by
indicating that, within the past ten years, he had not had any
indication, diagnosis, or treatment of diabetes or sugar in the
urine or blood. In fact, Golden Rule alleged, Strauss had been
diagnosed with diabetes in 1986, was treated for the disorder, and
had disclosed it on a 1989 application for a life insurance policy
with another insurer. After an underwriting communicator received
oral confirmation from Strauss that he had never been told that he
may be diabetic, Golden Rule issued the policy.
In June 1993, Strauss had a heart attack. During the course
of its investigation of Strauss’s claims relating to the heart
attack, Golden Rule discovered that he had misrepresented his
medical history on the insurance application, so it rescinded the
policy. Golden Rule filed the instant action seeking to have the
policy declared void.
After a two-day bench trial, the district court declared the
policy void, finding that Strauss had made a material misrepresen-
2
tation on his application with the intent to misstate his true
medical history. The court refused, however, to award attorneys’
fees to Golden Rule.
II.
We review the district court’s conclusions of law de novo and
its factual findings for clear error. See Reich v. Lancaster,
55 F.3d 1034, 1044 (5th Cir. 1995). We will not re-weigh the
evidence nor disturb credibility inferences that the district court
is more adept at considering at trial. See id.
III.
On cross-appeal, Strauss argues that the district court erred
in finding that he made a material misrepresentation with the
intent to deceive. Under Louisiana law, an insurer seeking to
rescind an insurance contract must prove (1) that the insured made
a false statement (2) with the intent to deceive and (3) that the
statement materially affected the insurer’s decision to accept the
risk. See LA. REV. STAT. ANN. § 22:619B; Sigari v. Louisiana Health
Serv. & Indem. Co., 580 So. 2d 953, 954 (La. App. 5th Cir. 1991);
Fagen v. National Home Life Assurance Co., 473 So. 2d 918, 920 (La.
App. 4th Cir. 1985). A misrepresentation is material if knowledge
of the fact would have influenced the insurer in determining
whether to assume the risk and issue the policy or to refund the
3
premium. See Hoffpauir v. Time Ins. Co., 536 So. 2d 699, 703 (La.
App. 3d Cir. 1988).
Strauss first contends that he did not make a false statement
by answering in the negative the question whether, within the past
ten years, he had had any indication, diagnosis, or treatment of
diabetes or sugar in the urine or blood. Notwithstanding the
uncontroverted evidence that he had been diagnosed with diabetes in
1986, Strauss insists that he disclosed his diabetes in 1989 in an
application for life insurance with a separate insurer, that he had
been advised in 1991 to seek diet counseling because of his
elevated blood sugar, and that his statement could not have been
false because he did not believe that he had diabetes at the time
he completed the application. Whether Strauss so believed is
inapposite to the application question; his response to the
question was indeed false.
Strauss next argues that, because he misunderstood the
question, he lacked the requisite intent to mislead. Strauss
contended in the district court that he understood the thrust of
the coverage application to be asking about important and non-
”minor” medical information. Because he construedSSalbeit,
incorrectlySSthe application as such, Strauss suggests that he was
negligent, at most, in responding to the diabetes question and thus
that his conduct fell short of the requisite intent.
The court may infer intent to deceive by looking either to the
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surrounding circumstancesSSindicating the insured’s knowledge of
the falsity of the representation and the recognition of the
materiality of the representationSSor to the surrounding circum-
stances that create a reasonable apprehension that he recognized
the materiality. See Hoffpauir, 536 So. 2d at 703. Strauss
admitted that had been told by an insurance agent, before applying
with Golden Rule, that he would be unable to procure permanent
medical insurance because of his high blood sugar, and he conceded
that he was aware that he would have been denied insurance had he
disclosed his complete medical history.
We are convinced that the district court, in determining
Strauss’s intent to deceive, properly considered Strauss’s
awareness of the materiality of his misstatement and his knowledge
of the falsity of his misstatement. Ultimately, the court’s
decision on intent was informed by its reasonable credibility
inferences, which we will not disturb on appeal.
Finally, Strauss asserts that his misstatement was not
material, as he did not believe that reporting a history of high
blood sugar would cause Golden Rule to deny his application. As a
preliminary matter, we are not persuaded that Louisiana law
requires the insured to know that the misrepresented information is
material, but only that the insurer demonstrate that the informa-
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tion did materially affect the risks assumed by the insurer.1 Even
assuming arguendo that Louisiana law does so require, we believe
that Strauss’s own testimony, referenced above, sufficiently
demonstrates his awareness of the materiality of the information.
IV.
Under Louisiana law, “the party against whom rescission is
granted because of fraud is liable for damages and attorney fees.”
LA. CIV. CODE ANN. art. 1958 (West 1994). Fraud is a “misrepresenta-
tion or a suppression of the truth made with the intention either
to obtain an unjust advantage for one party or to cause a loss or
inconvenience to the other.” LA. CIV. CODE ANN. art. 1953 (West
1994). To establish fraud, the contracting party must prove both
an intent to defraud or gain an unfair advantage and actual loss or
damage or a strong possibility thereof.2
1
See, e.g., Sigari, 580 So. 2d at 954 (“Third, the insurer must establish
that these mis-statements materially affected the risk assumed by the insurer.”)
(emphasis added); Hoffpauir, 536 So. 2d at 703 (same); Fagen, 473 So. 2d at 920
(same).
2
See First Downtown Dev. v. Cimochowski, 613 So. 2d 671, 677 (La. App. 2d
Cir.), writ denied, 615 So. 2d 340 (1993); Transworld Drilling Co. v. Texas General
Resources, Inc., 604 So. 2d 586, 590 (La. App. 4th Cir.), writ denied, 608 So. 2d
174 (1992). There is some confusionSSboth in Louisiana law and in Golden Rule’s
briefSSregarding whether potential losses or damages are actionable under Louisiana
law. The confusion appears to stem from the Transworld court’s statement that
“actual or potential loss or damages” are sufficient to prove fraud. 604 So. 2d at
590. Transworld cites Wilson v. Wilson, 542 So. 2d 568, 572 (La. App. 1st Cir.
1989), for that proposition, but the citation is not entirely accurate. That is,
the Wilson court’s statement on fraud damages explains that the claimant must show
loss or damage or “the strong possibility thereof.” Id. (emphasis added) (citing
Hoover v. Mid-South Exploration Co., 479 So. 2d 551 (La. App. 1st Cir. 1985)).
Accordingly, Wilson, not Transworld, appears to reflect the correct damages
requirement under Louisiana law.
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Although the district court found that Strauss had effected a
material misrepresentation on his application, it refused to award
attorneys’ fees, finding both that Strauss lacked the requisite
intent and that Golden Rule had failed to prove any actual damages
or a strong possibility thereof. As discussed above, the district
court found correctly that Strauss had made false statements
regarding his medical history, that he was then aware that he would
have been denied medical insurance had he provided an accurate
medical history, and thus that he acted with intent to deceive.
The district court opined, however, that
it would be absurd to assume that a person who acquires
medical insurance does not intend to apply for benefits
thereunder it and when he or she becomes ill. However,
in the absence of evidence that an insured believes or
has reason to believe that medical treatment is imminent,
an intent to defraud is lacking. Otherwise, fraudulent
intent could be established merely by showing that the
insured obtained a policy through the misrepresentation,
with an intent to deceive, of material information in his
application, because an insurer could always demonstrate
that the insured would probably present a claim in the
future, when and if one arose.
We disagree that intent to defraud is to be construed so
narrowly. Rather, the district court found that Strauss made false
statements with intent to deceive Golden Rule into issuing a
policy. Whether Strauss intended, at the time that he completed
the application, to submit future claims for diabetes-related
disorders or for bypass surgerySSthe malady for which he did in
fact submit a claimSSis immaterial; his actions constitute fraud
under Louisiana law. See, e.g., Ballard’s, Inc., v. North Am. Land
7
Dev. Corp., 677 So. 2d 648, 648-49 (La. App. 2d Cir. 1996).
With respect to the damages element, the district court found
that, because Golden Rule had not made any payments related to
Strauss’s medical claims, it suffered no actual loss. Golden Rule
argues that the district court’s disposition compels an insurer, in
order to preserve its ability to obtain attorneys’ fees upon
rescission, first to make payments on a claim for which it intends
to seek rescission and thereafter to sue for rescission. Of
course, if the insurer prevails on the rescission claim, the
insured may be ordered to make restitution in the amount of the
payments made by the insurer, thus returning to zero the insurer’s
“actual damages” from the fraud. The practical effect of the
district court’s rule thus would be to render virtually impossible
the collection of attorneys’ fees under art. 1953.
As we have noted, under Louisiana law a fraud claimant may
prove either actual damages or the strong possibility thereof. See
Transworld, 604 So. 2d at 590. We agree with Golden Rule that, at
the time of the fraud (i.e., at the time of its approval of
Strauss’s application), it had a strong possibility of damages, as
it was underwriting a fraudulently concealed riskSSthe increased
risk of Strauss’s diabetes or diabetic complications. That Golden
Rule recognized this risk before it had made payments and had
brought this rescission action does not negate the strong possibil-
ity of damages that it suffered by insuring against concealed
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risks. We conclude, therefore, that Golden Rule has established
fraud under art. 1953 and is entitled to attorneys’ fees under
art. 1958.
The judgment is AFFIRMED in part and REVERSED and REMANDED in
part for the determination of appropriate attorneys’ fees.
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