West Coast Life Insurance v. Hoar Ex Rel. Estate of Butts

FILED
United States Court of Appeals
Tenth Circuit

March 6, 2009
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

WEST COAST LIFE INSURANCE
COMPANY, a Nebraska corporation,

Plaintiff - Appellee,
v. No. 07-1080
MARTHA HOAR, as the personal
representative of the other Estate of Stephen
M. Butts; TELLURIDE PROPERTIES, LLC.,
a Colorado Limited Liability Company;
TELLURIDE PROPERTIES, INC., a
Colorado corporation; ALBERT D. ROER, an
individual; POLLY LYCHEE, an individual,

Defendants - Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. NO. 05-CV-01765-EWN-BNB)

Blain D. Myhre (Stuart Pack with him on the briefs), Isaacson Rosenbaum P.C.,
Denver, Colorado, for Defendants-Appellants.

Stephen G. Masciocchi (Lee F. Johnston with him on the briefs), Holland & Hart
LLP, Denver, Colorado, for Plaintiff-Appellee.

Before BRISCOE, EBEL, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.
I. INTRODUCTION

West Coast Life Insurance Company (“WCLI”) brought suit in federal

district court seeking rescission of an insurance policy based upon an alleged

misrepresentation by Stephen Butts. Butts, who participated in heli-skiing on

numerous occasions, stated in his insurance application that he did not engage in

any hazardous activities. Butts’s estate and intended beneficiaries asserted

counterclaims against WCLI alleging: (1) breach of contract, (2) bad faith, and

(3) violation of the Colorado Consumer Protection Act. The district court

dismissed Defendants’ Consumer Protection Act counterclaim with prejudice. It

then granted WCLI’s motion for summary judgment, concluding Butts had

knowingly made a false statement of material fact on which WCLI relied in

issuing him the life insurance policy. On appeal, Defendants contend the district

court erred in granting summary judgment to WCLI on its rescission claim

because genuine issues of material fact exist as to whether: (1) there was a false

statement or concealed fact in the Butts application, (2) Butts knowingly made the

false statement or concealed the facts, and (3) WCLI was chargeable with the

knowledge Butts engaged in heli-skiing. Defendants also appeal the district

court’s grant of summary judgment with respect to their bad faith claim.

Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.

-2-
II. BACKGROUND

1. Factual Background

In August 2004, Butts (through his company, Defendant Telluride

Properties, Inc.), Defendant Albert Roer, and Defendant Polly Lynchee formed a

new company, Defendant Telluride Properties, LLC. 1 The three principals

entered into a buy-sell agreement requiring each principal to sell his or her

interest in the business to the remaining principals in the event of his or her death.

The agreement was financed by insurance policies on the lives of each of the

three principals. On September 21, 2004, Butts contacted WCLI agent Sharon

Evanson by phone to complete an application for a three million dollar life

insurance policy (the “Butts Application”). Evanson read the questions on the

application and transcribed Butts’s responses.

The fifth question of the Butts Application (“Question 5”) asked if Butts

“[e]ngaged in auto, motorcycle or boat racing, parachuting, skin or scuba diving,

skydiving, or hang gliding or other hazardous avocation or hobby.” Butts

answered the question in the negative. The Butts Application contained a

declaration that all statements and answers were full, complete, and true to the

best of Butts’s “knowledge and belief.” Butts did not at any point during the call

mention he participated in “heli-skiing.” Heli-skiing involves flying by

1
The other Defendant is Martha Hoar, the personal representative of Butts’s
estate.

-3-
helicopter to the top of a backcountry mountain and skiing down the mountain,

usually with the escort of guides.

Alex Chu, a senior life insurance reporter at First Financial Underwriting

Services, Inc. (“First Financial”), conducted a telephonic interview with Butts on

October 12, 2004. First Financial is an independent, third-party company that, at

the request of its insurance company clients, gathers information about the

lifestyles and finances of life insurance applicants, typically through telephone

interviews. Chu asked Butts what he did for recreation and exercise in his spare

time, to which Butts answered he skied and golfed. Chu also asked Butts if he

engaged in “any hazardous activities.” Butts stated he was involved only in scuba

diving and private aviation as a pilot. Butts did not seek any clarification of this

question or voice concerns or confusion as to the meaning of “hazardous

activities.” During Chu’s tenure at First Financial, applicants had identified heli-

skiing in response to the hazardous activity question.

Under a heading titled “Aviation-Recreation-Driving Record,” Chu’s report

to WCLI (the “First Financial Report”) detailed Butts’s piloting experience,

briefly noted his scuba diving activities, and stated: Butts “also enjoys skiing and

golfing in his spare time. He reported no other recreational or hazardous pastimes

in which he is active on a regular basis.”

In October 2004, Mark Youngquist, an underwriter for WCLI, underwrote a

three million dollar policy (the “Butts Policy”) insuring Butts’s life. In so doing,

-4-
Youngquist reviewed the Butts Application, Butts’s medical records, the First

Financial Report, and a questionnaire completed by Butts regarding his aviation

activities. Youngquist, who worked as an underwriter since 1995 for other

insurance companies, had worked for WCLI for less than a month when he

approved the Butts Application. The WCLI underwriting manual, published by

reinsurer Swiss Re, does not rate resort skiing as an activity to be factored into

the underwriting process. “Heli-skiing,” however, is a rated activity requiring the

insured to pay a higher premium. Youngquist never referred to this rating table

during the process of underwriting the Butts Policy.

Based on the information before him, Youngquist believed Butts engaged

only in non-rated resort skiing. Youngquist made no inquiry into the nature of

the “skiing” activity mentioned in the First Financial Report. Youngquist

determined the Butts Policy should be issued on a “Standard, Non-Tobacco”

rating. 2 On November 5, 2004, WCLI issued the Butts Policy, which expressly

incorporated the Butts Application.

On January 15, 2005, Butts traveled to British Columbia with a group of

friends for a week of heli-skiing. The group hired heli-skiing operator Selkirk-

Tangiers Helicopter Skiing LLP (“Selkirk-Tangiers”). On January 18, 2005,

Butts was heli-skiing with his friends when an avalanche broke above them. The

2
Neither party addresses the significance, if any, of the disclosure by Butts
of his scuba diving activities. We therefore deem it irrelevant.

-5-
avalanche caught Butts, and swept him into some trees. Within minutes, Butts

was found dead. He suffered a broken neck as a result of the avalanche.

During her deposition, Butts’s ex-wife testified he took approximately ten

to fifteen heli-skiing trips with Selkirk-Tangiers and additional trips to Canada

with another heli-skiing operator. Butts took heli-skiing trips to British Columbia

with Selkirk-Tangiers every year for at least six consecutive years prior to his

application. Each year, Butts had signed a Selkirk-Tangiers “Release of Liability,

Waiver of Claims, Assumption of Risk and Indemnity Agreement,” each of which

included the following language:

I am aware that wilderness skiing involves risks, dangers and hazards
in addition to those normally associated with downhill skiing.
Avalanches occur frequently in the alpine terrain used for wilderness
skiing and may be caused by natural forces or by skiers. I
acknowledge and accept that the [o]perators and their staff may fail
to predict whether the alpine terrain is safe for skiing or whether an
avalanche may occur. The alpine terrain used for wilderness skiing
is uncontrolled, unmarked, not inspected and involves many risks,
dangers and hazards in addition to that of avalanche.

***

I AM AWARE OF THE RISKS, DANGERS AND HAZARDS
ASSOCIATED WITH WILDERNESS SKIING AND I FREELY
ACCEPT AND FULLY ASSUME ALL SUCH RISKS, DANGERS
AND HAZARDS AND THE POSSIBILITY OF PERSONAL
INJURY, DEATH, PROPERTY DAMAGE OR LOSS RESULTING
THEREFROM.

Selkirk-Tangiers provides its guests with: (1) avalanche rescue and survival

training; (2) helicopter safety training; and (3) specialized equipment such as

-6-
“avalanche beacons,” which signal to rescuers the location of skiers buried in

avalanches. Prior to each of his heli-skiing trips with Selkirk-Tangiers, Butts

participated in mock avalanche drills and other onsite, hands-on training on

helicopter safety protocols and avalanche rescue and survival. Although not

required by Selkirk-Tangiers, Butts also had purchased and used an “Avalung” on

heli-skiing trips in 2004 and 2005. An Avalung is a product designed to provide

a few minutes of air should its user become buried in an avalanche.

After receiving notification of Butts’s death, WCLI initiated an

investigation. WCLI received evidence indicating Butts had previously

participated in heli-skiing trips. In March 2005, WCLI’s chief underwriter,

Steven Hetherington, composed an opinion as to the impact of heli-skiing on the

risk assumptions for the Butts Policy. Hetherington determined that had Butts

disclosed his heli-skiing activities, the Butts Policy would have been rated in the

amount of an extra $2.50 per $1000 of coverage. Marilyn Reed, WCLI’s Vice

President of Underwriting, adopted Hetherington’s underwriting opinion.

According to WCLI underwriters, had Butts disclosed his heli-skiing

avocation, his annual premium would have almost tripled, rising from $4880 to

$12,380. WCLI’s independent agent, Stuart Bachman, contacted other life

insurance companies to determine if they applied an additional rating for heli-

skiing. Every carrier Bachman contacted indicated heli-skiing would result in an

additional rating of at least $2.50 per $1000 dollars of coverage.

-7-
 WCLI’s contestable claims committee met on July 26, 2006, to discuss and

evaluate the Butts Policy claim. The committee considered whether “a reasonable

objective person’s interpretation” of Question 5 would have led such a person to

disclose a heli-skiing avocation such as that of Butts. The committee did not

consider whether Butts was an expert skier, whether he believed heli-skiing was

hazardous, or if he had heli-skied previously without incident because it felt such

information was irrelevant to its decision. The committee voted unanimously to

deny payment under the Butts Policy based upon Butts’s failure to disclose he

regularly engaged in heli-skiing.

2. Procedural History

WCLI filed its complaint in the district court seeking: (1) rescission of the

Butts Policy pursuant to Colorado law, and (2) a declaration that the Butts Policy

was void ab initio and WCLI was thus not liable to Defendants thereunder. In

their answer, Defendants asserted state law counterclaims for: (1) breach of

contract, (2) bad faith, and (3) violation of the Colorado Consumer Protection

Act, Colo. Rev. Stat. §§ 6-1-101 to -115. The district court dismissed

Defendants’ Consumer Protection Act counterclaim with prejudice.

Both parties moved for summary judgment. The district court granted

WCLI’s motion for summary judgment, concluding: (1) Butts had made a false

statement of fact or concealed a fact in his application for insurance because a

reasonable person would have understood heli-skiing was a hazardous activity for

-8-
purposes of Question 5, (2) Butts knew heli-skiing was a hazardous activity and

knowingly concealed the fact he engaged in it, (3) the concealment materially

affected the risk assumed by WCLI, (4) WCLI was ignorant of the false statement

of fact or concealment of fact and was not chargeable with knowledge of the fact,

and (5) WCLI relied on Butts’s false statement in issuing the Butts Policy.

On appeal, Defendants contend the district court erred in granting summary

judgment to WCLI on its rescission claim because genuine issues of material fact

exist as to whether: (1) there was a false statement or concealed fact in the Butts

application, (2) Butts knowingly made the false statement or concealed the facts,

and (3) WCLI was chargeable with the knowledge Butts heli-skied. Defendants

also appeal the district court’s grant of summary judgment with respect to their

bad faith claim.

III. DISCUSSION

1. Motion to Strike

In its motion to strike, WCLI contends this court should not consider

certain arguments and evidence raised by Defendants for the first time on appeal.

Specifically, in their reply brief, Defendants for the first time offer statistical

evidence regarding auto accident fatalities and discuss the Colorado Ski Safety

Act requirement that ski resort lift tickets warn of the risk of resort skiing as

support for their argument that reasonable minds could differ on whether heli-

skiing is a hazardous activity. Defendants ask the court to take judicial notice of

-9-
the accident statistics. In addition, Defendants argue the Colorado Ski Safety Act

cite was properly included in their reply brief in order to rebut an argument raised

in WCLI’s answer brief.

“Whether an appellate court will for the first time take judicial notice of a

judicially notable fact rests largely in its own discretion.” Mills v. Denver

Tramway Corp., 155 F.2d 808, 812 (10th Cir. 1946). Defendants offer no

explanation for why they did not seek to introduce the auto accident fatality

statistics before the district court. In addition, consideration of this evidence for

the first time in Defendants’ reply brief denies WCLI the opportunity to contest or

rebut the evidence. Stump v. Gates, 211 F.3d 527, 533 (10th Cir. 2000). We

therefore decline to take judicial notice of the auto accident fatality statistics and

grant WCLI’s motion to strike these statistics. See Am. Stores Co. v. Comm’r of

Internal Revenue, 170 F.3d 1267, 1270 (10th Cir. 1999) (“Judicial notice is not a

talisman by which gaps in a litigant’s evidentiary presentation . . . may be

repaired on appeal.” (quotation omitted)).

As to the introduction of Colorado’s statutory requirement that ski resort

lift tickets warn of the risk of resort skiing, Defendants maintain this evidence

was properly introduced for the first time in their reply brief in response to an

argument in WCLI’s answer brief. Specifically, it rebuts WCLI’s contention that

the requirement that individuals sign a release before engaging in heli-skiing

supports the proposition a reasonable person would view heli-skiing as hazardous.

-10-
While WCLI’s precise argument regarding the release requirement was raised

before the district court, the evidence Defendants now seek to introduce to rebut

the argument was never brought to the attention of the district court. This court

has stated “[i]n reviewing a grant of summary judgment, our inquiry is limited to

the summary judgment record before the district court when the motion was

decided.” Feichko v. Denver & Rio Grande W. R.R., 213 F.3d 586, 593 n.5 (10th

Cir. 2000). In addition, as discussed above, this court is reluctant to consider

evidence raised only in a reply brief, leaving the opposing party no opportunity to

challenge its validity or relevance. See Am. Stores Co., 170 F.3d at 1270. We

therefore grant WCLI’s motion to strike this evidence.

2. Rescission of the Life Insurance Policy

“We review de novo a district court’s grant of summary judgment, viewing

the evidence in the light most favorable to the nonprevailing party.” Mullin v.

Travelers Indem. Co. of Conn., 541 F.3d 1219, 1222 (10th Cir. 2008). “Summary

judgment is appropriate if there is no genuine dispute over any material fact, and

a party is entitled to prevail as a matter of law.” Id. (quotation omitted). Under

Colorado law, to avoid a life insurance policy due to misrepresentations in the

application, an insurer must prove:

(1) the applicant made a false statement of fact or concealed a fact in
his application for insurance; (2) the applicant knowingly made the
false statement or knowingly concealed the fact; (3) the false
statement of fact or the concealed fact materially affected either the
acceptance of the risk or the hazard assumed by the insurer; (4) the

-11-
 insurer was ignorant of the false statement of fact or concealment of
fact and is not chargeable with knowledge of the fact; (5) the insurer
relied, to its detriment, on the false statement of fact or concealment
of fact in issuing the policy.

Hollinger v. Mut. Benefit Life Ins. Co., 560 P.2d 824, 827 (Colo. 1977) (footnote

omitted). Defendants contend the district court erred in concluding no genuine

issue of material fact existed as to the first, second, and fourth elements of the

Hollinger standard.

i. The First and Second Hollinger Elements

The first element, “the applicant made a false statement,” is encompassed

in the second element, “the applicant knowingly made a false statement.” Id.

Because there is significant overlap in the parties’ arguments regarding the first

and second elements, we consider the two elements together. Wade v. Olinger

Life Insurance Co. holds that in determining whether an applicant knowingly

made a false statement, a court must look beyond the applicant’s mere knowledge

she engaged in the activity which was allegedly required to be disclosed by the

open-ended insurance question. 560 P.2d 446, 452 (Colo. 1977). Namely, “to

protect innocent insurance applicants, an applicant must be reasonably chargeable

with knowledge that the facts omitted or misrepresented were within the scope of

questions asked on the application.” Id. The court further explained that in the

context of answering an insurance application question which calls for a value

judgment, “[a] particular misrepresentation . . . must be such that a [r]easonable

-12-
person would, under the circumstances, have understood that the question calls

for disclosure of specific information.” Id. The court elaborated on this standard

in Hollinger, a companion case to Wade. Hollinger, 560 P.2d at 827. In

Hollinger, the court explained the standard applied in Wade was “whether a

reasonable person, with the applicant’s physical or mental characteristics, under

all the circumstances, would understand that the question calls for disclosure of

specific information.” Id.

Question 5 asked Butts if he “[e]ngaged in auto, motorcycle or boat racing,

parachuting, skin or scuba diving, skydiving, or hang gliding or other hazardous

avocation or hobby.” WCLI contends Butts’s negative response to Question 5

was unreasonable in light of his yearly heli-skiing vacations. Defendants argue

reasonable minds could differ as to whether heli-skiing constitutes a hazardous

activity, and thus the question should have been submitted to the jury.

Defendants further contend because Butts believed heli-skiing was not a

hazardous activity, his response to Question 5 could not have constituted a

misrepresentation.

This court must thus decide whether a reasonable person in Butts’s position

would know heli-skiing constituted a hazardous activity for purposes of the

insurance policy. We agree with the district court that reasonable purchasers of

life insurance understand they are agreeing to pay a premium in exchange for the

insurer’s promise to pay benefits in the event of death, and thus an insurer would

-13-
be interested in learning of activities that increase the chance of premature death.

Question 5 asks applicants whether they engage in hazardous activities and

provides as examples of hazardous activities, skydiving, motorized racing, and

scuba diving. A reasonable applicant understands these examples are provided to

have the applicant determine if she engages in activities that might pose risks

similar to those posed by the enumerated activities.

WCLI presented evidence indicating a heli-skier is approximately 18,702

times more likely to be killed in an avalanche than an individual skiing inbounds

at a ski area. 3 In addition, the heli-skiing operator Butts skied with required its

clients to: (1) demonstrate proficiency in avalanche rescue techniques and

equipment, (2) undergo training on safety protocols associated with helicopter

loading, flight, offloading, and landing, and (3) carry an avalanche beacon while

skiing. Such training took place prior to the execution of a waiver and release

agreement in which Butts recognized: (1) wilderness skiing involves “risks,

dangers and hazards in addition to those normally associated with downhill

skiing,” (2) avalanches occur frequently in the alpine terrain used for wilderness

skiing, (3) the ski outfitter’s “staff may fail to predict whether the alpine terrain is

safe for skiing or whether an avalanche may occur,” and (4) the “alpine terrain

used for wilderness skiing is uncontrolled, unmarked, not inspected and involves

3
The probability of an avalanche fatality occurring while heli-skiing or
snowcat skiing is approximately 1 per 29,000 visits.

-14-
many risks, dangers and hazards in addition to that of avalanche.” Additionally,

Butts chose to purchase and carry an “Avalung” avalanche emergency air supply

while heli-skiing.

Based on these facts, a reasonable person in Butts’s position would

understand Question 5 calls for an applicant to report heli-skiing. As the district

court explained, “a reasonable, ordinary person would understand that a sport

whose participants equip themselves with ‘avalanche beacons’ and ‘Avalungs’

and then ride in helicopters to the summits of isolated backcountry mountains in

order to ski down ungroomed alpine terrain . . . falls along with sky diving, hang

gliding, and scuba diving into the commonsense category of ‘hazardous’

activities.” Butts’s status as an experienced heli-skier who engaged in the

activity in the past without incident does not change the conclusion it was

unreasonable for an individual in his position to answer “no” to Question 5.

Butts knew of the great risks of heli-skiing. Notably, Defendants’ expert declined

to refute the Utah Avalanche Center’s statement that “[a]lmost all avalanche

accidents occur to recreationists who are very skilled at their sport.”

Defendants contend this court should rely on the expert opinion of Vincent

Anderson, a certified alpine and ski mountaineering guide who, without citing any

statistical evidence, states in a report that, in his opinion, the risks involved in

heli-skiing are not unreasonably high and are not greater than those involved in

skiing at a resort. This opinion, however, does little to rebut the statistical

-15-
evidence presented by WCLI demonstrating a heli-skier is approximately 19,000

times more likely to die in an avalanche than someone skiing within bounds at a

ski resort. Moreover, it is difficult to see how the subjective opinion testimony of

this one individual, lacking any statistical support, does much to support the

proposition a reasonable person with Butts’s characteristics would not understand

heli-skiing to be a hazardous activity. This is especially true where heli-skiers

such as Butts were required to sign a waiver explicitly acknowledging heli-skiing

was far more dangerous than resort skiing.

Finally, Defendants argue that because of the language at the end of the

Butts Application, wherein Butts affirmed all answers in the “application [were]

full, complete and true to the best of [his] knowledge and belief,” Question 5

solicited a subjective answer and thus could not be a false statement of fact. In

support of this argument Defendants cite to Hauser v. Life General Security

Insurance Co., 56 F.3d 1330, 1335 (11th Cir. 1995), in which the Eleventh Circuit

stated, “[w]here an insurer only requests the disclosure of information to the best

of the insured’s ‘knowledge and belief,’ and where the applicant so complies, we

will decline to protect the insurer from a risk it assumed by virtue of the

contractual language it drafted.” Id. at 1335 (quotation omitted). The court went

on to state, however:

[w]hat the applicant in fact believed to be true is the determining
factor in judging the truth or falsity of his answer, but only so far as
that belief is not clearly contradicted by the factual knowledge on

-16-
 which it is based. In any event, a court may properly find a
statement false as a matter of law, however sincerely it may be
believed. To conclude otherwise would be to place insurance
companies at the mercy of those capable of the most invincible self
deception . . . .

Id. (quotation omitted). Here, even assuming Colorado courts would follow the

reasoning of Hauser, any belief Butts may have had in the non-hazardous nature

of heli-skiing is contradicted by his underlying knowledge of the significant risks

inherent in heli-skiing as indicated by the training he was required to undertake,

waivers he signed, and equipment he used. We therefore affirm the district

court’s conclusion that as a matter of law Butts knowingly made a false statement

of fact.

ii. The Fourth Element

In order to satisfy the fourth element of the Hollinger standard, WCLI must

demonstrate it was “not chargeable” with the knowledge Butts heli-skied. 560

P.2d at 827. Colorado has yet to adopt a test for determining when an insurer is

“chargeable with knowledge” of an undisclosed material fact. The parties agree,

however, and the district court concluded, the Colorado Supreme Court would

endorse the following standard: an insurer is chargeable with knowledge of

undisclosed information only where it “had sufficient information that would have

put a prudent man on notice and would have caused him to start an inquiry”

which would have uncovered the truth. Major Oil Corp. v. Equitable Life

Assurance Soc’y, 457 F.2d 596, 604-05 (10th Cir. 1972).

-17-
 Butts gave a negative response to Question 5, indicating he did not engage

in any hazardous activities. Later, however, in response to the question of what

he did for recreation and exercise in his spare time during his phone interview

with Chu, Butts stated he enjoyed skiing and golfing. In response to Chu’s

question about hazardous activities, Butts stated only that he was involved in

scuba diving and private aviation as a pilot. WCLI’s underwriter, Youngquist,

interpreted Butts’s response that he participated in skiing in his spare time, to

mean he engaged in resort skiing. Youngquist had only worked for WCLI for

about a month, and was unaware the underwriting manual treated the various

kinds of skiing differently, with heli-skiing, but not resort skiing, meriting an

increase in the insured’s premium. He did not consult the manual during the

course of underwriting Butts’s Policy. Defendants contend that based on Butts’s

disclosure that he skied, WCLI had a duty to conduct an investigation into the

nature of Butts’s skiing precisely because of the six classes of skiing identified

for differing treatment in the underwriting manual. A reasonably prudent insurer,

they argue, would have been put on notice to conduct further investigation into

the type of skiing in which Butts engaged.

In deciding to insure Butts, Youngquist had before him: (1) Butts’s

negative response to Question 5, (2) Butts’s report to Chu stating the only

hazardous activities in which he engaged were scuba diving and private aviation,

and (3) Butts’s report to Chu stating he “also enjoy[ed] skiing and golfing in his

-18-
spare time.” Thus, even if Youngquist had been aware of the classifications in

the underwriting manual, such awareness would not have sufficed to put a prudent

underwriter on notice he should further investigate a situation where an applicant

reports recreational skiing and denies engaging in any hazardous activities. As

the district court explained, “[i]f such were the burden of a prudent insurance

company, then it would seem that any report of a generally lowhazard recreational

activity — e.g., wrestling, juggling, or fishing — would require the insurer to

investigate the myriad possible ‘extreme’ variants thereof.” Cf. Am. Eagle Fire

Ins. Co. of N.Y. v. Peoples Compress Co., 156 F.2d 663, 667 (10th Cir. 1946)

(stating “honesty, good faith, and fair dealings require [an insured] to

communicate [facts material to the risk] to his insurer.”).

Accordingly, courts have generally found insurance companies chargeable

with knowledge of an undisclosed fact only where it has knowledge of evidence

indicating the applicant was not truthful in answering the particular application

question at issue. See Major Oil Corp., 457 F.2d at 598-604 (concluding insurer

was chargeable with knowledge of applicant’s alcohol problem where another

insurance company considering the applicant informed the insurer of the

applicant’s ongoing alcohol problem and a report by the Medical Information

Bureau received by the insurer prior to issuance of the policy revealed the insured

had a drinking habit); Columbian Nat. Life Ins. Co. v. Rodgers, 116 F.2d 705, 708

(10th Cir. 1940) (concluding insurer was chargeable with knowledge that

-19-
applicant had previously been declined insurance despite applicant’s answer to

the contrary where it had in its possession documentation indicating “that the

applicant had either been declined or had been rated differently from the

established rates, or that some other unusual circumstances were involved.”).

Here, WCLI had no such evidence. Butts twice informed WCLI he did not

engage in hazardous activities. Contrary to Defendants’ assertions, Butts’s

statement he engaged in the recreational activities of skiing and golfing does not

constitute evidence or raise a red flag as to his lack of truthfulness in answering

the hazardous activities question, as recreational resort skiing is not considered a

hazardous activity. See Barciak v. United of Omaha Life Ins. Co., 777 F. Supp.

839, 843 (D. Colo. 1991) (concluding insurer was not chargeable with knowledge

of applicant’s heart condition where applicant did not disclose he received

medical care for chest pain, extensive medical tests, and had been referred to a

cardiologist, but in a subsequent phone interview stated he had seen a doctor for a

headache and received a variety of tests, including a chest x-ray and EKG, and the

doctor’s diagnosis was unknown.).

We therefore affirm the district court’s conclusion that WCLI has met the

Hollinger elements as a matter of law entitling it to summary judgment on its

claim for rescission of the Butts Policy.

-20-
 3. Defendants’ Counterclaim

Defendants’ bad faith counterclaim depends on the existence of a valid and

enforceable insurance policy. Because we affirm the district court’s ruling that

Butts’s nondisclosure voided the Butts Policy entitling WCLI to rescission,

Defendants’ counterclaim fails.

IV. CONCLUSION

Because WCLI was entitled to rescission of the Butts Policy, the district

court’s decision is affirmed.

-21-