Release is used to prove an activity is hazardous and deny a claim for life insurance. Heli-skiing should have been disclosed as a risk activity or hobby according to the court when buying life insurance.

“Rating up” is a term used to say an insured is a higher than normal risk, and the insurance rate will increase. The amount of the increase is dependent upon the risk. Heli-skiing would have tripled the cost of a life insurance policy. However, not telling the insurance company denied the claim.

West Coast Life Insurance Company. Hoar, 558 F.3d 1151; 2009 U.S. App. LEXIS 5266

Date of the Decision: 2009

Plaintiff: West Coast Life Insurance Company

Defendants: 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

Plaintiff Claims: (1) breach of contract, (2) bad faith, and (3) violation of the Colorado Consumer Protection Act

Defendant Defenses: Rescission

Holding: for the plaintiff life insurance company

Owners in a business want to make sure the business will survive if one of the owners is disabled or dies. There is also a desire to take care of the family of the deceased. Finally, immediately purchasing the deceased share of the business keeps the business running smoothly without the worry or probate or someone with no business experience from running the business. This usually takes the form of a buy-sell agreement. The agreement sets out the terms on when the contract kicks in, how to value the business and how to pay the estate of the deceased or the disabled owner.

Many times the owners will want to make the purchase of the deceased estate immediate, so the business purchases life insurance on the owners. Upon the death of an insured, the insurance proceeds are used to keep the business going to pay for the ownership of the business from the estate of the deceased.

In this case, the parties created a business and purchased a $3 million-dollar policy on the owners. For large life insurance policies more underwriting, questions are asked and sometimes physicals are required. In this case, the insured owner was asked 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.” The insured said he was a scuba diver and skier. At the end of the form the insured had to affirm that all of his answers were full, complete, and true to the best of his knowledge and belief.

The insured was then interviewed by a third party hired to investigate the insured. The insured was asked what he did in his spare time. The insured answered he skied and golfed. He also stated he was into private aviation and scuba diving. At no time did the insured ask any clarifying questions as to what hazardous activities meant.

The insured regularly participated in heli-ski trips in Canada. He had been heli-skiing for at least six years. He purchased a Black Diamond Avalung for his ski trips. The heli-ski operation required the insured to sign a “Release of Liability, Waiver of Claims, Assumption of Risk and Indemnity Agreement.” The heli-ski operation also required avalanche rescue training, helicopter safety training and required the use of avalanche beacons.

During a heli-ski trip, the insured was killed in an avalanche.

The insurance company refused to pay the life insurance benefit because the insured had not been truthful on his application for insurance. The life insurance company sued for rescission. The trial court granted the life insurance company’s motion for summary judgment, and the case was appealed.

Summary of the case

Rescission is the term applied when a contract is unwound, and both parties are placed back in their original position. There must be a legally recognized cause for a court to require rescission. Material breach, or as in this case fraud, can be a cause for a court to rescind a contract.

To win a claim of rescission under Colorado law the insurance company had to 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 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.

The court focused on the first and second claims that the deceased made a false statement or concealed a fact and did so knowingly.

The court did a thorough review of all the facts the life insurance company presented, which stated that heli-skiing was a high-risk operation. These facts included the acts of the insured/deceased as outlined above and statements made by the expert witness of the insurance company. One statement which the court found particularly informative was that heli-skier was “… approximately 18,702 times more likely to be killed in an avalanche than an individual skiing inbounds at a ski area.” This statement was then supported by this footnote the court included. “The probability of an avalanche fatality occurring while heli-skiing or snowcat skiing is approximately 1 per 29,000 visits.

The risk of heli-skiing was then supported in the court’s argument by the fact the deceased had signed a release. “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.”

The fact that the deceased had signed the release, purchased a Black Diamond Avalung, and took avalanche and helicopter training showed the activity was dangerous. That was proof of knowledge and intent that heli-skiing was a high-risk activity which his involvement in should have been disclosed to the insurance company.

The next argument was over the fourth element. The court found for this argument the insurance company had to have knowledge that the life insurance policy applicant was not truthful in answer questions.

Consequently, the beneficiary of the insurance policy, the defendants were not able to argue the contract should not be rescinded. The insurance company was granted rescission and did not have to pay the $3 million-dollar policy benefit.

So Now What?

The increase due to heli-skiing would have increased the yearly premium from $4,800 to $12,380. For most people making a living in the outdoor recreation, the basic premium is too much, the increased premium out of reach. Disability insurance can cost more.

Health insurance is probably no longer subject to such rating changes to do the Patient Protection and Affordable Care Act, which is one blessing for those of us making a living in the outdoors.

If you are just starting out, make sure you have good health, life and disability policies. Lying or misrepresenting the risks you take will subject your family to a similar situation. Purchasing the policies before you have gone too far…outdoors, may save you some money.

If you die mowing the lawn or in a car accident, the chances of this occurring are low. The investigation is triggered when you die doing a high-risk  activity, and the insurance company finds out you regularly participated in the activity and did not tell them at the time you applied for the policy.

You’ll probably not have to worry about this issue.  You’ll be dead.

What do you think? Leave a comment.

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