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Rubes v. Mega Life And Health Ins. Co., Inc.2/27/2002
n drugs. The notice did not reach Rubes until after his successful transplant operation on May 15, 1999.
Trial over the coverage question took place in January 2001. The district court entered judgment in Rubes' favor, concluding that his application for insurance disclosed the full extent of his knowledge concerning the May 1998 hospitalization, that Rubes answered truthfully all questions posed to him by Steiner, and that any errors in making the application were the agent's, not Rubes'. This appeal by MEGA followed.
II. Issues on Appeal.
MEGA argues that the district court's judgment for Rubes cannot withstand scrutiny, factually or legally. It contends the court ignored crucial admissions and objectively false disclosures entitling it to rescission under the standard announced in Hyler v. Garner, 548 N.W.2d 864 (Iowa 1996). Rubes counters that MEGA was required to prove intent to deceive, or scienter, in order to prevail on a rescission claim based on misrepresentation. He insists that any misstatements on the application were attributable to MEGA's agent, Steiner.
The parties likewise disagree on the court's alternative ruling on equitable estoppel. MEGA insists the doctrine has no application where, as here, its intention to rescind was made clear and thus dispels Rubes' claim he acted in reliance on the insurer's promise of benefits. We shall consider the arguments in turn.
A. Equitable Rescission. In general, "fraudulent misrepresentations leading to the creation of a contract give rise to a right of rescission." Robinson v. Perpetual Servs. Corp., 412 N.W.2d 562, 568 (Iowa 1987); accord Hyler, 548 N.W.2d at 870. When a party relies on the doctrine of equitable rescission to avoid a contract, five elements must be proven: "(1) a representation, (2) falsity, (3) materiality, (4) an intent to induce the other to act or refrain from acting, and (5) justifiable reliance." Hyler, 548 N.W.2d at 872; accord Utica Mut. Ins. Co. v. Stockdale Agency, 892 F.Supp. 1179, 1193 (N.D.Iowa 1995).
At issue here is a dispute over the requisite "intent" needed to fulfill the equitable rescission doctrine's fourth element. Consistent with the rule recited above, MEGA argues that the intent required is only that Rubes intended to induce MEGA into acting favorably on his application. Rubes contends, and the district court ruled, that an intent to deceive the defendant must be shown. MEGA's position is plainly the correct one.
This court's recent discussion in Hyler, and the federal court's exhaustive treatment of the topic in Utica, clarified the historical distinction drawn between the proof required to sustain an equitable action to rescind a contract and the proof required to recover at law based on fraudulent representation. An action to rescind a contract is regarded as less severe, and hence less demanding in its proof requirements, than an action at law for damages based on fraud. Hyler, 548 N.W.2d at 871. In an equitable rescission action, it is not the knowledge of falsity that is at issue, but "whether misrepresentations induced the complaining party to contract." Utica, 892 F.Supp. at 1195. As this court stated in Hyler, injecting an "intent to deceive" element in a rescission case would reintroduce the concept of scienter, "making the elimination of this requirement in equity cases illusory." Hyler, 548 N.W.2d at 872.
*270 Applying the correct formulation of the law to the record before us, we are convinced MEGA proved all five elements entitling it to rescind Rubes' contract of insurance. Rubes made several representations to MEGA's agent concerning his health history, drunk driving arrests and alcoholism. In this context, a representation includes not only an affirmative statement but the omission or nondisc
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