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March 3, 1997


The opinion of the court was delivered by: SMITH


 Plaintiffs' breach of contract case raises the question whether a person's failure to accurately portray his immigration status in an insurance application is reason for rescission of the contract after his death. The parties' cross-motions for summary judgment require the Court to determine whether such a misrepresentation is material to the contract as a matter of law. Defendant also asks the Court to grant summary judgment on plaintiffs' breach of the implied covenant because no contract existed, and plaintiffs' request for punitive damages because the company did not act in bad faith. *fn1"


 This action concerns a life insurance policy issued to Ignacio M. Matilla ("Ignacio" or "decedent") by defendant Farmers New World Life Insurance Company. Ignacio died in Bantog, Bulacan, Philippines on June 22, 1994, from multiple gunshot wounds suffered in a highway ambush. His death occurred within the two-year contestability period of his insurance policy. After an investigation that revealed that Ignacio had misrepresented his immigration status on his application, defendant denied benefits to Ignacio's wife and children.

 Ignacio had entered the United States on May 30, 1989, using a Philippines passport bearing the name "Raymundo Villanueva." The parties agree that Ignacio did not enter this country legally. Ignacio was never issued a valid immigration visa number, although he and his wife had filed a petition for a permanent visa, which was approved on May 23, 1991. An approved petition does not confer any immigration rights, however; the petitioner's status changes only when a proper visa is issued and the petitioner uses it to enter the United States. At the time he was killed, Ignacio was in the Philippines awaiting final processing of his visa.

 In January 1993, Ignacio submitted an application to defendant for a $ 100,000 "Flexible Universal Life Insurance" policy. Christy Santos, a Farmers insurance agent, assisted Ignacio in completing his application. When Santos asked Ignacio for his visa number, Ignacio left the room and returned with a passport, which he handed to Ms. Santos. She copied the visa number from the passport onto the application. On the basis of his application and a medical examination, defendant issued the life insurance policy effective February 17, 1993. The parties agree that Ignacio misrepresented his immigration status on the application.

 Defendant discovered the misrepresentation during its claim investigation. Claim investigation is routine in cases in which the insured dies within the contestability period defined in his policy. Defendant's investigator located numerous Immigration and Naturalization Service documents indicating that Ignacio had not entered the United States legally, and did not have a valid visa. Defendant's claims department then questioned three underwriters as to whether Ignacio's immigration status would have affected their handling of the case. Three underwriters considered the question and concluded that it would have, because of a company rule requiring applicants to possess either a valid alien registration number or visa number.

 In a letter to plaintiffs' counsel dated March 24, 1995, defendant rescinded Ignacio's policy and refunded his premium. On March 22, 1996, after unproductive informal negotiations with defendant, plaintiffs filed a complaint in state court, alleging that because the misrepresentation was immaterial defendant's failure to pay benefits was a breach of contract. Defendant timely removed the case to federal court based on diversity jurisdiction. Defendant's motion for summary judgment was filed on November 22, 1996, and plaintiffs' cross-motion was filed on December 12, 1996. At the request of the parties, the Court continued the hearing on the motion until February 14, 1997. The hearing was eventually vacated because the case had been referred to a district judge for a settlement conference. When the case did not settle, the Court took up the motion again.


 I. Legal Standard

 To withstand a motion for summary judgment, the opposing party must set forth specific facts showing that there is a genuine issue of material fact in dispute. Fed. R. Civ. P. 56(e). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial, "the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).

 In opposing summary judgment, plaintiff is not entitled to rely on the allegations of his complaint. He "must produce at least some 'significant probative evidence tending to support the complaint.'" T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (quoting First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 290, 20 L. Ed. 2d 569, 88 S. Ct. 1575 (1968)).

 The Court does not make credibility determinations with respect to evidence offered, and is required to draw all inferences in the light most favorable to the non-moving party. T.W. Elec. Serv., Inc., 809 F.2d at 630-31 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986)). Summary judgment is therefore not appropriate "where contradictory inferences may reasonably be drawn from ...

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