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American General Life Ins. Co. v. Duffey

United States District Court, Central District of California

November 4, 2014


For American General Life Insurance Company, Plaintiff: David T McDowell, Jessica L Wilson, LEAD ATTORNEYS, PRO HAC VICE, Edison McDowell and Hetherington LLP, Houston, TX; Jodi Krystyn Swick, LEAD ATTORNEY, Edison, McDowell and Hetherington, Oakland, CA; Raymond J Tittmann, LEAD ATTORNEY, Edison, McDowell & Hetherington LLP, Oakland, CA; Edward J Valdespino, Edison McDowell and Hetherington LLP, Oakland, CA.


Gary Allen Feess, United States District Judge.



Plaintiff American General Life Insurance Company (" Plaintiff") seeks entry of default judgment pursuant to Federal Rule of Civil Procedure 55(b)(2) against Defendant Ervin Duffey (" Defendant") in this declaratory judgment action alleging that Defendant made material misrepresentations, omissions, and/or concealments on his application to obtain a life insurance policy from Plaintiff. (Docket No. 38 [Second Amended Application for Default Judgment (" App.")]; Docket No. 15 [First Amended Complaint (" FAC")].) Plaintiff asserts a single claim under the Federal Declaratory Judgment Statute, seeking a declaration that Defendant's life insurance policy is " null, void, and rescinded ab initio" due to these material misrepresentations, and now seeks entry of judgment against Defendant on this claim. (FAC ¶ 18; App. at 2.)

This is not Plaintiff's first attempt to obtain default judgment. (See Docket No. 26 [Motion for Default Judgement]; Docket No. 28 [Amended Application for Default Judgment].) Plaintiff's last attempt was denied by the Court for failure to properly serve Defendant. (See Docket No. 31 [5/9/14 Order] at 3.) Pursuant to this Court's Order (See Docket No. 33 [6/12/14 Order] at 2) Plaintiff served Defendant by publication " in the Press-Enterprise newspaper in California once a week for four consecutive weeks." (Docket No. 38-1 [Decl. of Edward J. Valdespino (" Vadespino Deck")] ¶ 4].) Although proper service was completed, Defendant failed to file an Answer or any other responsive pleading and Plaintiff proceeded to file a Request for the Court Clerk to Enter Default against Defendant. (Docket No. 34 [Proof of Service of Summons by Publication]; Docket No. 36 [Application for Clerk's Entry of Default].) Default was entered by the Clerk on September 9, 2014. (Docket No. 37 [Clerk's Entry of Default].)

The Court concludes that Plaintiff is entitled to default judgment because it has satisfied all of the relevant procedural requirements, has pleaded sufficient facts in its First Amended Complaint to justify entry of default judgment, seeks a remedy that the Court deems proper, and has shown that it is entitled to relief. Accordingly, Plaintiff's Motion for Default Judgment is GRANTED. The Court explains its reasoning in greater detail below.



On or about July 20, 2011, Defendant completed an application for Plaintiff's insurance policies. (FAC ¶ ¶ 9-10.) Defendant responded to a series of questions on the application regarding his health and medical history, including " his history of treatment, consultations and diagnosis of medical illnesses or diseases." (Id. ¶ ¶ 10-11.) The application also included an " affirmation" stating that Defendant had read the statements contained in the application and that any misrepresentation relied on by Plaintiff may be used to void the policy. (Id. ¶ 12.) Based on these representations and " in reliance upon" Defendant's disclosures, Plaintiff issued life insurance Policy Number YMD7166568 (" Policy") to Defendant. (Id. ¶ 13.)

Plaintiff contends that " while evaluating [Defendant]'s application for a second policy, " it was discovered that Defendant had " made misrepresentations of material fact, concealed material facts, and/or otherwise failed to accurately, honestly, and/or truthfully answer and disclose material information . . . regarding his health and medical history." (Id. ¶ 15, see also App. at 1.)

Plaintiff further alleges that Defendant's misrepresentations caused Plaintiff to issue the Policy to him, and that it would not have otherwise issued the Policy or would have issued the Policy under materially different terms had it known these representations were false. (Id. ¶ 15.) Plaintiff now seeks an order from the Court rescinding the Policy and declaring it void ab initio. (Id. at 16.)



A. Procedural Requirements for Entry of Default Judgment

Rule 55(b) of the Federal Rules of Civil Procedure permits a court-ordered default judgment following the entry of default by the Court Clerk under Rule 55(a). Elektra Entm't Grp., Inc. v. Bryant, No. 03-6381, 2004 WL 783123, at *1 (C.D. Cal. Feb. 13, 2004) (citing Kloepping v. Fireman's Fund, No. C 94-2684, 1996 WL 75314, at *2 (N.D. Cal. Feb. 13, 1996)). Local Rule 55-1 requires that motions for default judgment set forth the following information: (1) when and against what party default was entered; (2) identification of the pleading to which default was entered; (3) whether the defaulting party is an infant or incompetent person, and if so, whether that person is adequately represented; (4) that the Servicemembers Civil Relief Act, [2] 50 App. U.S.C. § 521, does not apply; and (5) that notice of the motion has been served on the defaulting party, if required by Federal Rule of Civil Procedure 55(b)(2). C.D. Cal. R. 55-1.

Here, Plaintiff has satisfied all applicable procedural requirements. The Second Application for Entry of Default Judgment clearly sets forth that the Court Clerk entered default against Defendant on September 9, 2014. (App. at 3 (citing Docket No. 37 [Clerk's Entry of Default]; Valdespino Decl. ¶ 7).) The default was entered as to Plaintiff's First Amended Complaint. (Id.) Plaintiff has also established that Defendant is not an infant, an incompetent person, or subject to the Servicemembers Civil Relief Act. (Id. (citing Valdespino Decl. ¶ 5).) Finally, Plaintiff is not required to serve notice of the instant motion on Defendant because Defendant has not appeared in this action. See Fed.R.Civ.P. 55(b)(2). Because the procedural requirements for entry of a default judgment are met, the Court proceeds to weigh the merits of Plaintiff's motion.

B. Factors Used to Determine Whether to Grant Default Judgment

A district court has discretion to grant or deny a motion for default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). Thus, a defendant's default alone does not entitle a plaintiff to a court-ordered judgment. The Ninth Circuit has held that a district court must examine the following factors when determining whether to enter default judgment:

(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the Complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute concerning material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.

Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986) (citation omitted). " In applying this discretionary standard, default judgments are more often granted than denied." PepsiCo, Inc. v. Triunfo-Mex, Inc., 189 F.R.D. 431, 432 (C.D. Cal. 1999).

1. Possibility of Prejudice to Plaintiff

To satisfy the first Eitel factor, Plaintiff must show that it will face prejudice if the Court does not enter default judgment. Eitel, 782 F.2d at 1471-72. The Court borrows the standard of prejudice employed by courts when evaluating motions to set aside entry of default judgment--namely, whether a plaintiff's ability to pursue its claim will be hindered if the application for default judgment is not granted. See TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 701 (9th Cir. 2001). In other words, the plaintiff must show more than mere delay resulting from a denial of its application; it must establish that it will suffer " tangible harm such as loss of evidence, increased difficulties of discovery, or greater opportunity for fraud or collusion" if the application is denied. Thompson v. Am. Home Assur. Co., 95 F.3d 429, 433-34 (6th Cir. 1996). Additionally, courts have held that prejudice is shown where a plaintiff has no " other recourse for recovery" against the defendant. PepsiCo, Inc. v. Cal. Sec. Cans, 238 F.Supp.2d 1172, 1177 (C.D. Cal. 2002).

The Court concludes that Plaintiff would suffer significant prejudice if the Court were to deny its motion. Defendant has not answered or otherwise responded to the First Amended Complaint and has made no indication that he intends to defend this action. Notably, Plaintiff will be left without other recourse for recovery. (App. at 3.) If default judgment were not entered, Plaintiff would have no way to prevent Defendant from benefitting from the unlawfully obtained policy that could cause Plaintiff to lose a substantial amount of money as a life insurance policy payout. (See FAC ¶ 13.)

Accordingly, because Plaintiff would suffer substantial prejudice if default judgment were not entered, the first Eitel factor weighs in favor of granting default judgment.

2. Substantive Merits and Sufficiency of the Complaint

The second and third Eitel factors have been interpreted by courts to require a plaintiff to state a claim upon which he or she may recover. PepsiCo, Inc., 238 F.Supp.2d at 1175. This means simply that the Court must examine the Complaint to determine whether Plaintiff has adequately pleaded its claims.

Plaintiff's sole claim is for declaratory relief for rescission of the policy under the Declaratory Judgment Statute, 28 U.S.C. § 2201. The Declaratory Judgment Statute allows a federal court to " declare the rights and other legal relations" of parties to a " case of actual controversy." Id. The test to determine whether such controversy exists is " whether 'there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 671 (9th Cir. 2005) (quoting Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941)).

Under California law, " a material misrepresentation or concealment in an insurance application, whether intentional or unintentional, entitles the insurer to rescind the insurance policy ab initio." W. Coast Life Ins. Co. v. Ward, 132 Cal.App.4th 181, 186-87, 33 Cal.Rptr.3d 319 (2005) (citing O'Riordan v. Fed. Kemper Life Assurance, 36 Cal.4th 281, 286-87, 30 Cal.Rptr.3d 507, 114 P.3d 753 (2005)). This rule has been codified in the California Insurance Code. See Cal. Ins. Code § 331. " Materiality is determined solely by the probable and reasonable effect which truthful answers would have had on the insurer." Thompson v. Occidental Life Ins. Co., 9 Cal.3d 904, 916, 109 Cal.Rptr. 473, 513 P.2d 353 (1973); see also Cal. Ins. Code § 334. The fact that an insurer has demanded answers to specific questions on an application for insurance is usually sufficient to establish the materiality of that information as a matter of law. W. Coast Life Ins. Co., 132 Cal.App.4th at 187 (quoting Old Line Life, Ins. Co. v. Superior Court, 229 Cal.App.3d 1600, 1603-04, 281 Cal.Rptr. 15 (1991)).

Plaintiff's First Amended Complaint sufficiently alleges the requisite elements to obtain declaratory relief for rescission of the policy. Declaratory relief is appropriate here because there is an immediate controversy between Plaintiff and Defendant as to their rights and obligations under the Policy including whether Defendant is entitled to the Policy and whether he made material misrepresentations on his application for the Policy. (See FAC.)

Plaintiff also sufficiently alleges the requirements to obtain rescission of the Policy. Specifically, the First Amended Complaint alleges that Defendant made " misrepresentations, omissions, concealment of facts, and incorrect statements on the Application" that were " material either to the acceptance of the risk or to the hazard" assumed by Plaintiff. (Id. ¶ 19.) Plaintiff also alleged that these misrepresentations " were made to be relied on, " and in fact, were " relied on by [Plaintiff] in assessing whether to issue the Policy. (Id.) Further, Plaintiff alleged that " [i]f the true facts had been made known, " Plaintiff " would not have issued the Policy." (Id.)

Therefore, in the First Amended Complaint Plaintiff sufficiently alleged all the elements of its claim for declaratory relief for rescission of the Policy -- that Defendant made material misrepresentations on his insurance application that caused Plaintiff to issue the Policy to Defendant that it would not have otherwise issued.

Accordingly, the second and third Eitel factors weigh in favor of granting default judgment.

3. Amount at Stake

The fourth Eitel factor requires the Court to consider the amount of money at stake. Eitel, 782 F.2d at 1471-72. The Court must evaluate the amount at stake because default judgments are disfavored where the amount at stake " is too large or unreasonable in light of [the] defendant's actions." Truong Giang Corp. v. Twinstar Tea Corp., No. 06-03594, 2007 WL 1545173, at *12 (N.D. Cal. May 29, 2007).

Here, Plaintiff does not request an award of monetary damages. Instead, Plaintiff requests a " declaratory judgment that the Policy is null, void, and rescinded ab initio due to the fraudulent and/or material misrepresentations and omissions that [Defendant] made on the Application." (FAC ¶ 18.) Because Defendant has not responded to the Complaint, there is no basis for the Court to conclude that the amount at stake " is too large or unreasonable."

Accordingly, the fourth Eitel factor weighs in favor of granting default judgment.

4. Possibility of Dispute

The fifth Eitel factor requires the Court to consider the possibility of disputes regarding material facts in the case. Eitel, 782 F.2d at 1471-72. As explained above, upon entry of default, a court must presume the truth of all well-pleaded facts in the Complaint except those relating to damages. TeleVideo, 826 F.2d at 917-18.

Here, Plaintiff's First Amended Complaint, which the Court must take as true, alleges sufficient facts to establish Plaintiff's claim for relief based on material misrepresentations. (See FAC.) By failing to respond, Defendant has failed to rebut the presumption that Plaintiff's allegations are true. Thus, the Court has no basis for concluding that a genuine dispute exists, or is likely to exist, regarding the material facts at issue in this case.

Accordingly, this Eitel factor therefore favors entering default judgment.

5. Possibility of Excusable Neglect

In considering the sixth Eitel factor, the Court must account for the possibility that Defendant's default resulted from excusable neglect. Due process requires that all interested parties be given notice reasonably calculated to apprise them of the pendency of the action, and that they be afforded an opportunity to present their objections before a final judgment is rendered. Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950).

Plaintiff served Defendant through Summons by Publication from July 11, 2014, through August 8, 2014. (App. at 4 (citing Valdespino Decl. ¶ 4; Docket No. 35 [Proof of Service of Summons by Publication].) Defendant has had ample time to resolve this matter by retaining counsel, filing motions, or interposing an answer, but has done nothing. The Court thus concludes that Defendant's default was the result of an affirmative decision not to litigate the action rather than excusable neglect. The sixth Eitel factor favors entering default judgment.

6. Policy Favoring Decisions on the Merits

The seventh Eitel factor requires the Court to account for the policy favoring decisions on the merits. Eitel, 782 F.2d at 1471-72. The very existence of Rule 55(b), however, indicates that " this preference, standing alone, is not dispositive." PepsiCo, 238 F.Supp.2d at 1177 (internal quotation marks omitted) ( quoting Kloepping, 1996 WL 75314, at *3). Rule 55(a) permits a district court to render a judgment before adjudicating the merits of the case where the defendant fails to defend against the action. Fed.R.Civ.P. 55(a); see also Schwarzer, supra, § 6:102, at 6-26.

Here, Defendant's failure to answer the First Amended Complaint or otherwise respond in this matter renders the Court unable to adjudicate the case on the merits. Accordingly, the policy of deciding cases on the merits does not preclude the Court from entering default judgment in this case.

7. Conclusion Re: eitel Factors

After analyzing each Eitel factor, the Court concludes that, on balance, the factors weigh in favor of entering default judgment against Defendant. Accordingly, Plaintiff's Motion is GRANTED.

C. Remedies

The Court proceeds to assess whether Plaintiff is entitled to the remedies it seeks. Under Federal Rule of Civil Procedure 54(c), remedies granted in a default judgment " must not differ in kind from, or exceed in amount, what is demanded in the pleadings." Fed.R.Civ.P. 54(c). Under Federal Rule of Civil Procedure 8(a)(3), a plaintiff's demand for relief must be specific. Fed.R.Civ.P. 8(a)(3); see also Landstar Ranger, Inc. v. Parth Enters., Inc., 725 F.Supp.2d 916, 923 (C.D. Cal. 2010). In addition, a plaintiff must " prove up" the amount of damages claimed. Philip Morris USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 501 (C.D. Cal. 2003). These rules limit the scope of relief and ensure fundamental fairness as required by due process of law. Schwarzer, supra, § 6:131, at 6-33.

Here, Plaintiff does not seek monetary damages, but rather requests a judgment declaring the Policy to be null and void and rescinded ab initio. (FAC ¶ 20(a).) In accordance with the discussion above, the Court concludes that Plaintiff is entitled to rescission of the Policy. Accordingly, the Court GRANTS Plaintiff's request and the Policy issued by Plaintiff to Defendant with life insurance policy number YMD716668 is rescinded and deemed void ab initio.



Consistent with the reasoning above, Plaintiff's Motion for Default Judgment is GRANTED. Plaintiff's request for the Policy to be declared null and void and rescinded ab initio issued to Defendant is therefore GRANTED.



The Court having considered Plaintiff's Motion for Entry of Default Judgment, and having entered an order GRANTING the motion, it is hereby ORDERED, ADJUDGED and DECREED as follows:

1. that American General's life insurance policy number YMD7166568 (" the Policy") is declared null, void, and rescinded ab initio;
2. that no recovery exists under the Policy, at law or in equity, and the Policy's death benefits will not be paid to the beneficiary of the Policy, or any other entity or individual; and
3. The rescission of the Policy is in all respects effective and binding.


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