Carol Grenall et al., as Administrators, etc., v. United of Omaha Life Insurance Company

Carol Grenall et al., as Administrators, etc., v. United of Omaha Life Insurance Company
25 July 2008; In the Court of Appeal of the State of California
A118823 (Marin County Super. Ct. No. CV050180)

Erroneous Belief Cannot Rescind Life Annuity Contract
Inherent risk of death is assumed, decedent bore the risk of mistake


Jean M. Simes purchased an annuity that will provide for monthly benefit payments as long as she lives, from the United of Omaha Life Insurance Company. She submitted her application and paid the single premium.

United issued a policy, the copy of which was received by Simes six weeks after her application. The policy contains the following provisions, among others: “If you are not satisfied with your policy, return it to us or our agent within 30 days after you receive it. We will refund the single premium and cancel the policy as of its date of issue.”

After the third benefit payment, Simes was diagnosed with ovarian cancer. Nearly a week later, she died. United stopped making payments.

Sime’s Estate filed suit against United alleging two causes of action:
1. breach of contract
2. declaratory relief

On the breach of contract, the Estate argues that United had refused payments under the terms of the annuity “until the sum of the benefit payments equals the single premium.”

The declaratory relief seeks resolution of the dispute between the parties as to their respective rights under the annuity policy.

United moved for summary judgment; answers, the terms of the contract provided for a life annuity and did not require a refund of the premium to the Estate.

The motion for summary judgment on the breach of contract was granted by the trial court saying that the undisputed facts showed that United had not breached the payment option to which the parties agreed, as the contract required monthly benefit payments only during Sime’s lifetime.

The motion for summary judgment on declaratory relief was also granted but only after United renewed its motion saying that there was no evidence of a mistake by Simes or of what was in her mind when she purchased the annuity.

The lone issue presented by the Sime’s Estate upon appeal is whether the facts provide a legal basis for rescission of the life annuity contract based on a mistake of fact.

The Court of Appeal holds that as a matter of law, the facts do not provide a legal basis for rescission.

To prevail at the trial, the Court said that the Estate would have been required to prove the following:
1. Simes was mistaken regarding a basic assumption upon which she made the contract
2. the mistakes materially affected the agreed exchange of performance in a way that was adverse to Simes
3. Simes did not bear the risk of the mistake
4. the effect of the mistake was such that enforcement of the contract would be unconscionable.

The Court of Appeal concluded that the Estate cannot establish the third of these elements. As a matter of law, Simes bore the risk of the mistake. A contracting party bears the risk of mistake when the agreement so provides or when the party is aware of having only limited knowledge of the facts relating to the mistake but treats this limited knowledge as sufficient.

Although the contract in this case does not expressly assign the risk of the alleged mistake, the parties who contract for “life contingent” benefits necessarily do so based on limited knowledge of the very facts about which Simes was mistaken.

Citing several jurisprudences, the Court of Appeal said California courts have rejected challenges to such contracts on the ground that death came unexpectedly early and holds that based on authorities, Simes bore the risk of the alleged mistake regarding her health and life expectancy at the time of the annuity contract.

As the Estate cannot establish an essential element of its rescission claim, summary judgment is deemed proper by the Court. Thus, it affirmed the decision of the trial court.