It’s Not Nice to Lie to Your Insurance Company

False Statement on Life Insurance Application Voids Coverage

Lie on Application Causes Beneficiary One Million

In Erin Peterson v. USAA Life Insurance Company, No. 18-1447, United States Court of Appeals Tenth Circuit (May 22, 2020) Ms. Peterson appealed from the district court’s grant of summary judgment to USAA Life Insurance Company (“USAA”). The district court granted USAA’s motion for summary judgment on the ground that Ms. Peterson’s late husband had knowingly misrepresented material facts in his application for term life insurance.


Theodore Bobkowski applied for a $1 million, twenty-year term life insurance policy from USAA. The application required him to answer questions about his medical history. Question 5(b) asked, “Has [the] Insured ever consulted with a health care provider for: . . . asthma, emphysema, pneumonia or other respiratory system disorder?” Question 12 asked, “Has [the] Insured consulted a health care provider for any reason not previously disclosed?” Mr. Bobkowski answered both questions in the negative, and he certified that his answers were “true and complete and correctly recorded.”

USAA approved the application and provided Mr. Bobkowski with a policy in its favored “Preferred Ultra Premium” risk class that listed Mr. Bobkowski’s wife, Ms. Peterson, as the beneficiary.  Less than two years later, Mr. Bobkowski died tragically.

USAA denied Ms. Peterson’s claim on the ground that Mr. Bobkowski had misrepresented material aspects of his medical history in the application. According to USAA’s underwriting guidelines, an applicant disclosing medical conditions like Mr. Bobkowski’s would not have qualified for the policy at issue, nor for any other policy within USAA’s Preferred Ultra Premium risk class.

The district court granted USAA’s motion, holding that Mr. Bobkowski had “knowingly concealed facts about his OSA diagnosis in his life insurance application.”


Both parties acknowledge that the five-part test laid out in Hollinger v. Mutual Benefit Life Insurance Co., 560 P.2d 824 (Colo. 1977) governs contract rescissions for a material misrepresentation in an insurance application. Under Colorado law, which is controlling here, to rescind a life insurance policy based on a material misrepresentation in the application, an insurer must prove the following:

  • the applicant made a false statement of fact or concealed a fact in his application for insurance;
  • the applicant knowingly made the false statement or knowingly concealed the fact;
  • the false statement of fact or the concealed fact materially affected either the acceptance of the risk or the hazard assumed by the insurer;
  • the insurer was ignorant of the false statement of fact or concealment of fact and is not chargeable with knowledge of the fact; and
  • the insurer relied, to its detriment, on the false statement of fact or concealment of fact in issuing the policy.

The district court determined that the summary-judgment record had established as a matter of law that Mr. Bobkowski had knowingly concealed material facts about his OSA condition in answering medical-history questions on USAA’s insurance application.

Ms. Peterson argued that Question 5(b) is ambiguous and, therefore, the district court erred in determining that USAA proved that Mr. Bobkowski had knowingly concealed his OSA-related medical history. She offers a related challenge to the district court’s reasoning as to this question, arguing that the court relied on inadmissible evidence that USAA had presented in its motion for summary judgment.

The appellate court concluded that the district court properly determined that Question 5(b) is not ambiguous. The court reasoned that it would have been clear to Mr. Bobkowski from Question 5(b)’s reference to a “respiratory system disorder” that the question contemplated his OSA—in that the condition is treated with a CPAP machine that forces air into the lungs, and it involves the process of oxygen transport and respiration.

Ms. Peterson also argued that the district court considered inadmissible evidence in applying the second Hollinger factor. She argues that USAA improperly attached a 547-page compendium of materials, the vast majority of which were irrelevant [and] highly inflammatory.

Colorado courts apply an objective standard when considering whether an applicant knowingly misrepresented a material fact in an insurance-policy application. Contrary to Ms. Peterson’s contention, the appellate court’s understanding of Colorado law to permit a district court to consider evidence outside the application when applying the second Hollinger factor. In applying Hollinger‘s second factor extrinsic evidence was both specific to the individual and the activity in question. Furthermore, the appellate court agreed with USAA.

Because Ms. Peterson’s challenge here undisputedly relates to the second Hollinger factor—not the first the district court correctly considered the evidence that USAA attached to its summary-judgment motion in resolving the second Hollinger factor. Having concluded that USAA’s denial of coverage was proper as a matter of law, the appellate court determined that Ms. Peterson’s related challenge to the dismissal of her bad-faith breach of contract claim also fails.

Under Colorado law, to allege bad-faith breach of an insurance contract, a plaintiff must show that the insurer acted both unreasonably and with knowledge of or reckless disregard of its unreasonableness. Since USAA correctly denied the claim there can be no bad faith.

Ms. Peterson has not shown that she was improperly denied coverage under the policy. As explained, USAA’s denial of coverage was proper as a matter of law. A bad faith claim must fail if, as is the case here, coverage was properly denied and the plaintiff’s only claimed damages flowed from the denial of coverage.


Insurers have an unquestioned right to rely on the information provided by he who seeks insurance so that it can wisely discriminate in making the choice about he or she it will insure. When that person lies to the insurer to obtain a policy under false circumstances the court should always. as did the Tenth Circuit, declare the policy void from its inception. It is not only not nice to lie to your insurer, it is expensive, and deprived the beneficiary of the security the policy was intended to provide.

© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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