From The "Nice Try" Department: When is a Mistake not a Mistake?
Usually people enter into contracts because they want something, i.e. goods, services, money etc. What happens when the deal turns out to be unfair? In a recent case from California, the court found that the contract meant what it said. The facts are simple: Jean Simes purchased an annuity from United of Omaha Life Insurance Company and paid a single premium of $321,131. The annuity would pay her $3,000.00 per month for the rest of her life. Less than four months later Jean Simes discovered that she had overran cancer, and died a week later.
Apparently no one notified the defendant because payments continued for another 3 months. Needless to say, the heirs were upset, and they sued for the return of the premium. From the facts of the case it appears that the plaintiff’s filed a complaint alleging every conceivable basis to nullify the contract, asking for recession, alleging fraud, breach of contract, and mistake. From the facts of the case Jean Simes had no idea that she had cancer when she contracted for the annuity. In the end, after motions, the plaintiff’s were down to one argument: The deceased was mistaken because she didn’t know that she had cancer, and therefore the contract should be canceled and the premium returned.
In California, and I think most other states would reach the same conclusion, the court determined that Jean Simes assumed the risk that she would died before she would recover her premium, and the defendant took the risk that Simes would live a long life. That is the very nature of an annuity.
The court concluded that even though the deceased was unaware that she had cancer, that fact alone is not a reason to nullify the contract. She had received everything that she had bargained for: an annuity for the remainder of her life.
When an insurance company sells an annuity, isn’t it betting that the recipient will die sooner rather than later? The sooner the recipient dies the more money the insurance company makes in the end. This is the opposite of the life insurance policy where the insurer is betting that the insured will live a long life.
Despite arguments to the contrary, the failure to know your health condition is not a "mistake" that justifies rescinding a contract to pay a benefit for a lifetime.
