Court Upholds Default Judgment Against LTCI Policyholder

Elder Law Answers case summary.The United States Court of Appeals, Ninth Circuit, finds that the lower court correctly issued a default judgment against individuals who continuously violated discovery orders. In Transamerica Life Insurance Company v. Arutyunyan (9th Cir. No. 22-55199 February 22, 2024).

Anahit Arutyunyan took out a life insurance policy for her father, Akop Arutyunyan, with Transamerica Life Insurance Company. The policy included long-term care coverage. To be eligible for long-term care coverage, her father would need to be chronically ill. The terms defined chronic illness as being certified by a licensed health care practitioner as having a severe cognitive impairment or being unable to perform at least two of six activities of daily living (ADLs).

Mr. Arutyunyan claimed care benefits, alleging he tore his left rotator cuff and suffered from spinal arthritis. A nurse found he could not perform four ADLs. Ms. Arutyunyan represented to the insurance company that her father had deficits with several ADLs and that he hired a caretaker.

Transamerica began paying him benefits but was suspicious of the veracity of their claims. A private investigation revealed that the caregiver never visited, and Mr. Arutyunyan did not appear to have problems with ADLs.

The insurance company sued the Arutyunyans for insurance fraud. After they continuously did not provide certain discovery materials, such as passwords and tax documents, Transamerica filed a motion to compel responses to discovery.

The court ordered the Arutyunyans to show cause for why Transamerica’s motion should not be granted. They responded three days late. Their counsel cited a computer error as the reason. Accepting this excuse, the court ordered them to provide Transamerica with the missing information in 10 days, meet and confer seven days later, and file memoranda explaining their disputes within the following week.

Although the Arutyunyans provided the joint stipulations, they failed to file the memorandum the court required. The insurance company notified the court of the outstanding discovery disputes, so the court once again ordered the Arutyunyans to provide supplemental discovery materials and confer with Transamerica. They did neither. The court ordered the Arutyunyans to hand over the outstanding discovery materials and warned them that failing to comply could result in a default judgment against them. It also ordered them to show cause for why the court should not sanction them for violating its previous order.

After the Arutyunyans still did not supply the discovery materials, as their attorney claimed to be busy with another matter, the court entered a default judgment against them. Sanctioning them, the court ordered that they waive their ability to object to the discovery requests because they did not comply with its orders.

The Arutyunyans appealed and argued that they should be able to object to the discovery requests. But they offered no reasoning for why the court’s sanction was wrong. The court sanctioned them because they did not comply with its order, not because of the merits of their legal arguments.

They also challenged the default judgment. Before issuing a default judgment, the court must consider five factors: public interest, docket management, prejudice risk, public policy for resolving cases on the merits, and availability of less drastic sanctions.

Four of the five factors support the default judgment. Since the default judgment resulted from continuous discovery delays, the public interest and efficient docket management support it. Failing to produce documents such as tax returns and social media passwords would prejudice Transamerica. There is always public policy for resolving a case on its merits, but the public policy factor is not dispositive here. Less drastic measures did not work. The lower court even warned the Arutyunyans of the possibility of a default judgment.

The Ninth Circuit affirms the default judgment and orders the Arutyunyans and their attorney to explain why they should not face more sanctions.

Read the full opinion.