Hess

Plaintiffs Rae Hess and the company of which she is the sole shareholder, chief executive officer and chairperson of the board, appeal from a judgment entered in favor of defendant insurer on a complaint seeking reformation of an insurance contract and damages for breach of contract and bad faith.

Plaintiffs filed a complaint on September 3, 1982, alleging that, in 1971, she had sought a $100,000 life insurance policy from defendant’s predecessor, Occidental Life Insurance Company (Occidental). According to the complaint, the policy was “key person” insurance required by the Small Business Administration as a condition for that agency’s approval of a loan to plaintiff Hess’s financially troubled chemical company. After its own doctor examined Mrs. Hess and discovered that she had higher than normal blood pressure, Occidental agreed to issue the policy only on condition that plaintiffs pay a premium surcharge of $1,000 per quarter. In 1978, at plaintiffs’ urging, Occidental reviewed Mrs. Hess’s medical condition and rerated her, dropping the $1,000 per quarter premium surcharge.

By their complaint plaintiffs sought reformation of the insurance contract and return of…