Equitable Life Assur. Soc. of U.S. v. Bell, 93-2264

Citation27 F.3d 1274
Decision Date28 June 1994
Docket NumberNo. 93-2264,93-2264
PartiesEQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES, Plaintiff-Appellant, v. Thomas E. BELL, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1274

27 F.3d 1274
Thomas E. BELL, Defendant-Appellee.
No. 93-2264.
United States Court of Appeals,
Seventh Circuit.
Argued Nov. 30, 1993.
Decided June 28, 1994.

Page 1275

Leonard M. Holajter, Friedrich, Bomberger, Tweedle & Blackmun, Highland, IN (argued), for plaintiff-appellant.

Mark S. Lucas, Nick Katich (argued), Lucas, Holcomb & Medrea, Merrillville, IN, for defendant-appellee.

Before LAY, * COFFEY, and ROVNER, Circuit Judges.


The Equitable Life Assurance Society of the United States ("Equitable") filed this diversity action seeking a declaratory judgment that it was not obliged to pay Thomas Bell disability benefits. Equitable relied on the fact that Mr. Bell's multiple sclerosis had manifested itself before Equitable issued a disability insurance policy to him. The district court granted summary judgment in favor of Mr. Bell in view of the policy's statutorily mandated incontestability clause. Equitable Life Assurance Soc'y of United States v. Bell, 818 F.Supp. 245 (N.D.Ind.1993). That clause provides that after the policy has been in force for two years, a claim for benefits cannot be denied on the ground that the underlying disease or condition existed prior to the effective date of the policy. We affirm.


In March of 1978, Mr. Bell learned that he had multiple sclerosis, a progressive disease of the central nervous system with no known cure. His symptoms at that time and over the following two years included weakness, numbness, lack of manual dexterity, lack of depth perception and/or hand-eye coordination, slurred speech, blurred and double vision, and loss of balance. He was hospitalized (and thus absent from work) for four months in 1978 and for ten days in both 1979 and 1980 for testing and treatment. Dr. Floyd Davis, who first apprised Mr. Bell that he had multiple sclerosis, recalls that one of Mr. Bell's principal concerns upon learning of his affliction was the prospect of becoming disabled. He is also certain that he discussed this possibility with Mr. Bell on at least one occasion in 1978.

On September 4, 1980, more than two years after his illness was diagnosed, Mr. Bell applied to Equitable for an insurance policy providing for payments of $3,000 per month in the event he became disabled. The second portion of the application solicited information regarding Mr. Bell's medical history. As completed, this section contained the following representations:

2. a. Name and address of personal physician (or medical facility
                 used instead):
                 (If none, so state ) NONE
                 b. Date and reason last consulted if within the last 5 years: (Blan-
                 c. What treatment was given or recommended:
                 (If none, so state (Blan-
                3. Has Proposed Insured ever been treated for or ever had any known
                 indication of:
                 (Circle items that apply) Yes No
                 b. Dizziness, fainting, convulsions; paralysis or stroke; X
                 psychiatric, psychological or emotional problem or
                 disturbance; mental or nervous disease or disorder?
                4. Is Proposed Insured now under observation or taking treatment? X
                6. Other than as stated in answers to Questions 2-5, has Proposed
                 Insured within the last 5 years:
                 a. Consulted or been examined or treated by any physician or X
                 b. Had any illness, injury, or surgery? X
                 c. Been a patient in or been examined or treated at a hospital, X
                 clinic, sanatorium, or other medical facility?
                 d. Had electrocardiogram, X-ray, or other diagnostic test? X
                 e. Been advised to have any diagnostic test, hospitalization, X
                 treatment or surgery which was not completed?

Page 1276

App. 28. As the foregoing answers make rather obvious, Mr. Bell did not reveal that he suffered from multiple sclerosis. Indeed, beyond noting an allergy to sulfa drugs (id.), Mr. Bell disclosed nothing adverse about his medical history. 1 Equitable subsequently approved the application and issued a policy effective October 14, 1980.

On March 1, 1991, Mr. Bell submitted a claim for benefits to Equitable, indicating that he had become completely disabled by multiple sclerosis. 2 In the course of investigating the claim, Equitable learned that Mr. Bell had been diagnosed with the disease before he applied for the policy. That discovery prompted the company to file this suit seeking a declaration that the policy did not cover Mr. Bell's disability because his multiple sclerosis had manifested before the policy was issued. In the interim, Equitable has paid Mr. Bell monthly disability payments of $3,000.

The insurance policy that Equitable issued to Mr. Bell contains a number of provisions pertinent to coverage for illnesses that existed before the policy was issued. At the outset, the policy indicates that Equitable "[a]grees, subject to the exceptions and to the further provisions of this policy, to pay the benefits provided for loss resulting from injury or sickness as defined on page two." App. 18 (emphasis supplied). "Injury" and "sickness" are then defined on the following page as follows:

INJURY. Injury means accidental bodily injury of the Insured occurring while the policy is in force.

SICKNESS. Sickness means sickness or disease of the Insured which first manifests itself while the policy is in force.

App. 19 (emphasis supplied). Echoing the limited definition of "sickness," the section of the policy dealing with "EXCEPTIONS" provides:

This policy will not cover any loss which is caused or contributed to by any of the following:

1. Injury occurring or sickness first manifesting itself prior to the effective date of coverage under this policy (subject to the second paragraph of the Incontestability provision on page six);....

App. 20 (emphasis supplied). The incontestability clause of the policy in turn provides:


(a) After this policy has been in force for a period of two years of the lifetime of the Insured (excluding any period during which the Insured is disabled), it shall become incontestable as to the statements contained in the application.

(b) No claim for loss incurred or total disability (as defined in the policy) commencing after two years from the Date of Issue of this policy shall be reduced or denied on the ground that a disease or physical condition had existed prior to the effective date of coverage under this policy, unless, effective on the date of the loss, such disease or physical condition was excluded from coverage by name or specific description.

App. 21 (emphasis supplied). Paragraphs (a) and (b) are provisions that the Indiana legislature has required for all disability policies. See Ind.Code Ann. Sec. 27-8-5-3(a)(2)(A), (B) (Burns 1992). 3 The appropriate construction

Page 1277

of paragraph (b) in particular lies at the heart of the parties' dispute.

Mr. Bell contends that whatever else the policy may say about illnesses that manifest themselves prior to the effective date of the policy, paragraph (b) mandates coverage after two years regardless of when the disease may have first manifested. Equitable responds by pointing out that the scope of coverage is limited at the outset of the policy to disabilities resulting from sicknesses that first manifest themselves after the effective date. Thus, in Equitable's view, no subsequent provision can be construed to broaden the coverage to include pre-manifesting illnesses. In order to construe paragraph (b) appropriately, Equitable argues, one must distinguish pre-existing illnesses from pre-manifesting illnesses. Equitable's interpretation would require it to cover a disability springing from an illness that existed prior to the policy's effective date, but was not yet evident. If, on the other hand, the illness had displayed itself before the policy went into effect, Equitable would not be obliged to cover the resulting disability.

The district court adopted Mr. Bell's construction of the contract. In deference to what he believed was the plain and ordinary meaning of paragraph (b), Judge Lozano concluded that after two years, Equitable was obliged to cover a disability even if, as here, the underlying cause had manifested itself in advance of the policy's effective date. Bell, 818 F.Supp. at 250-51. The district judge saw Equitable's attempt to distinguish between pre-manifesting and pre-existing conditions as no more than a semantic argument which, if endorsed, would run afoul of what he deemed the Indiana General Assembly's intent to require coverage for any pre-existing illness after two years. Id. at 250-51.

"Thus, to the extent that any policies of insurance define disability in terms of sickness manifesting itself after the issuance of the policy, or that otherwise attempt to exclude from coverage any disability stemming from a pre-existing condition, those policies are in direct conflict with the legislature once two years has passed."

Id. at 251 (quoting Wischmeyer v. Paul Revere Life Ins. Co., 725 F.Supp. 995, 1003 (S.D.Ind.1989) (McKinney, J.)).


This appeal turns on the appropriate construction of the insurance policy's incontestability provisions and their effect on the scope of the policy, which otherwise does not cover disabilities resulting from pre-manifesting illnesses. That is, does the statutorily required language compel coverage of disabilities resulting from diseases that manifested themselves before the policy was issued, even if other policy terms define disabilities to exclude such diseases from the scope of the policy? This is a question of law that we examine de novo. See National Wrecking Co. v. St. Paul Surplus Lines Ins. Co., 11 F.3d 685, 687 (7th Cir.1993); Preze v. Board of Trustees, Pipefitters Welfare Fund Local 597, 5 F.3d 272, 274 (7th Cir.1993).

The parties agree that this suit is governed by the law of the forum state, Indiana. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct....

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