Ferguson v. UNIONMUTUAL STOCK LIFE INS., ETC., LRC-78-176.

• Citation: 501 F. Supp. 247
• Decision Date: 12 November 1980
• Docket Number: No. LRC-78-176.,LRC-78-176.
• Parties: John S. FERGUSON, M.D., Plaintiff, v. UNIONMUTUAL STOCK LIFE INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

501 F. Supp. 247

John S. FERGUSON, M.D., Plaintiff, v. UNIONMUTUAL STOCK LIFE INSURANCE COMPANY OF AMERICA, Defendant.

No. LRC-78-176.

United States District Court, E. D. Arkansas, W. D.

November 12, 1980.

John T. Harmon, North Little Rock, Ark., for plaintiff.

Winslow Drummond, Wright, Lindsey & Jennings, Little Rock, Ark., for defendant.

MEMORANDUM OPINION

HENRY WOODS, District Judge.

FACTS

Plaintiff applied for and secured three policies of disability income insurance from the defendant in early 1975. In the application for each policy he was required to disclose information as to other disability income policies already in force, but no complete disclosure was made. In July, 1976, plaintiff sustained injuries in an accident which apparently rendered him totally disabled for some period of time. He requested his life insurance agent in California to assist him in processing claims. That agent, Mr. David G. Carver, had sold to plaintiff all of his disability insurance policies with the exception of the three issued by this defendant and three other policies issued by Massachusetts Indemnity. The policies in litigation were sold by a Larry A. Davis.

When the agent Carver first learned of the existence of the Unionmutual policies, he promptly advised plaintiff that any claims made on those three policies would probably be controverted by defendant on two grounds: (1) plaintiff had not made a full disclosure of other insurance in force at the time of applying for the three policies issued by defendant; and (2) with respect to the last two of the three policies issued by defendant, issuance of those policies was conditioned upon plaintiff's canceling the three Massachusetts Indemnity policies, a condition which was never met. The agent further discussed with plaintiff the fact that the three policies issued by defendant contained an "incontestability clause" which established a two year period in which the defendant insurer could either rescind the policies because of material misrepresentations of fact in the policy applications or deny any claims made on those policies. Having the benefit of this information and advice, according to Carver plaintiff authorized him to advise defendant that no claims would be filed and that defendant could close its file on the matter. Then, after expiration of the two year incontestable period, plaintiff filed claims on the three policies, and now contends that the defendant insurer, by reason of the incontestability clause, is precluded from asserting that there were material misrepresentations in the policy applications.

The policies contain the following provisions concerning notice of claim and proof of loss:

Notice of Claim. Written notice of claim must be given to the Company within twenty days after the occurrence or commencement of any loss covered by this policy, or as soon thereafter as is reasonably possible. Notice given by or on behalf of the Insured or the beneficiary (if designated in this policy) to the Company at its Home Office in Portland, Maine, or to any authorized agent of the Company, with information sufficient to identify the Insured, shall be deemed notice to the Company.

Claim Forms. The Company, upon receipt of a notice of claim, will furnish to the claimant such forms as are usually furnished by it for filing proofs of loss. If such forms are not furnished within fifteen days after the giving of such notice, the claimant shall be deemed to have complied with the requirements of this policy as to proof of loss upon submitting, within the time fixed in this policy for filing proofs of loss, written proof covering the occurrence, the character and the extent of the loss for which claim is made.

Proofs of Loss. Written proof of loss must be furnished to the Company at its said office in case of claim for loss for which this policy provides any periodic payment contingent upon continuing loss within ninety days after the termination of the period for which the Company is liable and in case of claim for any other loss within ninety days after the date of such loss. Failure to furnish such proof within the time required shall not invalidate nor reduce any claim if it was not reasonably possible to give proof within such time, provided such proof is furnished as soon as reasonably possible and in no event, except in the absence of legal capacity, later than one year from the time proof is otherwise required.

With respect to the above policy provisions, it appears that the defendant did receive a notice of claim on July 8, 1976 and on August 9, 1976 submitted a claim form to the plaintiff. This form was promptly returned to defendant uncompleted and accompanied by a statement that no claim would be submitted. Plaintiff did not submit a completed claim form until October, 1977. With regard to the failure to return the claim forms, the following testimony appears in the deposition of David G. Carver.

After sustaining an injury in Arkansas in July, 1976, Dr. Ferguson called Mr. Carver by telephone. Carver advised that he would call all of Ferguson's disability insurers, would arrange for issuance of claim forms, and would send those forms to Ferguson. Carver gathered up all of Ferguson's policies, made a list of the companies and the total benefits, and proceeded to work on the processing of claims.

Mr. Carver was not aware of the existence of any of the Unionmutual policies at that time. He later went to Ferguson's home at the request of Mrs. Ferguson and then first discovered the Unionmutual policies. He then called an agent named "Larry," who had sold the Unionmutual policies to Ferguson. He told Larry (Larry Davis) that the Unionmutual policies were not out of the incontestable period, and, secondly, that the information contained on the Unionmutual applications as to the amount of insurance in force was not correct.

Knowing that the Unionmutual policies could be contested because there had been no full disclosure of existing insurance by Ferguson, Carver testified that he advised Ferguson that the policies were not out of the incontestable period, that the information on the Unionmutual applications was incorrect, and that Unionmutual might not honor any claims. In talking to Ferguson by telephone, Mr. Carver stated that he made it clear that any decision as to the filing of claims against Unionmutual would have to be made by Ferguson himself.

Exhibit 1 to Carver's deposition is a copy of a longhand note which was received by Unionmutual and which reads as follows: "Thank you, but will not need to submit a claim. Please close file. JSF" After looking at this exhibit, Mr. Carver identified the handwriting as his own. Mr. Carver further testified:

Q Do you recall sending that note?

A No, I don't, but that is

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