Friedman v. Connecticut General Life

• Decision Date: 18 October 2007
• Docket Number: No. 116.,116.
• Citation: 9 N.Y.3d 105,877 N.E.2d 281
• Parties: Bruce FRIEDMAN, on Behalf of Himself and All Others Similarly-Situated, Appellant, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Respondent.
• Court: New York Court of Appeals Court of Appeals

877 N.E.2d 281

9 N.Y.3d 105

Bruce FRIEDMAN, on Behalf of Himself and All Others Similarly-Situated, Appellant, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Respondent.

No. 116.

Court of Appeals of New York.

October 18, 2007.

Quadrino & Schwartz, P.C., Garden City (Richard J. Quadrino of counsel), for appellant.

Rivkin Radler LLP, Uniondale (Cheryl F. Korman, Evan H. Krinick and Norman L. Tolle of counsel), and McCarter & English, LLP, New York City (Andrew O. Bunn and Raphael M. Rosenblatt of counsel), for respondent.

OPINION OF THE COURT

READ, J.

We are called upon to decide whether the placement of a "Relation of Earnings to Insurance" (REI) clause within the "General Provisions" of a disability insurance policy complies with Insurance Law § 3216. For the reasons that follow, we conclude that it does.

I.

Defendant Connecticut General Life Insurance Company issued a 10-page form disability income insurance policy to plaintiff Bruce Friedman, a citizen and resident of New York, on July 19, 1983. The first section of the policy, entitled "Policy Specifications," sets forth a "Monthly Indemnity for Total Disability" in a "Benefit Amount" of $2,500, and an "Annual Premium" of $952.50. Sections entitled "Definitions," "Benefit Provisions," "Exclusions and Limitations," "Premium and Reinstatement Provisions" and "General Provisions" immediately follow.

In its "Benefit Provisions," the policy declares plaintiff eligible for a "Monthly Indemnity for Total Disability" of $2,500 upon proof of his total disability while the policy is in force. The REI clause, included within the "General Provisions," specifies, however, that

"[i]f the total amount of loss of time benefits promised for the same disability under all valid loss of time coverage upon the Insured exceeds the greater of (a) the Insured's monthly earnings at the time disability commenced or (b) the Insured's average monthly earnings for the 2-year period immediately preceding a disability for which claim is made, the Company will be liable only for a reduced amount of the benefits under the policy. Such reduced amount will be (a) such proportion of the benefits otherwise provided under the policy as the amount of such monthly earnings or average monthly earnings bear to the total amount of monthly benefits for the same disability under all valid loss of time coverage upon the Insured at the time such disability commences, plus (b) a pro rata refund of the premiums paid during such 2-year period for benefits not paid. This provision, however, will not operate to reduce the total monthly amount of benefits payable under all valid loss of time coverage upon the Insured below the lesser of: (a) the sum of $300 or (b) the sum of the monthly benefits specified in such coverages. This provision will not be effective with respect to any renewal of the policy after Age 65. `Valid loss of time coverage' means all loss of time coverage provided by any government, or agency thereof, or any Insurance company, organization or fund."

In June 1998, plaintiff became totally disabled within the meaning of the policy.¹ He had paid all the premiums due since the policy's issuance and had otherwise complied with its terms and conditions. Initially, Connecticut General tendered plaintiff a monthly benefit check in the amount of $2,500. Later, however, the company applied the policy's REI clause and reduced his monthly benefits to $543.33 (plus a pro rata refund of premiums already paid, as provided by the REI clause).²

In a summons and complaint dated June 18, 2001, plaintiff sued Connecticut General in Supreme Court on behalf of himself and a putative class. He alleged eight causes of action arising out of the company's use of REI clauses in its insurance policies in New York and elsewhere.

Plaintiff's first and third causes of action asserted class claims under other states' statutes proscribing deceptive acts or practices in business or trade and other states' statutes and regulations governing insurance respectively. A second cause of action alleged that Connecticut General's "conduct in the marketing and sale of the policies was "materially unfair, misleading, and constituted a deceptive act or practice in the conduct of [its] business or trade" under General Business Law § 349. As a fourth cause of action, plaintiff alleged that Connecticut General was "in violation of New York insurance statutes and regulations." Plaintiff's fifth cause of action alleged breach of contract; his sixth cause of action alleged that the policy was unconscionable because of its REI clause. As remedies for the above causes of action, plaintiff principally sought damages amounting to the difference between the amount paid and the benefit amount of $2,500, and a declaration that the REI clause was void or unenforceable.

A seventh cause of action sought the statutory penalty under Insurance Law § 4226 for alleged violation of insurance regulations: a refund of premiums paid. In his eighth and final cause of action, plaintiff alleged that even if the REI clause was enforceable, Connecticut General had still underpaid him. Plaintiff therefore sought to be awarded a sum equal to the difference between the amount he considered to be due and payable and the lesser amount that he had, in fact, received.

The thrust of the complaint was that the REI clause's location in the policy was "unfair, deceptive, and misleading" to plaintiff and purported class members. Specifically, plaintiff contended that section 3216(c)(7) of the Insurance Law mandated putting the REI clause together with the total disability benefit to which it applied, whereas Connecticut General had instead buried the REI clause in the policy's "General Provisions."

On August 3, 2001, Connecticut General moved to dismiss the complaint on grounds that plaintiff's claims were either time-barred or failed to state a cause of action. Supreme Court denied the motion in its entirety, agreeing with plaintiff that section 3216(c)(7) mandated placing the REI clause with the benefit provision to which it applied,

"to wit, the Total Disability Benefit. Instead, [Connecticut General] placed it in the `General Provisions' section of the policy along with `general' terms such as claim forms, proof of loss, payment of claims, etc. . . . [T]he Specification Page, which is the first substantive page of the policy, describes the benefit provided by the policy as $2500 without making any mention of the prior earnings `cap.'"

Supreme Court went on to address plaintiff's eighth cause of action, although he did not need to reach it. Relying on an out-of-state case where the REI language was written by an insurance company rather than a legislature, the court opined that "it would appear that even if the clause were enforceable, plaintiff would still be entitled to the full benefit amount of the policy, in the absence of a showing that he has another disability policy providing loss of time benefits."

On May 30, 2003, plaintiff moved by order to show cause to certify a class consisting of "[a]ll insureds, owners, and beneficiaries under disability policies of insurance underwritten and sold by [Connecticut General] that contain a Relation of Earnings to Insurance Provision." On July 29, 2003, Connecticut General moved for summary judgment to dismiss the complaint. In support of its motion, the company supplied documentation to establish that the form policy issued to plaintiff had been reviewed and approved by the New York State Insurance Department for use in New York. Further, Connecticut General emphasized that

"[t]he purpose of the REI provision is to reduce or restrict loss of time benefits if the insured was over-insured at the time of claim. Application of the provision does not deprive the insured of benefits to which he was entitled. To the extent premiums were paid for a greater benefit than actually received, such premiums are returned to the policyholder."

On behalf of himself and the putative class, plaintiff on October 6, 2003 cross-moved for partial summary judgment on certain of his causes of action.

As an initial matter, Supreme Court determined that Connecticut General's "motion for summary judgment [was], in essence, a motion to reargue the prior motion to dismiss" and treated the prior order as law of the case (2004 N.Y. Slip Op. 30089[U], *4).³ Ultimately, Supreme Court dismissed plaintiff's first and second causes of action on the company's motion; granted plaintiff summary judgment on his fifth cause of action for breach of contract; declared the REI clause void from the beginning, entitling plaintiff to full disability benefits going forward and reimbursement of any amounts deducted from past payments on account of the REI clause; entered judgment for plaintiff on the seventh cause of action for payment of a statutory penalty equal to the amount of premiums paid; dismissed plaintiff's third, fourth, sixth, and eighth causes of action as duplicative and/or moot; and denied class certification.

Connecticut General appealed; plaintiff cross-appealed the denial of class certification. In addition, plaintiff contended that in the event the Appellate Division reversed the order granting him summary judgment on his fifth and seventh causes of action, it should reinstate the other claims dismissed by Supreme Court.

First, the Appellate Division faulted Supreme Court for regarding Connecticut General's motion for summary judgment as a motion to reargue the motion to dismiss, and for "treating the prior [order] as law of the case . . . since the scope of review on the two motions differs" (30 A.D.3d 349, 349, 818 N.Y.S.2d 201 [1st Dept.2006]). The court then explained that

"[t]his error was compounded by the prior motion court's erroneous construction of the policy language. The breach of contract claim was based upon the insurer's enforcement of its [REI] clause, which was alleged to be unenforceable under the contract...