Greves v. Ohio State Life Ins. Co.

• Decision Date: 26 November 1991
• Docket Number: CA-CV,No. 1,1
• Parties: Sherri GREVES, Plaintiff-Appellant, v. OHIO STATE LIFE INSURANCE COMPANY, an Ohio corporation, Defendant-Appellee. 89-462.
• Court: Arizona Court of Appeals

Page 757

821 P.2d 757

170 Ariz. 66

Sherri GREVES, Plaintiff-Appellant, v. OHIO STATE LIFE INSURANCE COMPANY, an Ohio corporation, Defendant-Appellee.

No. 1 CA-CV 89-462.

Court of Appeals of Arizona Division 1, Department C.

Nov. 26, 1991.

[170 Ariz. 67] Jennings, Strouss & Salmon by H. Christian Bode and James M. Ackerman, Phoenix, for plaintiff-appellant.

[170 Ariz. 68] O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, P.A. by Thomas A. McGuire, Phoenix, for defendant-appellee.

OPINION

TAYLOR, Judge.

Sherri Greves (Mrs. Greves) appeals from the trial court's grant of two cross-motions for summary judgment in favor of Ohio State Life Insurance Company (the Company) and from the trial court's denial of her motions for partial summary judgment. The trial court ruled that the incontestability clause of a $500,000.00 life insurance policy purchased by Dr. Ross I. Greves is not ambiguous and requires that the insured survive for two years after the effective date of the policy before the incontestability provision takes effect. The trial court also found that the Company could rescind the policy pursuant to Arizona Revised Statutes Annotated [hereinafter A.R.S.] § 20-1109(3) because if the true facts had been known about Dr. Greves's medical history when he applied for the policy, the Company either would have declined to issue the policy or would have issued a rated policy, which is different from that which it issued. Finally, the trial court found that the Company's failure to reject the claim within two months after the claim was filed did not render the Company liable to pay the full policy limit to Mrs. Greves.

FACTS AND PROCEDURE

Because this is an appeal from summary judgment, we view the facts in the light most favorable to Mrs. Greves, the party against whom judgment was entered. Wagenseller v. Scottsdale Memorial Hosp., 147 Ariz. 370, 388, 710 P.2d 1025, 1043 (1985). On August 30, 1984, Ross I. Greves, a 38 year-old chiropractor, completed an application for a $500,000.00 life insurance policy with the Company. The application contained the question "Has any person to be covered ever been treated for or had any known indication of: Cancer or any tumor or lesion?" Dr. Greves answered "No." Another question asked whether he had undergone any surgical operations, to which he answered "No."

On September 12, 1984, as part of his application, Dr. Greves submitted to a physical examination and questionnaire by a paramedic. To the question "Have you ever been treated for or had any known indication of: Disorder of skin, lymph glands, cyst, tumor or cancer?" Dr. Greves answered "Yes." The explanation written on the application was: "1977 Mole removed from right side of chest. Benign Mole. Tempe Community Hospital ... Dr. Adrian...."

The Company subsequently issued a standard $500,000.00 life insurance policy to Dr. Greves. The premium was $3,000.00 a year. Approximately three months after completing the application, Dr. Greves sought medical attention for a developing mass under his right arm. On January 4, 1985, the mass was surgically removed and a biopsy revealed that it was a malignant melanoma. On April 19, 1986, despite a course of follow-up treatment and surgery, Dr. Greves died of metastatic melanoma.

On June 27, 1986, the Company received a claim for the policy proceeds from Sherri Greves, Dr. Greves's widow and beneficiary. Dr. Greves's policy contained a standard clause known as the "incontestability clause." It stated that "[w]e cannot contest this policy after it has been in force, during your lifetime, for two years from its date of issue...." The policy was issued on August 30, 1984. Dr. Greves died less than two years after the policy's date of issue and within the period of contestability.

It is the Company's policy to investigate all life insurance claims that occur within the contestability period. Consequently, the Company commenced an investigation upon receipt of Mrs. Greves's claim. As part of this investigation, the Company sought information regarding the mole removal. Even though neither Dr. Adrian nor Tempe Community Hospital could locate all of their records regarding this treatment, the Company learned that Dr. Greves had been admitted to Tempe Community Hospital on April 23, 1976 for wide excision surgery to remove any remaining malignant tissue around the site of the mole removed by Dr. Adrian. The pathology report from the wide excision surgery indicated that no malignant tissue was present and referred to the previous pathology report from the mole removed by Dr. Adrian as follows: "Skin segment with previous malignant melanoma excision site, clinically from chest wall." Thus, the Company learned that the mole had been a malignant melanoma, contrary to Dr. Greves's completed application for insurance coverage and subsequent physical exam.

Based on this discovery, the Company contends that if Dr. Greves had properly disclosed this information on his 1984 application for life insurance, the Company would have required him to submit to a medical examination to determine if the malignancy had recurred. If it had recurred, the Company would not have issued the policy. The Company further contends that even if the examination had revealed no recurrence of the malignancy, the policy would have been issued as a "rated" policy. Thus, Dr. Greves would have had to pay a higher premium for the standard policy. ¹ Based on these conclusions, the Company "resigned" the policy. On October 23, 1986, the Company mailed to Mrs. Greves a letter explaining its denial of her claim and a check for $5,000.00, which was the amount of premiums paid to that date.

On July 1, 1988, Mrs. Greves filed suit against the Company. She alleged that by refusing to pay the benefits under the policy, the Company breached its contract of insurance and intentionally and tortiously breached its duty of good faith and fair dealing. She requested a judgment ordering payment of the $500,000.00 face amount of the policy as well as compensatory and punitive damages for the breach of good faith.

Mrs. Greves subsequently filed a motion for partial summary judgment, arguing that the Company could not contest the policy. She argued that the incontestability provision, as written in the policy, should be interpreted to mean that the period to contest the policy expired two years from the date of issue, as long as the insured was alive for at least part of that period. The motion asserted that the Company did not contest the policy until it issued its denial of coverage in October 1986, more than two years after the issuance of the policy.

The Company responded and filed a cross-motion for summary judgment. This provision, it argued, meant that the insured must live for two years after the policy's date of issue before the policy could become incontestable. The court agreed, granting the Company's motion for partial summary judgment and denying Mrs. Greves's motion.

Thereafter, Mrs. Greves filed another motion for partial summary judgment, contending that the Company violated the terms of its insurance contract. She argues that by waiting more than four months to deny her claim, the Company was required to pay the claim in full. The motion also asserted that the Company's basis for denying the claim was legally insufficient under A.R.S. § 20-1109 because (1) the Company could not prove that it would not have issued the policy, and (2) a rated policy did not meet the requirements of § 20-1109(3).

The Company opposed this motion and filed its cross-motion for summary judgment.. It asserted that there is no authority for requiring payment of a claim if the insurer's denial of the claim is untimely. It also argued that it would have, at best, issued a rated policy satisfying A.R.S. § 20-1109. Because a rated policy is not the same as a standard policy, the Company contended that it would not have issued the policy for which Dr. Greves applied. Again, the trial court agreed with the Company and granted judgment in favor of Company and denied Mrs. Greves's motion.

Mrs. Greves timely appealed from the summary judgments granted in favor of the Company and from the denial of her motions for partial summary judgment.

DISCUSSION

The Incontestability Clause

Arizona law requires that all life insurance policies contain an incontestability provision. A.R.S. § 20-1204. ² This provision in Dr. Greves's life insurance policy stated: "We cannot contest this policy after it has been in force, during your lifetime, for two years from the date of issue...." Mrs. Greves points out that this provision in the policy differs from the statutory language of A.R.S. § 20-1204 because the policy has commas around the phrase "during your lifetime" while the statute does not. She argues that due to the addition of the commas, viewed according to rules of English grammar, the provision means that the policy was incontestable once it was in effect during Dr. Greves's lifetime and after two years had passed since its issuance. Consequently, she concludes that because the policy was in effect during Dr. Greves's lifetime and the Company did not contest the policy by denying coverage until more than two years after it was issued, the policy had become incontestable before the Company contested it.

The trial court found that the proper interpretation of the policy language was that the insured was required to live for a minimum of two years before the policy would become incontestable. We agree. Other states have incontestability statutes containing language similarly enclosed in commas. Lance v. Prudential Ins. Co., 19 N.J. Misc. 551, 22 A.2d 3 (1941); Carpentieri v. Metropolitan Life Ins. Co., 138 Pa.Super. 1, 10 A.2d 37 (1939). These jurisdictions have interpreted the language to mean that the policy does not become incontestable until the insured survives the requisite time period from the effective date of the policy....