Jack v. Paul Revere Life Ins. Co.

• Decision Date: 07 September 1999
• Docket Number: No. 40275-7-I.,40275-7-I.
• Citation: 97 Wash. App. 314,982 P.2d 1228
• Court: Washington Court of Appeals
• Parties: Gregory M. JACK, Appellant, v. The PAUL REVERE LIFE INSURANCE COMPANY, a foreign insurer, Respondent.

982 P.2d 1228

97 Wash. App. 314

Gregory M. JACK, Appellant, v. The PAUL REVERE LIFE INSURANCE COMPANY, a foreign insurer, Respondent.

No. 40275-7-I.

Court of Appeals of Washington, Division 1.

September 7, 1999.

Thomas Cline, Seattle, for Appellant.

Medora Marisseau, Robert Francis Riede, Bullivant, Houser, Bailey, Pendergrass & Hoffman, Seattle, R. Daniel Lindahl, Bullivant, Houser, Bailey, Portland, OR, for Respondent.

GROSSE, J.

Gregory Jack obtained a disability insurance policy from Paul Revere Life Insurance Company (Paul Revere) in 1985. He became totally disabled by multiple sclerosis (MS) in 1994 and sought benefits under the policy. Paul Revere denied the claim. The court granted Paul Revere summary judgment, based upon Paul Revere's contention that Jack's MS was excluded from coverage because it was manifest before the policy was issued. We agree.

Facts

Jack is an ophthalmologist. He began experiencing blurred vision during exercise in the summer of 1985 and reported this problem to Dr. Craig Smith, a neurologist specializing in eye disorders, on July 10, 1985. According to Paul Revere, Jack also reported a history of blurred vision, increased urinary frequency, and imbalance. At Dr. Smith's recommendation, Jack had an MRI on July 11. Jack claims that while Dr. Smith expressed the opinion that his symptoms and the MRI suggested a demyelinating illness, no definitive diagnosis of MS was made. Paul Revere claims that Dr. Smith's August 14 report ("[t]he presence of multiple lesions over a 12 year period of time suggests the diagnosis of a demyelinating illness") and the MRI report revealing "numerous areas of irregular increased intensity satisfy Roentgen criteria for a demyelinating process such as Multiple Sclerosis" constituted a definite diagnosis of MS. Dr. Smith wanted to follow up, but Jack did not see any physician for nine years.

On July 17, 1985, Jack applied for a disability insurance policy from Paul Revere. A dispute now exists about the application. Jack claims that the application asked only two medical questions: whether he had been (1) treated for heart trouble, stroke, or cancer in the past two years, and (2) admitted or advised to be admitted into a hospital or other medical facility in the past 90 days. Paul Revere claims that the application also asked other medical questions, including whether Jack (1) had been examined by a physician in the past five years, and (2) knew of or had been treated for a disease of the eyes, brain, or nervous system. The original application was purged from Paul Revere's files, so no original exists. Jack paid the initial premium with the application and Paul Revere issued the policy on August 21, 1985.

The policy provided in part that in the event of a policy lapse for nonpayment, the policy was automatically reinstated after receipt of a reinstatement premium if Paul Revere did not reject the reinstatement premium within 45 days. On February 21, 1987, the policy lapsed for nonpayment. Jack submitted an application for reinstatement with a premium payment on September 11, 1987. On June 30, 1988, more than 45 days after the reinstatement premium was paid, Paul Revere rejected that application because the premium had not been paid within six months of the lapse. Jack was not informed of the 45-day automatic reinstatement provision.

On July 29, 1988, Jack completed a new disability insurance application, containing more detailed medical questions. Jack responded "no" to questions about whether he had (1) been treated for or had any known indication of a disorder of the brain, nervous system, or eyes, and (2) received medical advice or treatment for any other problem within five years.¹ On August 1, 1988, Paul Revere issued a new policy.

Jack experienced no further medical problems until late 1993 when he noticed a sudden onset of instability, gait disturbance, blurred vision, numbness of the fingertips, loss of manual dexterity, and occasional incontinence. On September 9, 1994, Dr. W.T. Longstreth confirmed that Jack had MS, and concluded that he was totally disabled.

In October 1994, Jack sought disability benefits under the Paul Revere policy. Paul Revere denied the claim on the grounds that Jack's MS first manifested itself before the policy was issued and thus was excluded under the policy.

Jack sued Paul Revere, seeking a declaration confirming his total disability, past and future benefits under the policy, damages under the Consumer Protection Act, and attorney fees. The parties filed cross motions for summary judgment. In part, Jack argued that regardless of when he knew he had MS, the incontestability clause precludes Paul Revere from denying him coverage, particularly because Paul Revere chose not to include the statutory fraudulent misrepresentation exception in its incontestability clause. Jack also argued the relevant policy for construction was the one issued in 1985 because Paul Revere did not reject his reinstatement premium within 45 days.

The trial court dismissed Jack's claims. In its oral ruling, the court concluded that a defense based upon Jack's alleged misrepresentations was not available to Paul Revere. But the court ruled that Jack's MS was not covered because the policy's definition of sickness was an enforceable exclusion that could not be construed against Paul Revere because it was mandated by the Legislature.

Standard of Review

We conduct a de novo review of a summary judgment, viewing the facts and all reasonable inferences in the light most favorable to the nonmoving party, to determine whether any genuine issue of material fact is in dispute and whether the moving party is entitled to judgment as a matter of law.²

Interpretation of insurance contract language is a matter of law, requiring us to consider the contract in its entirety and to give effect to each policy provision.³ A policy is ambiguous only if its provisions are fairly susceptible to two different interpretations.⁴ In determining whether an ambiguity exists, we view the language the way it would be read by the average insurance purchaser and give any undefined terms their ordinary meaning, not a technical, legal meaning. Ambiguous provisions are generally construed against the insurer.⁵

Jack's Paul Revere Policy

At issue here are the policy provisions regarding coverage for pre-existing conditions, and the incontestability clause. The policy defines sickness as "sickness or disease which first manifests itself after the Date of Issue and while Your Policy is in force." (Emphasis added.) The policy excluded pre-existing conditions:

PART 3

EXCLUSIONS

. . . .

3.2 PRE-EXISTING CONDITION

We will not pay benefits for a Pre-Existing Condition if it was not disclosed on Your application. Pre-Existing Condition means a sickness or physical condition for which symptoms existed prior to the Date of Issue that would cause an ordinarily prudent person to:

a. Seek diagnosis, care, or treatment within a five-year period prior to the Date of Issue; or

b. For which medical advice or treatment was recommended by or received from a physician within a five-year period prior to the Date of Issue.

Also We will not pay benefits for any loss We have excluded by name or specific description.[⁶]

(Emphasis added.) The policy also included the following incontestability clause:

10.2 INCONTESTABLE

a. After Your Policy has been in force for 2 years, excluding any time You are Disabled, We cannot contest the statements in the application.

b. No claim for loss incurred or Disability that starts after 2 years from the Date of Issue will be reduced or denied because a sickness or physical condition not excluded by name or specific description before the date of loss had existed before the Date of Issue.

(Emphasis added.)

No Washington case has construed these two provisions. The question posed here has, however, been addressed in numerous other jurisdictions.⁷

Incontestability Clause

Incontestability clauses set time limits on an insurer's right to challenge its insurance policy.⁸ Such clauses arose as a response to the "`greed and ruthlessness'" of insurers who often denied benefits years after a policy issued based on technicalities or pre-existing conditions, leaving many beneficiaries in the untenable position of litigating against powerful insurance companies.⁹ For these reasons, some 47 states have legislatively required incontestability clauses in life, disability, and health insurance policies to promote certainty and reduce litigation in these areas.¹⁰ The clauses essentially amount to a short statute of repose, as our Supreme Court recognized in 1931: "The general rule is that a policy containing a clause declaring that the contract shall be incontestable after a specified time cannot be contested after that period on any ground not excepted therein."¹¹

Washington first required such provisions in all disability policies in 1951. See Laws of 1951, ch. 229, § 6. The current mandate for incontestability provisions in all disability insurance policies, RCW 48.20.052, was enacted in 1983. That provision is entitled "Standard provision No. 3—Time limit on certain defenses" and provides:

There shall be a provision as follows:

"TIME LIMIT ON CERTAIN DEFENSES: (a) After two years from the date of issue of this policy no misstatements except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability (as defined in the policy) commencing after the expiration of such two year period."

(The foregoing policy provision shall not be so construed as to affect any legal requirement for avoidance of a policy or denial of a claim during such initial two year period, nor to limit the application of RCW 48.20.050, 48.20.172, 48.20.192, 48.20.202, and 48.20.212 in the event of misstatement with respect to age or occupation or other insurance.)

(A policy which

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