John Hancock Mut. Life Ins. Co. v. Banerji

CourtUnited States State Supreme Judicial Court of Massachusetts
Writing for the CourtMarshall
Citation447 Mass. 875,858 N.E.2d 277
Decision Date13 December 2006
858 N.E.2d 277
447 Mass. 875
Supreme Judicial Court of Massachusetts. Suffolk.
Argued September 6, 2006.
Decided December 13, 2006.

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Robert J. Gilbert, Andover (Jeffrey B. Renton with him) for the defendant.

Edward S. Rooney, Jr., Boston, for the plaintiffs.



We are asked in this case to consider the scope of G.L. c. 175, § 108(5)(a),2 which prohibits an insurer from rescinding a "policy of accident and sickness insurance,"3 because of a statement made by an

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insured in his application for an insurance policy unless the application is attached to or endorsed on the policy when issued. Cf. Opara v. Massachusetts Mut. Life Ins. Co., 441 Mass. 539, 806 N.E.2d 924 (2004) (Opara) (concerning cognate attachment statute for life insurance policies, G.L. c. 175, § 131). Specifically at issue is whether an insurer may rely on a statement made by an insured in his application for future earnings protection (FEP) benefits in order to deny coverage and attempt to rescind the benefit.

In 2000, a judge in the Superior Court, sitting without a jury, found for the insured, Julian Banerji, on the claim for rescission of John Hancock Mutual Life Insurance Company of FEP benefits issued to Banerji.4 Banerji was eligible to purchase the FEP benefit because he had purchased an individual disability policy from Hancock. The judge relied on the contractual language of the policy, although he acknowledged the potential applicability of G.L. c. 175, § 108(5)(a).5 The judge entered judgment for Banerji on his counterclaim to recover the FEP benefits due, but denied his other counterclaims.6 Both parties appealed.

In a rescript opinion, the Appeals Court reversed the judgment with regard to rescission, awarding Hancock rescission of the FEP benefit. The Appeals Court thus found it unnecessary to decide Banerji's ancillary claims. John Hancock Mut. Life Ins. Co. v. Banerji, 62 Mass.App.Ct. 906, 909, 815 N.E.2d 1091 (2004). Relying principally on Opara, supra, the Appeals Court held that neither the attachment statute, G.L. c. 175, § 108(5)(a), nor the wording of Banerji's individual disability insurance policy required attachment of the application for the FEP benefit because

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that benefit was a supplement to Banerji's individual disability policy and not a "new and distinct policy." Id. at 908, 815 N.E.2d 1091. We granted Banerji's application for further appellate review.

We affirm the judgment of the Superior Court on Hancock's rescission claim, although on different grounds from those relied on by the judge. We conclude that G.L. c. 175, § 108(5)(a), mandates that an insurer may not rely on an insured's statement in his application for FEP benefits where the insurer has not attached the insured's FEP benefit application to the endorsement at the time the endorsement is issued. Because G.L. c. 175, § 108(5)(a) controls, we need not consider whether the original disability insurance contract at issue required Hancock to attach Banerji's FEP application to the FEP endorsement. In all other respects we affirm the judgment of the Superior Court. We remand the case to the Superior Court for further proceedings consistent with our opinion.

1. Background. We summarize the relevant factual findings from the judge's detailed and thoughtful memorandum of decision. This case concerns two applications submitted by Banerji to Hancock for disability insurance benefits. The first was an application for an individual disability insurance policy, which guaranteed the insured an income stream based on his existing income, together with a predetermined annual cost-of-living adjustment in the event that the insured became disabled and was unable to continue working at full salary.7 The second application was for FEP benefits, which allowed the holder of an individual Hancock disability insurance policy to receive, for additional consideration, and subject to Hancock's underwriting requirements, monthly disability benefits (in addition to those provided by the individual disability insurance policy) as the annual income of the insured increased over time.8

In August, 1990, Banerji, through Hancock agent Jack Turgel, applied to Hancock for an individual disability insurance policy.9 The Hancock application form required Banerji to provide details about his current medical condition, current income, and current insurance coverage, including any disability insurance. As of the date of his application, Banerji was employed by Harvard University, which did not provide Banerji with disability insurance benefits, as Banerji noted on his application.

In September, 1990, while his application was pending, Banerji accepted a new position as a senior research scientist at Procept, Inc. (Procept). As a result of this change in employment, his salary rose from $25,000 to $47,000. He promptly notified Hancock of the change in employment and of his new salary. Hancock did not inquire whether Procept provided Banerji with disability insurance; Procept did in fact provide group disability insurance,

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but Banerji was unaware of this.10

On October 2, 1990, Hancock issued an individual disability insurance policy to Banerji. It provided for a monthly benefit of $1,500, with annual cost-of-living adjustments, in the event that Banerji became disabled and was unable to work. The policy, to which Banerji's application was attached, stated, among other things, that "[a] copy of your application is attached and is a part of this policy."11 Banerji's individual disability policy also contained an FEP clause, which allowed him to apply annually for a term addition that would increase his monthly benefit amount if his earnings increased. Hancock was marketing the FEP benefit as "the single most important feature a disability policy can have."

In October, 1991, Banerji suffered a stroke. After a brief period of hospitalization, he returned to work at Procept full time and at full salary. Banerji did not apply for disability benefits at that time. In November, 1993, while still employed at Procept (albeit in a new position designed to accommodate his stroke-related physical limitations), Banerji submitted an FEP application to Hancock, using a Hancock preprinted form and having consulted with Turgel, an authorized agent of Hancock. See note 8, supra. In his application, Banerji requested an FEP benefit of $1,550 a month, which when added to the $1,500 monthly benefit already provided by his 1990 individual disability policy would provide Banerji with a total of $3,050 each month in the event he was unable to work due to disability. Hancock's FEP application, form required Banerji to provide information about his annual income, his current access to disability insurance benefits, and whether he was currently disabled. As explained by Hancock, it required this information to avoid overinsuring its insureds in the event of a disability. On the FEP application he submitted to Hancock, Banerji stated that he did not have access to any disability insurance other than his existing Hancock individual disability insurance. See note 10, supra.12

In December, 1993, Hancock approved Banerji's FEP application, and Banerji's monthly premiums increased accordingly. Turgel then sent Banerji a letter containing the FEP endorsement, together with instructions that the endorsement should be attached to Banerji's 1990 individual disability policy. The letter did not refer to Banerji's FEP application, nor was a copy of the FEP application attached to or enclosed with the endorsement.13 The judge concluded that, in order to save time and expense and to encourage its insureds

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to purchase the FEP benefit, Hancock streamlined its underwriting process. Among other things, Hancock never instructed its agents to return a copy of the FEP application with the FEP policy. Moreover, Hancock, mindful of inconveniencing those who purchased the FEP, never required the insured to return the original disability policy to Hancock so that the insurer could physically attach the FEP addendum to the original disability policy. The judge concluded that "Hancock never informed Dr. Banerji, either in writing or orally, that a copy of his FEP [a]pplication should be attached to either the original policy or to the FEP addendum."

In August, 1994, Banerji left his employment at Procept.14 In October, 1994, he submitted claims to Hancock for both the basic monthly individual disability benefit of $1,500 and the additional monthly FEP benefit of $1,550. After conducting an investigation, Hancock approved Banerji's claim for the $1,500 monthly benefit, but denied Banerji's claim for FEP benefits on the sole ground that, contrary to Banerji's statement in his FEP application, Banerji had disability insurance, provided by Procept, at the time he applied for the FEP benefit. Because the combination of the employer-provided group disability benefit, the basic Hancock individual disability benefit, and the additional FEP benefit exceeded Hancock's published participation limits, Banerji would not have qualified for the additional FEP benefit had Hancock been informed of the existence of Banerji's employer-provided group disability insurance. Hancock therefore notified Banerji that it was voiding the FEP benefit endorsement, and tendered to Banerji the premiums that he had paid for that endorsement. Banerji refused the tender.

2. Application of the attachment statute. Construing the cognate attachment statute applicable to life insurance policies that preceded G.L. c. 175, § 131, in 1905, this court held that the "language of the statute plainly has reference to an application upon which an original policy is issued, and not to any contract of revival." Holden v. Metropolitan...

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