Johnson v. Lincoln Natl. Life Ins. Co.

• Decision Date: 31 August 1990
• Docket Number: No. 11967,11967
• Citation: 590 N.E.2d 761,69 Ohio App.3d 249
• Parties: JOHNSON, Appellant, v. LINCOLN NATIONAL LIFE INSURANCE COMPANY, Appellee. *
• Court: Ohio Court of Appeals

Page 249

69 Ohio App.3d 249

590 N.E.2d 761

JOHNSON, Appellant, v. LINCOLN NATIONAL LIFE INSURANCE COMPANY, Appellee. ^*

No. 11967.

Court of Appeals of Ohio, Second District, Montgomery County.

Decided Aug. 31, 1990.

Lester R. Thompson, Dayton, for appellant.

Thomas L. Czechowski, Dayton, for appellee.

BROGAN, Judge.

Appellant, Leonard Johnson, appeals from the summary judgment granted by the trial court in favor of appellee, Lincoln National Life Insurance Company ("Lincoln").

The facts may be summarized as follows. On October 1, 1981, Lincoln issued a flexible income protection policy and rider to Johnson. It was Johnson's intent to purchase an insurance policy that provided benefits in the event that he suffered any physical disability.

The terms of the policy obligated Lincoln to pay Johnson a monthly benefit of $500, reduced by certain other income, for each month that Johnson was totally disabled. The policy sets forth the following pertinent language beneath the boldface caption of "Benefits":

"We will * * * make the first payment, equal to the Monthly Benefit Shown on page 3 [$500] less any Current Monthly Income (Total Disability Benefit), after you have been Totally Disabled for one month following the Waiting Period (and for a period of less than one month, 1/30 of the Total Disability Benefit for each day) and monthly thereafter." (Emphasis added.)

In order to determine the amount of current monthly income to be subtracted from the monthly benefit of $500, one must successfully navigate the labyrinth of definitions as explained by Lincoln in its brief at p. 5:

"Pages 4 and 5 contain the 'Definitions' portion of the policy. On page 5, the term 'Total Disability Benefit' is defined as: 'The Monthly Benefit shown on page 3 reduced by any Current Monthly Income.' 'Current Monthly Income' is defined on page 5 as: 'Your Monthly Income for the month that a benefit is claimed.' 'Monthly Income' is defined on page 4 as follows: 'During the Initial Benefit Period of any continuance Total Disability, Monthly Income is the sum of your Social Insurance Benefits.' 'Social Insurance Benefit' is defined on page 4 as: 'The initial amount of benefit which you receive or are entitled to receive from a Social Insurance Program.' 'Social Insurance Programs' is defined on page 4 as, inter alia: '1. The Social Security Act (Social Security) * * *.' "

From November 1, 1982 through May 31, 1988, Johnson experienced several periods of disability during which he received a total of $8,666.66 pursuant to the insurance policy at issue. However, after May 1988, Johnson began receiving Social Security benefits in excess of the $500 monthly benefit and Lincoln ceased payment under its policy.

In his amended complaint, Johnson asserted three causes of action. The first two, asserted against Lincoln, are at issue on appeal; the third, asserted against Lincoln's agent, Phillip Stanze, is not. In his first cause of action, Johnson alleges that Lincoln's policy is ambiguous and violates R.C. 3923.03(E), which reads:

"No policy of sickness and accident insurance shall be delivered, issued for delivery, or used in this state unless all the following requirements are complied with:

" * * *

"(E) The exceptions and reductions of indemnity are adequately captioned and clearly set forth in the policy."

Johnson's second cause of action is based upon Lincoln's alleged violation of R.C. 1345.03(B)(3), the Ohio Consumer Sales Practices Act.

Lincoln moved for summary judgment, arguing that as a matter of law, its policy cannot be violative of R.C. 3923.03(E) because the policy was filed with the Superintendent of Insurance pursuant to R.C. 3923.02 and was deemed approved under R.C. 3923.021(B)(3) due to the superintendent's failure to disapprove it. Further, Lincoln asserts that the Ohio Consumer Sales Practices Act is inapplicable to sickness and accident insurance policies. Rather, the Ohio insurance industry is heavily regulated by and preempted by the statutes contained in R.C. Title 39.

The trial court granted Lincoln's motion for summary judgment, finding that the policy clearly set forth exceptions and reductions of indemnity which were adequately captioned and that no private cause of action existed for a violation of R.C. 3923.03. Regarding Johnson's second cause of action, the trial court found it questionable that the Ohio Consumer Sales Practices Act applied to the insurance industry and that, in any event, no evidence reflected that Lincoln knew or should have known that Johnson would not receive a substantial benefit from its policy.

It is from this judgment that Johnson now appeals.

Appellant's sole assignment of error reads:

"The trial court committed harmful and prejudicial error in granting summary judgment in favor of the defendant-appellee, the Lincoln National Life Insurance Company."

Appellant argues that R.C. 3923.03(E) requires "a heading that says clearly that social insurance benefits received by the insured are deducted from policy benefits." (Appellant's Brief, p. 8.) The trial court found that the policy complied with the caption requirement set forth in R.C. 3923.03(E), explaining: "[A] review of the insurance policy shows that the definitional section of the contract is segmented by various boldly capitalized phrases which set forth definitions given to policy holders in order to determine the meaning of the phrases used in the policy." (Decision, Entry & Order dated November 28, 1989, p. 6.) We find that the trial court erred in determining that the indemnity reductions were adequately captioned pursuant to R.C. 3923.03(E) and reverse the summary judgment on appellant's first cause of action.

Because our research has failed to reveal Ohio case law interpreting R.C. 3923.03(E), we have been obliged to seek guidance from the statutes and case law of other jurisdictions. Initially, we compared the Ohio statute in question to analogous statutes from other states. Our statute mandates that exceptions and reductions of indemnity be adequately captioned and clearly set forth in the policy. These dual requirements may be contrasted with the requirements contained in comparable statutes from the jurisdictions of California, New York and Pennsylvania, each of which contains the following language:

"[T]he exceptions and reductions of indemnity are set forth in the policy and * * * are printed, at the insurer's option, either included with the benefit provision to which they apply, or under an appropriate caption such as 'exceptions', or 'exceptions and reductions'. Provided: That if an exception or reduction specifically applies only to a particular benefit of the policy, a statement of such exception or reduction shall be included with the benefit provision to which it applies * * *." (Emphasis added.) 40 Pa.Stat.Ann., Section 752(A)(5) (Purdon 1971). See, also, Cal.Ins.Code, Section 10320(e) (West 1972); N.Y.Ins.Law, Section 3216(c)(7) (Consol.1985).

The policy at issue does contain the boldface caption, "Exceptions," under which appears this explanation: "This policy does not cover any loss caused or contributed to by: 1. an act of war, whether declared or undeclared, or 2. normal pregnancy or childbirth." On the same page, under the boldface caption, "Benefits," appears the statement, "We will * * * make the first payment, equal to the Monthly Benefit * * * less any Current Monthly Income * * * after you have been Totally Disabled * * *." Although the insurance policy does contain the "definitional section of * * * boldly capitalized phrases" noted by the trial court, the statement appearing in the "Benefits" section is the only portion of the policy which discloses that the insured's current monthly income will actually be deducted from the monthly benefit.

It is our opinion that the policy in question would fulfill the exceptions and reductions disclosure requirements in Pennsylvania, New York or California. This is true because in those states, the insurer has the option of either including the exceptions and reductions within the explanation of benefits to which they apply or listing them under a separate caption entitled "exceptions" or "exceptions and reductions." However, in Ohio, the insurer does not have this option. Here, an insurer must promulgate a policy which both clearly sets forth the exceptions and reductions and includes an adequate caption indicating the inclusion of exceptions and reductions.

We disagree with the trial court's conclusion that the capitalized phrases in the definition section constitute adequate captions...