Kates v. St. Paul Fire & Marine Ins. Co., Civ. A. No. 76-2070-K.

Decision Date09 March 1981
Docket NumberCiv. A. No. 76-2070-K.
Citation509 F. Supp. 477
PartiesStephen D. KATES, Plaintiff v. The ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant
CourtU.S. District Court — District of Massachusetts

COPYRIGHT MATERIAL OMITTED

Thomas E. Cargill, Jr., Cargill, Masterman & Cahill, Boston, Mass., Leo J. Hession, Bladwin, Copeland & Hession, Wellesley, Mass., for plaintiff.

Stephen A. Moore, Gaston Snow & Ely Bartlett, Boston, Mass., for defendant.

Memorandum

KEETON, District Judge.

Plaintiff commenced this action by filing a "complaint for declaratory judgment and relief" in the Superior Court of the Commonwealth of Massachusetts. Defendant removed to this court, which has jurisdiction under 28 U.S.C. §§ 1332 and 1441 because plaintiff is a citizen of Massachusetts, defendant is a Minnesota corporation (having a principal place of business in Minnesota and not in Massachusetts, and not having been incorporated under the laws of Massachusetts), and the amount in controversy exceeds $10,000 exclusive of interest and costs. The case was tried before the court without a jury. The court's findings are stated in parts I, II and III-A of this memorandum, and conclusions are stated in parts III-VII.

I.

Plaintiff sues on a certificate of insurance effective December 15, 1973, providing for payment of 60% of income subject to a maximum of $800 per month during a period of total disability. Plaintiff became totally disabled on September 13, 1974 as a result of an accident covered by the certificate. Defendant commenced payment of the sum of $800 monthly together with additional sums as provided by the policy during hospitalization. Because of plaintiff's receipt of other benefits, defendant reduced the monthly payments to $377.80 effective July 1, 1975, thereafter reduced benefits further, and eventually terminated benefits altogether. Plaintiff seeks a declaration that defendant has been and is liable for continued payments at the rate of $800 per month. Defendant admits that plaintiff became totally disabled on or about September 13, 1974 but denies that plaintiff is entitled to the relief requested. Defendant also counterclaims for the return of all and, alternatively part, of the amounts paid by defendant to plaintiff.

On December 15, 1970, Group Service Corp. applied to defendant for a master policy. The application was accepted and defendant issued Master Policy No. SCD866JM2557 (the "Master Policy").

The application was executed on behalf of Group Service Corp. by Irving Backman, as President. Irving Backman also signed the application as the witnessing agent. Irving Backman solicited coverage under the Master Policy through Labac Insurance Agency, Inc. Coverage under the Master Policy was provided to numerous corporations (as well as their affiliates, in some instances) and their employees, all in consideration of the payment of premiums and the execution and submittal of enrollment applications.

The Massachusetts State Pharmaceutical Association (the "M.S.P.A.") was "... added to the coverage afforded by this Policy," effective December 15, 1973, by Endorsement 13. Initially, 62 persons submitted applications for certificates and were insured pursuant to the solicitation of pharmacists. See Endorsement 13. That number was reduced to 60 insured persons and the effective date of the coverage was amended to January 14, 1974. See Endorsement 13-1.

At some time in late summer or early fall, 1973, an insurance representative named Michael Gerber appeared at plaintiff's place of business, Prescription Center, during working hours, and inquired whether plaintiff and his partner had disability insurance protection. Gerber described to plaintiff the Master Policy and the amounts of coverage it provided. All information the plaintiff received about the coverage came to the plaintiff at his workplace, Prescription Center.

The plaintiff and his business partner, Gerald Grocer, doing business as Prescription Center, purchased the insurance coverage, and applications for certificates of insurance coverage were completed for both the Plaintiff and Gerald Grocer. Exhibits 3 and 4. The semi-annual premium in the amount of $74.00 for each applicant was remitted to the agent with the completed application. A Certificate of Insurance under the Master Policy, Certificate No. 0-52, was issued by the defendant to the plaintiff as an "Insured Person," effective December 15, 1973. Exhibit 5.

The plaintiff paid all premiums due from him in a timely manner.

On September 1, 1974, the plaintiff was injured at work. Since that time he has not worked at any gainful occupation. The plaintiff is totally and permanently disabled from any gainful employment and is a paraplegic.

The defendant commenced paying the plaintiff benefits in the amount of $800.00 under his Certificate of Insurance in October 1974, and also paid additional benefits of $400.00 per month during the period when the plaintiff was hospitalized.

Commencing in March, 1975, the plaintiff became entitled to and received primary Social Security Disability benefits in the amount of $390.90. Exhibit 7. Starting in July, 1975, the plaintiff's monthly benefits were increased to $422.20; in July, 1976, and thereafter further increases of his monthly benefits occurred.

Commencing in July, 1975, the defendant reduced the plaintiff's monthly benefits due under his Certificate of Insurance by $422.20, the amount of Social Security benefits the plaintiff was receiving at that time. Thereafter, the defendant, commencing in March, 1977, further reduced the monthly benefits payable to the plaintiff under the Certificate by an amount the defendant understood to be the increase that the plaintiff had received in his monthly Social Security benefits. Exhibit 8.

On November 8, 1976, the plaintiff received an award under the worker's compensation statute. From the date of his injury in September, 1974, to the present and continuing into the future, the plaintiff has been and will be entitled to receive $90.00 per week in compensation benefits and $12.00 per week in dependency benefits. Exhibits 9 and 10. The plaintiff never gave notice to the defendant of the award of worker compensation benefits by the Industrial Accident Board.

In January, 1978, the defendant discontinued the payment of all benefits to the plaintiff under his Certificate of Insurance because the plaintiff was receiving Social Security benefits and worker's compensation benefits, and the total of these benefits exceeded $800.00 per month.

Social Security benefits received by the plaintiff are indicated in the middle column below, and benefits paid by the defendant (other than an added $400 during hospital confinement) are indicated in the column at the far right:

                    Time Period                          Monthly          Monthly Payments
                                                       Social Security      by Defendant
                    October, 1974 - February, 1975                             $800.00
                    March, 1975 - June, 1975              $390.90               800.00
                    July, 1975 - June, 1976                422.20               377.80
                    July, 1976 - June, 1977                442.10 1             357.90
                    July, 1977 - February, 1978            475.90               324.102
                    March, 1978 - December, 1978           475.90                None
                    January, 1979 - unspecified            506.90                None
                

II.

At issue in this case are the validity and effect of coordination-of-benefits provisions, which appear both in a Schedule incorporated into the Master Policy and in typewritten portions of the Certificate of Insurance issued to the plaintiff. These provisions, and the definition of "income" immediately preceding them, are as follows:

THE TERM `INCOME' SHALL MEAN THE MONTHLY EARNINGS THE INSURED EMPLOYEE RECEIVED FROM THE POLICYHOLDER IMMEDIATELY PRIOR TO THE DATE OF THE ACCIDENT OR COMMENCEMENT OF DISABILITY FROM SICKNESS EXCLUSIVE OF BONUSES, COMMISSIONS AND OVERTIME EARNINGS.
THE MONTHLY BENEFIT PROVIDED SHALL BE REDUCED BY ANY AMOUNTS PAID OR PAYABLE UNDER WORKMEN'S COMPENSATION, THE *PRIMARY TOTAL DISABILITY PROVISION OF THE FEDERAL SOCIAL SECURITY ACT, ANY EMPLOYER SPONSORED DISABILITY PLAN, THE DISABILITY PROVISIONS OF ANY EMPLOYER SPONSORED GROUP LIFE OR PENSION PLAN, OR ANY STATE OR STATUTORY ACT OR LAW.
*BENEFIT RELATING TO THE EMPLOYEE ONLY AND NOT INCLUDING ANY ADDITIONAL BENEFIT WHICH MIGHT BE PAYABLE BECAUSE OF THE PRESENCE OF DEPENDENTS.

The Certificate of Insurance was issued on a form partly printed, partly typed, and partly stamped. It is headed in very large letters, imprinted with a stamp, "MASS. STATE PHARMACEUTICAL ASSN. PLAN." Immediately under these stamped letters appears the typewritten name, "GROUP SERVICE CORP." Both of these names are in a space to the right of the printed word, "Policyholder." In the next lower line of the form is a blank headed "Insured Person," in which appears the typewritten name, "Stephen Kates."3 The monthly accident benefit is stated to be

60 PER CENT OF INCOME SUBJECT TO A MAXIMUM OF $800.00. The Elimination Period is 30 days and the Maximum Benefit Period for accident is "LIFETIME." Immediately below these statements of the monthly benefit, the elimination period, and the maximum benefit period appear the typewritten definition of "income" and typewritten provisions on coordination of benefits, quoted above.

Plaintiff argues that the coordination-of-benefits provisions of the insurance contract on which this action is based are unenforceable because ambiguous and contrary to public policy.

In this diversity action, the law to be applied in resolving these questions is the law of Massachusetts.

III.

A.

The first inquiry is whether ambiguity exists when the provisions of the Certificate are read along with those of the Master Policy.

In the basic coverage clause of the Master Policy the company "agrees ... to pay benefits ... subject to all the provisions,...

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