Kaufman v. Mutual of Omaha Ins. Co.

• Decision Date: 31 July 1996
• Docket Number: No. 94-1233,94-1233
• Citation: 1996 WL 425720,681 So.2d 747
• Parties: 21 Fla. L. Weekly D1716 Jane KAUFMAN, individually and as mother, next friend and natural guardian of Laurel Kaufman, a minor child, Appellant, v. MUTUAL OF OMAHA INSURANCE COMPANY, Appellee.
• Court: Florida District Court of Appeals

Page 747

681 So.2d 747

21 Fla. L. Weekly D1716

Jane KAUFMAN, individually and as mother, next friend and natural guardian of Laurel Kaufman, a minor child, Appellant, v. MUTUAL OF OMAHA INSURANCE COMPANY, Appellee.

No. 94-1233.

District Court of Appeal of Florida Third District.

July 31, 1996.

H.C. Starkweather, Miami Springs, for appellant.

Magill & Lewis and R. Fred Lewis, Miami, for appellee.

Before BARKDULL, COPE and GODERICH, JJ.

CORRECTED OPINION

COPE, Judge.

Jane Kaufman appeals an adverse summary final judgment. We reverse.

I.

On March 27, 1991, appellee Mutual of Omaha ("the insurer") issued a major medical insurance policy to appellant Jane Kaufman (the "insured" or the "mother"). Ms. Kaufman, a widow, purchased the policy to provide coverage for her 14-year-old daughter. The policy would provide reimbursement for medical or hospitalization expense after a $2,000 deductible was satisfied.

Two years and forty-five days after the policy was issued, the insurer delivered a letter to the insured which purported to rescind the policy and which returned the premiums the insured had paid. The insurer asserted that there were fraudulent misstatements in the application. The insurer took the position that under a provision of the incontestability clause contained in the insurance policy, the insurer was entitled to void the coverage even though the basic two-year incontestable period had expired.

The mother brought suit for (I) declaratory judgment; (II) reinstatement of the insurance contract; (III) breach of contract; and (IV) outrageous conduct causing severe emotional distress. The mother asserted that the insurance policy was in conflict with section 627.607, Florida Statutes (Supp.1992). ¹ She contended that when the policy was brought into conformity with Florida law, the insurer had no right to cancel the policy. Alternatively, she asserted that if the insurer did have the right to cancel, there were in any event no fraudulent misstatements.

The trial court granted summary judgment for the insurer and the mother has appealed.

II.

The parties agree that under Florida law, this medical insurance policy must have an incontestability clause. See § 627.607, Florida Statutes (Supp.1992). The Insurance Code requires the insurer to choose one of two statutory alternatives. The insurer can select subsection (1), or subsection (2), but not both. ²

The insurance policy actually issued in this case impermissibly combines alternatives (1) and (2). ³ Although the statute requires the insurer to select either alternative 1 or alternative 2, the insurer has selected elements of both. The insured is correct in saying that this insurance policy provision violates Florida law. ⁴

If an insurance policy does not comply with the Insurance Code, the policy is to be construed in a way which brings it into compliance:

627.637. Construction of noncomplying contracts

If any insurer writes or issues in this state any health insurance contract, as contemplated by this chapter, and the form of such contract is not authorized by or in conformity with the provisions of this chapter, the contract shall nevertheless be a valid and binding contract of the insurer, and shall be construed as though its terms and provisions were in conformity with those required by this chapter, any provision in the contract to the contrary notwithstanding.

§ 627.637, Fla. Stat. (1991)(emphasis added); see also 18 Couch on Insurance 2d § 72:22, at 296-97 (Rev. ed.1983). Likewise, the insurance policy itself states that if it varies from state law, the policy is amended to conform to state law.

How, then, should the policy be modified? The policy can be corrected by reading it to include solely subsection (1)(the alternative favorable to the insurer), or solely subsection (2)(the alternative desired by the insured).

The Florida Supreme Court has said that "[i]ncontestability clauses in insurance policies are favored in the law, and the courts are ever ready to construe them, if possible, in favor of the insured." Prudential Ins. Co. v. Prescott, 130 Fla. 11, 176 So. 875, 878 (1937); see also Winer v. New York Life Ins. Co., 140 Fla. 534, 190 So. 894, 900-01 (1938)(construing incontestability clause); Prudential Ins. Co. v. Prescott, 115 Fla. 365, 156 So. 109, 111-12 (1933)(same); Aetna Life & Casualty Co. v. Thorn, 315 So.2d 219, 221 (Fla. 3d DCA 1975)(same); Prudential Ins. Co. v. Rhodriquez, 285 So.2d 689, 690 (Fla. 3d DCA 1973)(same); 31 Fla. Jur.2d Insurance § 659 (1981). The alternative must be chosen which is the most favorable to the insured, subsection (2).

As a matter of law, therefore, the insurance policy must be deemed to read as follows:

Incontestable:

(a) Misstatements in the Application: After this policy has been in force for 2 years during the insured's lifetime (excluding any period during which the insured is disabled), the insurer cannot contest the statements in the application.

(b) Preexisting Conditions: No claim for loss incurred or disability starting after 2 years from the issue date 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 effective date of coverage.

§ 627.607(2), Fla. Stat. (Supp.1992). Under this alternative, the policy is incontestable after two years.

No action was taken by the insurer to rescind this insurance policy until after the two-year time period had run. Consequently, the insurance policy had become incontestable and the insurer was not allowed to rescind it on the basis of alleged misstatements in the insurance application. ⁵ The summary judgment must be reversed. The insured is entitled to a declaratory judgment stating that the purported rescission by the insurance company was legally ineffective, and that the insurance policy remains in force. ⁶

III.

The insurance company appears to argue alternatively that even if the incontestability clause precluded outright rescission of this policy, the insurer is nonetheless allowed to refuse coverage for preexisting conditions.

The insurance policy contains a preexisting condition limitation as follows:

PREEXISTING CONDITION LIMITATION

Subject to the Time Limit on Certain Defenses provision, preexisting conditions are not covered unless disclosed on the application and not excluded by name or specific description. A preexisting condition is a condition misrepresented or not shown in your application for which medical advice or treatment was recommended by or received from a physician prior to the Policy Date.

(Emphasis added). Under this provision, coverage can be denied for a preexisting condition "for which medical advice or treatment was recommended by or received from a physician prior to the Policy Date," in this case March 27, 1991.

The prohibition on preexisting conditions is, however, "subject to the Time Limit on Certain Defenses provision." The "Time Limit on Certain Defenses provision" is, of course, the incontestability clause considered earlier in this opinion. As determined above, properly construed it provides in relevant part:

(b) Preexisting Conditions: No claim for loss incurred or disability starting after 2 years from the issue date will be reduced or denied because of a sickness or physical condition, not excluded by name or specific description before the date of loss, had existed before the effective date of coverage

§ 627.607(2), Fla. Stat. (Supp.1992).

Simply put, there is a two-year incontestability period which applies to preexisting conditions. If a "loss" occurs prior to the expiration of the two-year incontestability period, the insurance company is allowed to deny coverage for that loss if it was an undisclosed or misrepresented preexisting condition. See North Miami Gen. Hosp. v. Central Nat'l Life Ins. Co., 419 So.2d 800, 801-02 (Fla. 3d DCA 1982). If, however, the insured sustains loss after the two-year incontestability period has expired, the loss must be covered.

The insured states that there was never a loss during the first two years which exceeded the $2,000 deductible, an assertion which appears to be supported by the record. If on remand there is a claim for loss incurred in the first two years, this court's reversal is without prejudice to the insurer to raise the defense of preexisting condition, if applicable. ⁷

IV.

The complaint included a count against the insurance company for outrageous conduct in rescinding this insurance policy. See Dominguez v. Equitable Life Assurance Society, 438 So.2d 58 (Fla. 3d DCA 1983), approved, 467 So.2d 281 (Fla.1985); see also Dependable Life Insurance Co. v. Harris, 510 So.2d 985 (Fla. 5th DCA 1987).

The insurer moved for summary judgment on the theory that in good faith it merely invoked a coverage defense, and is entitled to summary judgment on authority of Metropolitan Life Ins. Co. v. McCarson, 467 So.2d 277 (Fla.1985). In McCarson, the record showed that the insurer "did no more than assert legal rights in a legally permissible way. As such, [the insurer's] actions are 'privileged under the circumstances.' " Id. at 279.

The burden is, of course, on the insurer as the moving party in this case to demonstrate the nonexistence of any disputed issue of material fact. See Carr Smith & Associates, Inc. v. Fence Masters, Inc., 512 So.2d 1027, 1028 (Fla. 3d DCA 1987). Further, on a motion for summary judgment the record must be read in the light most favorable to the nonmoving party, in this case, the insured. See Moore v. Morris, 475 So.2d 666, 668 (Fla.1985). We conclude that the insurer has not carried its burden of showing its entitlement to summary judgment on this claim on the record as it now stands.

The insurance policy in this case went into effect March 27, 1991, and the insurance application was dated the same day. In October, 1992 the child's physician made a diagnosis that the child suffered from eating disorders,...