Kersten v. Minnesota Mut. Life Ins. Co.

• Decision Date: 13 April 2000
• Docket Number: No. C6-98-2080.,C6-98-2080.
• Citation: 608 N.W.2d 869
• Parties: Martin John KERSTEN, Respondent, v. The MINNESOTA MUTUAL LIFE INSURANCE COMPANY, Appellant.
• Court: Minnesota Supreme Court

608 N.W.2d 869

Martin John KERSTEN, Respondent, v. The MINNESOTA MUTUAL LIFE INSURANCE COMPANY, Appellant.

No. C6-98-2080.

Supreme Court of Minnesota.

April 13, 2000.

Steven G. Mahon, Ryan, Mahon & Brown, P.A., St. Paul, for appellant.

Robert E. Wilson, Matthew C. Bazzano, Robert Wilson & Assoc., Minneapolis, for respondent.

Heard, considered, and decided by the court en banc.

OPINION

PAUL H. ANDERSON, Justice.

Minnesota Mutual Life Insurance Company issued a disability insurance policy to Martin John Kersten using a definition of sickness that limited coverage of pre-existing conditions to those illnesses that first manifested themselves while the policy was in force. Minnesota Mutual then used this definition to discontinue paying Kersten disability benefits under the policy. Therefore, when Minnesota Mutual discontinued paying benefits under this policy, Kersten brought an action in Hennepin County District Court alleging that Minnesota Mutual breached its policy, asserting that Minn.Stat. § 62A.04, subd. 2(2)(b) (1998) precludes the use of Minnesota Mutual's definition.

Minnesota Mutual moved for summary judgment. The district court granted the motion, finding that the policy provision defining sickness properly excluded Kersten's current illness as having manifested itself prior to the effective date of the policy. The Minnesota Court of Appeals reversed and remanded, holding that Minnesota Mutual could not limit coverage to those disabilities that "first manifest" themselves after the policy is in force. The sole question presented to us on appeal is whether the statutorily required pre-existing condition provisions of Minn. Stat. § 62A.04, subd. 2(2)(b) (1998) preclude Minnesota Mutual from using this definition. We affirm the court of appeals.

On October 18, 1985, appellant Minnesota Mutual Life Insurance Company issued a disability insurance policy to respondent Martin John Kersten. The policy provided that if Kersten became disabled as defined in the policy as the result of an injury or sickness, he would be entitled to a monthly income benefit of $1,600 during his period of disability. The policy defined "sickness" as

A disease or illness which first manifests itself while this policy is in force. A disease or illness first manifests itself when symptoms exist that would cause an ordinarily prudent person to seek diagnosis, care or treatment, or when a physician recommends or provides medical advice or treatment.

It is undisputed that from October 1985 until September 1993, Kersten made all premium payments and made no claim for benefits.

In September 1993, Kersten was involved in a motor vehicle accident. Following the accident, he was unable to work due to injuries received in the accident. Kersten submitted a claim for disability benefits under his Minnesota Mutual policy and Minnesota Mutual began to pay disability benefits to him effective from September 1993.

While receiving disability benefits, Kersten also received no-fault insurance benefits from his automobile insurance carrier. In July 1994, after an independent medical examiner rendered an opinion that Kersten was no longer disabled from the injuries he received in the motor vehicle accident, Kersten's automobile insurance carrier discontinued no-fault benefits. On May 22, 1995, an arbitrator denied Kersten's claim for additional no-fault benefits. Following this decision, Kersten sought benefits under the uninsured motorist provisions of his automobile insurance policy. In November 1996, an arbitration panel concluded that Kersten was not entitled to benefits beyond the no-fault benefits already paid. Meanwhile, after the arbitrator denied Kersten's no-fault claims, Minnesota Mutual discontinued disability benefits on September 22, 1995, claiming that Kersten's physical injuries no longer prevented him from returning to work. Kersten disputes the discontinuation of his disability benefits, asserting that his continuing disability was only partially due to the motor vehicle accident. He asserts that following the accident, he was unable to return to work and his employer replaced him. He maintains that the loss of his job and his continuing pain resulted in psychological disorders including probable somatofon pain disorder and major depression that prevent him from returning to work. Minnesota Mutual argues that any psychological illness Kersten may have is a pre-existing condition because Kersten was treated for depression and anxiety in 1974, over 10 years before his Minnesota Mutual policy was in effect.

In July 1997, Kersten brought a breach of contract action against Minnesota Mutual in district court claiming that because he remained disabled, Minnesota Mutual was obligated by its policy to continue disability benefits. Minnesota Mutual moved for summary judgment, claiming that Kersten was collaterally estopped from relitigating his disability because the findings of the no-fault arbitrator were conclusive and Kersten never appealed this decision. Minnesota Mutual also argued that Kersten could bring no new claims because the policy lapsed for nonpayment after his disability benefits were discontinued. Kersten responded, arguing that his continued disability resulted not only from the motor vehicle accident, but also from his psychological illness, which the no-fault arbitration decision did not address. Minnesota Mutual then argued that because Kersten's psychological illness first manifested itself before the policy was in force, any claim based on a psychological illness was not covered by the policy. The court granted summary judgment for Minnesota Mutual, concluding that Kersten's claims for injuries from the motor vehicle accident were collaterally estopped and that Minnesota Mutual's policy language defining sickness properly excluded Kersten's claims for his psychological illness. The court also found that because Kersten was no longer disabled under the terms of the policy, his failure to make premium payments after benefits were discontinued caused the policy to lapse.

Kersten appealed, arguing that the district court erred because there were material issues of fact about whether his disability continued due to his psychological illness. Kersten also claimed that Minnesota Mutual's "first manifest" definition of sickness violated the coverage requirements of Minn.Stat. § 62A.04, subd. 2 and therefore could not constitute a basis to deny his disability benefits. The court of appeals agreed with Kersten, holding that there were material issues of fact relating to whether Kersten suffered a continuing disability and that these claims were not conclusively determined during arbitration. See Kersten v. Minnesota Mut. Life Ins. Co., 594 N.W.2d 263, 267 (Minn.App.1999). The court also held that Minnesota Mutual's definition of sickness was inconsistent with the plain language of the pre-existing condition coverage requirements of Minn. Stat. § 62A.04, subd. 2. See id. at 266. Accordingly, the court reversed the district court's grant of summary judgment. See id. at 267. Minnesota Mutual appealed and we granted review on the sole question of whether Minnesota Mutual's definition of sickness is inconsistent with the plain language of Minn.Stat. § 62A.04, subd. 2.

This is a matter of first impression in Minnesota and involves the interpretation of both the requirements of a statute and the contractual provisions of an insurance policy. Both statutory and contractual interpretation present questions of law that we review de novo. See Housing & Redevelopment Auth. ex rel. City of Richfield v. Adelmann, 590 N.W.2d 327, 330 (Minn.1999); Metropolitan Property & Cas. Ins. Co. & Affiliates v. Miller, 589 N.W.2d 297, 299 (Minn.1999). General contract principles govern the construction of insurance policies and insurance policies are interpreted to give effect to the intent of the parties. See Dairyland Ins. Co. v. Implement Dealers Ins. Co., 294 Minn. 236, 244-45, 199 N.W.2d 806, 811 (1972). Because most insurance policies are presented as preprinted forms, which a potential insured must usually accept or reject as a whole, ambiguities in a policy are generally resolved in favor of the insured. See Atwater Creamery Co. v. Western Nat'l Mut. Ins. Co., 366 N.W.2d 271, 277 (Minn.1985).

It is undisputed that Minnesota Mutual's disability policy is subject to Minnesota Statutes Chapter 62A, which regulates various health and disability policies. See generally Minn.Stat. §§ 62A.011-62A.651 (1998). Section 62A.04 requires that certain provisions be included in any health or disability policy issued in this state. See Minn.Stat. § 62A.04. The provisions central to our analysis are found in the incontestability clauses of section 62A.04, subd. 2(2)(a) and (b), as well as section 62A.05, which provides guidance on the construction of chapter 62A.

A statutorily required provision in an insurance policy will not necessarily be construed against the insurer. See Laidlaw v. Commercial Ins. Co. of Newark, 255 N.W.2d 807, 811 (Minn.1977). Incontestability clauses, being in derogation of common law, are generally strictly construed. See 18 George J. Couch, Couch on Insurance § 72.9, at 289 (Ronald A. Anderson ed., 2d ed.1983); see also Chuz v. Columbian Nat'l Life Ins. Co., 10 N.J. Misc. 1145, 162 A. 395, 395 (N.J.Cir.Ct. 1932). Further, we agree with those commentators who have noted that while incontestability clauses should be strictly construed, they also

should be given a common-sense construction, bearing in mind the nature and purpose of the contract, that is, the meaning which would be understood by a reasonably prudent person, not what the insurer intended or what meaning would be given by a language expert.

18 Couch, supra § 72.9, at 289 (citation omitted). This view is consistent with the previously stated principle that ambiguities in insurance contracts be generally construed in favor of the insured. See Atwater...