McFarland v. General American Life Ins. Co., 97-2905

• Decision Date: 06 July 1998
• Docket Number: No. 97-2905,97-2905
• Citation: 149 F.3d 583
• Parties: David V. MCFARLAND, Plaintiff-Appellee, v. GENERAL AMERICAN LIFE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 583

149 F.3d 583

David V. MCFARLAND, Plaintiff-Appellee, v. GENERAL AMERICAN LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 97-2905.

United States Court of Appeals Seventh Circuit.

Argued Jan. 21, 1998.

Decided July 6, 1998.

Martin J. Mengarelli (argued), Granite City, IL, Robert Bosslet, Chapman Law Offices, Granite City, IL, for Plaintiff-Appellee.

Eric D. Martin, Peper, Martin, Jensen, Maichel & Hetlage, St. Louis, MO, Richard J. Pautler (argued), Thompson & Coburn, St. Louis, MO, for Defendant-Appellant.

Before RIPPLE, MANION and EVANS, Circuit Judges.

RIPPLE, Circuit Judge.

David McFarland, a citizen of Illinois, brought an action in Illinois circuit court seeking a declaratory judgment stating that he is entitled to insurance benefits under an insurance policy issued to him by General American Life Insurance Company. General American, a Missouri corporation with its principal place of business in St. Louis, sought and obtained removal of the action to the United States District Court for the Southern District of Illinois on the basis of federal diversity jurisdiction. Upon cross-motions for summary judgment, the district court granted judgment in favor of Mr. McFarland; it held that he is entitled to disability benefits under the General American policy. General American now appeals. For the reasons stated in the following opinion, we vacate the judgment of the district court and remand for further proceedings consistent with this opinion.

I BACKGROUND

A. Facts

David McFarland is the owner and operator of a heating and air conditioning business in Granite City, Illinois. In February 1989, Mr. McFarland purchased a Disability Income Policy from General American. The policy sets up two stages of coverage. First, the policy affords a type of disability coverage termed by most courts "occupational disability" insurance. ¹ This coverage is available under the General American policy for up to 60 months, and is triggered if Mr. McFarland is "totally disabled" such that he is "unable to perform the material and substantial duties of [his] regular occupation." R.2 Ex.A. Following the 60-month period, the General American policy provides for traditional "general disability" insurance which is available to Mr. McFarland only if he is "unable to perform the material and substantial duties of any gainful occupation in which [he] reasonably may be expected to engage." Id.

The issue before us today involves the first stage of coverage and therefore requires that we determine the meaning of the phrase "unable to perform the material and substantial duties of your regular occupation at the start of Disability." On his application to obtain the insurance policy, Mr. McFarland defined his occupation as "Executive-Contracting Co." and he indicated that his duties entailed "supervis[ing] corporate activities, supervisors, prepar[ing] estimates for bid." Id.

In October 1993, Mr. McFarland suffered a hernia. Despite the injury, he returned to work in a limited capacity on that same day. On November 27, 1993, Mr. McFarland injured his left knee; as a result, he subsequently underwent two surgeries. The knee injury caused Mr. McFarland to miss work from November 29, 1993 to December 14, 1993. Although he returned to work on December 15, 1993, Mr. McFarland continued to experience pain and discomfort and he was unable to perform a number of his duties.

On August 7, 1995, Mr. McFarland filed two Proof of Claim forms with General American requesting disability payments on the basis of his hernia and knee injury. As detailed by an exhibit attached to one Proof of Claim, Mr. McFarland's ability to perform his normal duties was reduced significantly following his injuries. See R.23 Ex.A to Ex.1. Specifically, as the case comes to us, both parties agree that Mr. McFarland is now only able to perform 35% of his former duties. ² See id. As detailed in the Proof of Claim, this reduction in performance included Mr. McFarland's complete inability to perform some aspects of his job such as supervising field jobs, unloading and loading trucks and deliveries, and making service calls, as well as a reduced capacity to provide field job estimates, which he indicated was 40% of his normal job duties. Mr. McFarland's physician's statements regarding the "extent of disability" in the Proof of Claim forms indicate that Mr. McFarland is "[u]nable to bend, squat, lift, climb or walk to extent necessary" and that the physician considers Mr. McFarland to be "continuously unable to work in his/her occupation." R.23 Exs.1 & 2. However, Mr. McFarland continues to work and to oversee his business, and he is able to perform his corporate and other office-related activities.

On January 22, 1996, General American denied Mr. McFarland's request for disability benefits because it believed that Mr. McFarland was not "totally disabled" within the meaning of the policy. The denial letter stated that he was only partially disabled, and thus did not satisfy the definition of totally disabled contained in the policy. Mr. McFarland brought this action to obtain a declaratory judgment establishing his entitlement to disability benefits under the policy.

B. Proceedings in the District Court

After the case was removed by General American to federal court, the parties each filed motions for summary judgment. General American's position was that, because Mr. McFarland was able to perform 35% of his duties, he was not unable to perform the "material and substantial duties of [his] regular occupation" and therefore was not totally disabled. In contrast, Mr. McFarland argued that the policy language was ambiguous with respect to the degree of inability required to establish total disability and that a person who could perform less than half of his regular duties was totally disabled within the meaning of the policy. The district court agreed with Mr. McFarland and concluded that the policy was ambiguous with respect to "how much of a disability it covers." R.29 at 5. Finding that it was ambiguous, the district court then resolved the ambiguity in favor of Mr. McFarland and held that he was entitled to benefits under the policy.

II DISCUSSION

A.

This case is before us on appeal from the grant of summary judgment; we review de novo such a grant. See Cozzie v. Metropolitan Life Ins. Co., 140 F.3d 1104, 1107 (7th Cir.1998). Summary judgment is appropriate when the pleadings and other submissions to the court "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

Because this is a diversity case, we look to state law to provide the substantive law regarding interpretation of the insurance policy. See, e.g., Allen v. Transamerica Ins. Co., 128 F.3d 462, 466 (7th Cir.1997). Moreover, in situations like the one before us in which the parties do not dispute that the forum state's law controls and there is no choice of law provision in the contract, we need not investigate whether another forum's law would be more appropriate. See Wood v. Mid-Valley Inc., 942 F.2d 425, 426 (7th Cir.1991) ("The operative rule is that when neither party raises a conflict of law issue in a diversity case, the federal court simply applies the law of the state in which the federal court sits.").

Under Illinois law, this court must "ascertain the intent of the parties to the contract by construing the policy as a whole while giving due regard to the risk undertaken, the subject matter that is insured, and the purposes of the entire contract." Employers Ins. v. James McHugh Constr. Co., 144 F.3d 1097, 1104-05 (7th Cir.1998) (citing Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1212 (1992)). We are to attribute to the policy's "unambiguous words their plain and ordinary meaning." Allen, 128 F.3d at 466. In the event that we determine a provision is ambiguous, Illinois law requires that any ambiguities be resolved in favor of the insured. See id. A provision is ambiguous if it is reasonably susceptible to more than one interpretation. See Employers Ins., 144 F.3d at 1104-05. With these principles in mind, we turn to the parties' submissions regarding the proper interpretation of the disability insurance policy.

B.

1.

In order to obtain benefits under the disability policy, Mr. McFarland had to establish that he was "totally disabled." As we have noted earlier, a person is "totally disabled" under the policy if he is "unable to perform the material and substantial duties of [his] regular occupation." The outcome of this case turns on the construction of the terms "the material and substantial duties." It is undisputed that Mr. McFarland, after his injuries, was unable to perform 65% of his former duties. However, the parties do dispute whether this reduction in ability means that Mr. McFarland is "unable to perform the material and substantial duties of [his] regular occupation."

Mr. McFarland's position is that the policy language is ambiguous with regard to the extent of the disability required to trigger the policy's coverage. He contends that the policy language covers not only those situations in which a person is completely unable to perform any of his former duties but also those situations in which a person is unable to perform most of the material and substantial duties of his occupation. In submitting this argument, Mr. McFarland implicitly appears to recognize that an alternative reading of the language would be that a person is only totally disabled if he is completely unable to perform any of his material and substantial duties. Such an interpretation, of course, would preclude Mr. McFarland from receiving disability benefits because he concedes that he is able to perform some of his former duties.

General American submits that the policy language is not ambiguous but rather sets up a workable and flexible standard...