Oglesby v. Penn Mut. Life Ins. Co., Civ. A. No. 93-224 MMS.

• Decision Date: 30 May 1995
• Docket Number: Civ. A. No. 93-224 MMS.
• Citation: 889 F. Supp. 770
• Parties: John T. OGLESBY, II, M.D., Plaintiff, v. The PENN MUTUAL LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Delaware

889 F. Supp. 770

John T. OGLESBY, II, M.D., Plaintiff, v. The PENN MUTUAL LIFE INSURANCE COMPANY, Defendant.

Civ. A. No. 93-224 MMS.

United States District Court, D. Delaware.

May 30, 1995.

Anne C. Naczi of Tybout, Redfearn & Pell, Wilmington, DE, for plaintiff.

William W. Erhart of Erhart & Laffey, Wilmington, DE; Douglas F. Johnson of Earp, Cohn, Leone & Pendery, Westmont, NJ, of counsel, for defendant.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

I. INTRODUCTION

This is a diversity action brought by plaintiff John T. Oglesby to collect insurance benefits under a disability policy issued in February 1987 by defendant The Penn Mutual Insurance Company (Penn Mutual). Penn Mutual has denied liability for plaintiff's claim. At summary judgment, Penn Mutual sought and was granted partial rescission of the policy based on plaintiff's concealment of medical information material to Penn Mutual's risk of insurance. The Court held as a matter of law that when applying for the disability policy, plaintiff failed to disclose his medical history of cervical (neck) spine arthritis and its concomitant symptoms.

This case now stands ready for trial. The Court has already determined that Delaware law will supply the rule of decision. Oglesby v. Penn Mutual Ins. Co., 877 F.Supp. 872, 878 (D.Del.1994). Presently at issue is whether, under the disability policy and Delaware law, Penn Mutual should be able to present to the jury its defense to coverage pursuant to the so-called "first manifest" doctrine. Under this theory, Penn Mutual would argue that the policy does not cover claims for disability arising from sickness that first made itself known prior to the issuance of the policy.

For the following reasons, the Court holds that under the terms of the disability policy at issue, Penn Mutual may not assert at trial a defense under the "first manifest" doctrine.

II. FACTUAL BACKGROUND

On November 24, 1986, plaintiff applied to Penn Mutual for the disability policy that is now the focus of this lawsuit. Docket Item ("D.I.") 61 at 52. As part of the application process, Penn Mutual required plaintiff to complete a written application and undergo a medical exam and interview by a Penn Mutual medical examiner. Id. at 52-53. Plaintiff was then a 47 year old radiologist serving as Chief of Cardiovacular and Interventional Radiology at the Medical Center of Delaware. Id. at 52.

The Penn Mutual application form and the Penn Mutual medical examiner both required plaintiff to detail his complete medical history. In so doing, plaintiff did not report an incident of severe neck and left arm pain which had required treatment with cervical traction, ultrasound therapy, and Valium. Id. at 51, 53, 225-27. Plaintiff's illness, which caused him symptoms for almost two months in 1981, had been diagnosed by a neurologist as degenerative cervical arthritis. Id. at 218. However, the only arthritis plaintiff disclosed to Penn Mutual was arthritis in his hip joints. Id. at 51, 53. Penn Mutual approved plaintiff's application and issued a disability policy effective February 1, 1987. D.I. 4 at ¶ 3. The policy specifically excluded from coverage "any impairment due to degenerative arthritis or rheumatism of the hip region." D.I. 61 at 39. If plaintiff was to suffer total disability, Penn Mutual would pay a monthly insurance benefit of $5,000. Id. at 32.

In April 1990, plaintiff experienced another painful episode of his cervical arthritis, similar to his bout in 1981. Plaintiff again sought treatment from his neurologist, whom he had not consulted in the intervening nine years. D.I. 61 at 217. Plaintiff's symptoms were such that he could not perform some of his hospital duties as Chief of Cardiovascular and Interventional Radiology. Over the next few months, physical and medical therapy failed to alleviate plaintiff's symptoms. His neurologist then referred him to a neurosurgeon; plaintiff underwent surgical repair of two of his cervical vertebrae in October 1990. Id. at 236-37. Although the prognosis for full recovery was good, plaintiff's pain persisted, and he still could not perform certain of his employment responsibilities. In June 1992, after months of physical therapy, plaintiff's physicians informed him his condition would be permanent. Plaintiff immediately filed a claim with Penn Mutual, stating he could no longer perform the substantial and material duties of his regular occupation. He resigned his post as Chief of Cardiovascular and Interventional Radiology in 1992, but was able to continue duties as a general radiologist. Id. at 286. Penn Mutual refused to pay plaintiff's claim; thus, plaintiff instituted this action on the policy.

As its investigation of plaintiff's claim unfolded, Penn Mutual discovered plaintiff's concealment during the application process. Pursuant to statutory mandate, the insurance policy contained an incontestability provision directly addressing misstatements by such an insured during the application process. Deviating somewhat from the statutory language, Penn Mutual had contracted to not contest such statements made by plaintiff after two years from the effective date of the policy. Plaintiff's onset of disability occurred more than two years later than February 1987, the issue date of the policy. Consequently, as to the base policy originally issued, Penn Mutual did not contest at summary judgment plaintiff's misstatements during the application process nor move for invalidation of the policy.

Penn Mutual had also issued, however, for additional consideration, annual policy riders increasing the amount of insurance benefits payable to plaintiff in the event of total disability. Each of these riders incorporated by reference the same two year incontestability period as provided in the base policy; each rider's incontestability period commenced on the rider's effective date. With the 1990 onset of plaintiff's disability, the timetable of events allowed Penn Mutual to contest the benefit increase riders issued in 1989-1992. Accordingly, Penn Mutual moved for partial summary judgment seeking rescission of these riders. Because plaintiff had concealed information material to the risk assumed by Penn Mutual, the Court ordered the rescission of the 1989-1992 benefit increase riders. Oglesby v. Penn Mutual Ins. Co., 877 F.Supp. 872, 890 (D.Del.1994).

At the final pretrial conference in this matter, Penn Mutual made known its intention to defend its denial of coverage with a doctrine known as "first manifest." This "first manifest" defense is derived from language contained on the first page of plaintiff's disability policy, which sets forth:

Coverage Provided by This Policy. Subject to all provisions of the policy, we insure you against disability or other loss resulting from:

sickness, which first makes itself known while this policy is in force....

Throughout this policy, we will use the word sickness ... as we just defined it.

D.I. 61 at 30. Penn Mutual contends under this provision that because plaintiff's cervical arthritis first made itself known or "first manifested" itself in 1981, before the policy was in force, it may deny coverage as to this illness.

Plaintiff counters by arguing that the policy contains incontestability provisions that conflict with this "first manifest" clause. He points to Delaware law imposing a two year limit on Penn Mutual's ability to contest or deny claims stemming from pre-existing conditions if the policy does not specifically exclude these pre-existing conditions. Plaintiff also argues that defendant's first manifest defense should have been asserted in its pleadings or at the latest, by the close of the discovery phase of this litigation. He also contends that Penn Mutual knew of the "first manifest" legal theory over a year ago, as counsel for Penn Mutual participated in a spring 1994 New Jersey Supreme Court case adjudicating this identical issue. Consequently, plaintiff argues that under Delaware law, failure by Penn Mutual to give plaintiff timely notice as to this additional ground for denying or avoiding liability resulted in a waiver of this defense.¹

III. DISCUSSION

Although the "first manifest" doctrine has been either embraced or rejected by other jurisdictions, it is a question of first impression in Delaware. Consequently, as a federal court sitting in diversity, this Court must predict how the Supreme Court of Delaware would decide this matter were it called upon to do so. Kiewit E. Co., Inc. v. L & R Constr. Co., 44 F.3d 1194, 1201 n. 16 (3d Cir.1995). In carrying out this charge, the Court may "consider relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand." Packard v. Provident Nat'l Bank, 994 F.2d 1039, 1046 (3d Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 440, 126 L.Ed.2d 373 (1993) (quoting McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 661 (3d Cir.), cert. denied, 449 U.S. 976, 101 S.Ct. 387, 66 L.Ed.2d 237 (1980)).

The present issue hinges on construction of the policy's statutorily required incontestability provisions and their impact on the scope of the policy's coverage, which is limited to sickness first making itself known while the policy is in force. See Equitable Life Assurance Soc'y v. Bell, 27 F.3d 1274, 1277 (7th Cir.1994) (confronting same dilemma). Ultimately, however, this matter involves policy choices concerning the effect of an insured's concealment of prior sickness in an application for insurance on a claim for a subsequent episode of the same sickness, Paul Revere Life Ins. Co. v. Haas, 137 N.J. 190, 644 A.2d 1098, 1101 (1994), vis-a-vis the insurer's decision to forgo the use of a statutorily provided defense to that precise type of concealment. Equitable Life Assurance Soc'y v. Bell, 27 F.3d 1274, 1283 (7th Cir. 1994).

A. Delaware Statutory Law and...