Paul Revere Life Ins. Co. v. Haas

• Decision Date: 07 July 1993
• Parties: The PAUL REVERE LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. Gilbert K. HAAS, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 35

266 N.J.Super. 35

628 A.2d 772

The PAUL REVERE LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. Gilbert K. HAAS, Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Argued May 26, 1993.

Decided July 7, 1993.

Robert Wright, Paramus, for appellant (Melli & Wright, Paramus, attys., Mr. Wright and Cynthia Dokas, Boston, MA, on the brief).

Brian T. Campion, Hackensack, for respondent (Herten, Burstein, Sheridan & Cevasco, attys., Mr. Campion on the brief).

Before Judges GAULKIN, HAVEY and STERN.

The opinion of the court was delivered by

HAVEY, J.A.D.

Plaintiff Paul Revere Life Insurance Company appeals from a summary judgment dismissing its complaint against its insured, defendant Gilbert K. Haas. The gravamen of plaintiff's complaint is that its disability insurance policy issued to defendant should be rescinded because of material misrepresentations made by him in his application for insurance. Alternatively, plaintiff seeks a declaration that the policy does not cover defendant's medical condition, retinitis pigmentosa. In dismissing plaintiff's complaint, the trial court concluded that the policy's incontestability clause barred plaintiff's action. The incontestability clause provides:

10.2 INCONTESTABLE

a. After Your Policy has been in force for two years, excluding any time You are disabled, We cannot contest the statements in the application.

b. No claim for loss incurred or disability beginning after two years from the Date of Issue will be reduced or denied because a disease or physical condition existed before the Date of Issue unless it is excluded by name or specific description.

We hold that the incontestability clause bars an action to rescind instituted after two years from the inception of the policy, even if the insured's representations are fraudulent. We also conclude that the clause precludes the carrier from denying coverage based on the policy's definition of "sickness" and on its preexisting condition exclusion. However, if defendant becomes disabled during the period of contestability, part (a) of the incontestability clause, by its terms, tolls the running of the two-year period, and part (b) has no application. We therefore affirm in part, but reverse in part for a determination as to when defendant became disabled.

On January 20, 1987, defendant applied for disability insurance with plaintiff. In response to questions in the application concerning his "medical history," he answered that he was not under observation or treatment, had not be examined by or consulted a physician in the last five years, and never had any known indication of, or been treated for, any disease or impairment of the eyes. Defendant also answered "no" to the question: "Has any person had any surgical operation, treatment, special diet, or any illness, ailment, abnormality, or injury, not mentioned above, within the past five years?" On March 5, 1987, plaintiff issued the disability policy to defendant.

On December 1, 1990, defendant notified plaintiff of his intention to file a disability claim. On January 7, 1991, he executed a proof of claim form, stating that on December 1, 1990, he became totally disabled as a result of retinitis pigmentosa, a loss of central vision. Defendant also submitted a "disability attending physician statement," completed by Dr. Leo Masciulli, stating that defendant's symptoms first appeared on November 1, 1989. Dr. Masciulli responded "yes" to the question: "Has patient ever had same or similar condition?" and listed "Dr[s]. Sidarsky [sic] & Poole [New York City] 1985" as defendant's treating physicians. Dr. Masciulli also reported that when defendant came to him on November 1, 1990, he was seeking a "second opinion."

Plaintiff's investigation of the claim revealed that beginning on October 20, 1983, defendant had been evaluated in the New York University Retinal Clinic. Dr. Ronald E. Carr, one of defendant's physicians, stated in a letter to Dr. Sudarsky dated August 9, 1984, that defendant "had been told of retinitis pigmentosa in the past and indeed shows findings quite typical for this problem." It is also undisputed that defendant's medical records, dating back to 1985, disclosed that he has had a history of retinitis pigmentosa since at least that date. On or about October 17, 1991, plaintiff filed the present complaint.

For the purposes of defendant's summary judgment motion, he admitted that his misrepresentations in the application were fraudulent. The trial judge nevertheless granted the motion, concluding:

I don't find that there is any way that you can get around the fact that [defendant] fits right into the mold of the person who is [saved] by the incontestable clause, and I find that the clause applies and the insurance company has to go through on it.

I

Plaintiff acknowledges that it instituted its action beyond two years after issuance of the policy. Nevertheless, relying on Johnson v. Metropolitan Life Ins. Co., 53 N.J. 423, 251 A.2d 257 (1969), plaintiff argues that the clause pertains only to equitable fraud, and does not bar an action based, as here, on a claim of legal fraud.

In Johnson, the disability policy contained the following incontestability clause:

Time Limit on Certain Defenses: (a) After two years from the date of policy no misstatements, except fraudulent misstatements, made by the applicant in the application for this Policy shall be used to void this Policy or to deny a claim for loss incurred or disability (as defined in this Policy) commencing after the expiration of such two year period.

[Id. at 436 (emphasis added).]

This clause essentially tracked the statutory language required to be inserted in policies under N.J.S.A. 17:38-13.2(A) (now repealed). The Court rejected the insurer's argument that the phrase "except fraudulent misrepresentations" preserves the concept of equitable fraud beyond the contestability period, reasoning that "the provision can have no significance" unless the phrase "requires an intent to deceive." 53 N.J. at 438, 251 A.2d 257. It noted that a contrary interpretation would frustrate the apparent intent of the clause "to improve the position of the insured." Ibid. Thus, it concluded "the statute ... boils down to the proposition that after two years the policy may not be voided for a misstatement in the application unless the misstatement is 'fraudulent' as we have defined the word...." Id. at 441, 251 A.2d 257 (emphasis added). Since the insured's misrepresentation on his application was not made with intent to deceive, the insurer's attempt to rescind was barred because it came after expiration of the two-year period. Id. at 443, 251 A.2d 257.

What is fatal to plaintiff's argument is that Johnson involved a different incontestability clause than the clause pertinent here. N.J.S.A. 17B:26-5 requires that all health insurance policies contain one of two incontestability clauses:

a. After 2 years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability ... commencing after the expiration of such 2-year period.

....

[or]

(2) A policy which the insured has the right to continue in force subject to its terms by the timely payment of premium (a) until at least age 50 or, (b) in the case of a policy issued after age 44, for at least 5 years from its date of issue, may contain in lieu of the foregoing the following provision (from which the clause in parentheses may be omitted at the insurer's option) under the caption "INCONTESTABLE":

After this policy has been in force for a period of 2 years during the lifetime of the insured, (excluding any period during which the insured is disabled) it shall become incontestable as to the statements contained in the application.

b. No claim for loss incurred or disability ... commencing after 2 years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or specific description effective on the date of loss and existed prior to the effective date of coverage of this policy.

Plaintiff chose the incontestability clause under N.J.S.A. 17B:26-5a(2) which does not contain the "except fraudulent misrepresentations" phrase. By opting for the clause under § 5a(2), plaintiff elected to forego preserving its indefinite right to rescind the policy based on legal fraud. We can only assume it did so because it gained the benefit of the phrase "excluding any time You are disabled," which tolls the two-year period during the time the insured is disabled. In any event, the analysis under Johnson is clearly not dispositive. We would contravene the clear meaning of the policy, and indeed the statute, were we to graft the "except fraudulent misrepresentations" phrase upon the clause pertinent here. See Massachusetts Mut. Life Ins. Co. v. Manzo, 122 N.J. 104, 112, 584 A.2d 190 (1991). The clause must be interpreted as plainly written and as required by statute. Ibid. Since plaintiff instituted its action after the policy was in force for two years, it "cannot contest the statements in the application" even if made with intent to deceive. See Lindsay v. United States Life Ins. Co., 80 N.J.Super. 465, 470, 194 A.2d 31 (Law Div.1963) (incontestability clause, which does not contain "except fraudulent misrepresentations" phrase, bars even claims of legal fraud after the contestability period has lapsed).

II

As stated, part (b) of the incontestability clause, provides:

No claim for loss incurred or disability beginning after two years from the Date of Issue will be reduced or denied because a disease or physical condition existed before the Date of Issue unless it is excluded by name or specific description.

Plaintiff contends that part (b) has no effect where the remedy sought is the denial...