Protective Life Ins. Co. v. Sullivan

• Decision Date: 29 July 1997
• Citation: 425 Mass. 615,682 N.E.2d 624
• Parties: PROTECTIVE LIFE INSURANCE COMPANY v. Dennis J. SULLIVAN & others. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 624

682 N.E.2d 624

425 Mass. 615

PROTECTIVE LIFE INSURANCE COMPANY v. Dennis J. SULLIVAN & others. ¹

Supreme Judicial Court of Massachusetts Suffolk.

Argued Feb. 5, 1997.

Decided July 29, 1997.

Luke DeGrand, Chicago, Illinois (Wayne S. Henderson, Boston, with him), for Dignity Viatical Settlement Partners, L.P., and another.

John A. Shope (John H. Henn, with him), Boston, for plaintiff.

The following submitted briefs for amici curiae:

Elliott M. Kroll, Mark S. Fragner, and Lori M. Meyers of New York City, for the Cancer Care, Inc., and others.

Bennett H. Klein and Gary Busek for the AIDS Law Project of Gay & Lesbian Advocates and Defenders and others.

Rita M. Theisen and Phillip E. Stano, Washington, DC, for the American Council of Life Insurance.

Daniel R. Judson and Daniel L. Swift, Special Assistant Attorneys General, for the Commissioner of Insurance.

Before WILKINS, C.J., and LYNCH, O'CONNOR, FRIED and MARSHALL, JJ.

MARSHALL, Justice.

Protective Life Insurance Company (Protective Life) commenced the underlying action in the United States District Court for the District of Massachusetts seeking rescission of a life insurance policy issued by it to the defendant Dennis J. Sullivan, a resident of Massachusetts. Protective Life claimed that Sullivan obtained the policy through fraudulent misrepresentation. The policy form, which had been approved by the Commissioner of Insurance (commissioner), provided that Protective Life could not "bring any legal action to contest the validity of this policy after it has been in force for two years except for failure to pay the premiums unless fraud is involved " (emphasis supplied). The defendants moved to dismiss the action, asserting that the plaintiff's action to rescind the policy more than two years after its date of issue was prohibited by G.L. c. 175, § 132, the Massachusetts incontestability statute. The District Court denied the motion.

After a bench trial, the District Court judge found by clear and convincing evidence that Sullivan committed fraud, and on November 17, 1995, entered judgment in favor of Protective Life against Dignity Viatical Settlement Partners, L.P., and Dignity Partners, Inc. (collectively, Dignity). ² Dignity appealed and, on its own motion, the United States Court of Appeals for the First Circuit certified the following two questions of State law to this court pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981):

"1. Does Mass. Gen. L. ch. 175, § 132, taken together with § 124, bar an insurance company from contesting the validity of a life insurance policy more than two years after its date of issue on the ground that the insured made fraudulent misrepresentations in applying for the policy, where the policy provided that it was contestable for fraud at any time and where the Massachusetts Commissioner of Insurance approved the policy form?

"2. If the incontestability statute bars such an action, is the contestability period nonetheless equitably tolled under the circumstances of this case by Sullivan's failure to apply for the disability waiver to which he was entitled until two years after the policy was issued?"

Protective Life Ins. Co. v. Sullivan, 89 F.3d 1, 4-5 (1st Cir.1996). We answer the first question certified in the affirmative, and the second question certified in the negative.

I

We summarize the facts relevant to the questions certified. See S.J.C. Rule 1:03, § 3(2). In November, 1990, Sullivan was first diagnosed as Human Immunodeficiency Virus (HIV) positive and began a course of treatment including use of the drug AZT. On September 24, 1991, Sullivan applied to Protective Life for a life insurance policy in the amount of $100,000, with an annual premium of $175. In his application, he falsely stated that he was not taking any medication, and he omitted the names of those doctors who knew of his diagnosis. Sullivan authorized Protective Life to conduct medical tests, including a test for HIV infection, but on November 8, 1991, Protective Life issued a policy to Sullivan without having ordered an HIV or any other medical test. The policy included an optional provision that, for an increase in the annual premium, gave Sullivan the right to waive the premium in the event he became disabled.

In 1992, Sullivan's health worsened and by June, 1992, Sullivan's HIV infection had progressed to Acquired Immune Deficiency Syndrome (AIDS), and he stopped working. In October, 1992, Sullivan applied for disability benefits from another insurance company. He did not apply to Protective Life for a waiver of his life insurance premiums due to his disability until November 8, 1993, exactly two years after Protective Life had issued its policy to Sullivan.

In October, 1993, Sullivan informed Protective Life through a broker that he wished to assign ownership of his policy to Dignity, a firm engaged in making viatical settlements, agreements under which an insured sells a life insurance policy for an immediate payment approximating the discounted face value of the policy. On December 14, 1993, Dignity delivered the assignment forms to Protective Life, which Protective Life approved on December 22, 1993. On the same day, Dignity paid Sullivan $73,000.

It is undisputed that Sullivan knew he was HIV positive when he applied for the life insurance policy, and that he failed to disclose in his application that he was receiving medical treatment and any medication for his condition, despite questions calling for this information. It is also undisputed that Protective Life would not have issued Sullivan the policy had it known his true medical condition.

II

The first question certified asks whether G.L. c. 175, § 132, taken together with G.L. c. 175, § 124, bars an insurance company from contesting the validity of a life insurance policy more than two years after its date of issue on the basis of fraud, where the policy provided that it was contestable for fraud at any time and where the policy form was approved by the commissioner.

The commissioner's approval of Protective Life's life insurance policy form (in this case with a fraud exception to incontestability) reflects the commissioner's interpretation of G.L. c. 175, § 132, as permitting an implied exception for fraud. ³ See Colby v. Metropolitan Prop. & Cas. Ins. Co., 420 Mass. 799, 806, 652 N.E.2d 128 (1995) (by approving policy in issue commissioner's view of statute made clear); Flanagan v. Liberty Mut. Ins. Co., 383 Mass. 195, 196 n. 3, 417 N.E.2d 1216 (1981) (policy form approved by commissioner might have purported to resolve any statutory ambiguity). The proper interpretation of that statute is a question of law, and we review the commissioner's interpretation de novo. See Raytheon Co. v. Director of the Div. of Employment Sec., 364 Mass. 593, 595, 307 N.E.2d 330 (1974). In general, we grant substantial deference to an interpretation of a statute by the administrative agency charged with its administration. See, e.g., Gateley's Case, 415 Mass. 397, 399, 613 N.E.2d 918 (1993), and cases cited. But this principle is one of deference, not abdication, and we have overruled an agency's interpretation when it is contrary to the plain language of the statute and its underlying purpose. See Massachusetts Hosp. Ass'n, Inc. v. Department of Medical Sec., 412 Mass. 340, 346, 588 N.E.2d 679 (1992); Kszepka's Case, 408 Mass. 843, 847, 563 N.E.2d 1357 (1990). "While we will not lightly second-guess the Commissioner's interpretation of a statute, his approval is 'hardly persuasive' where the [interpretation] violates the language and policy of the statute." Cardin v. Royal Ins. Co., 394 Mass. 450, 456-457, 476 N.E.2d 200 (1985), quoting Surrey v. Lumbermens Mut. Cas. Co., 384 Mass. 171, 178, 424 N.E.2d 234 (1981).

We have not before squarely decided the issue whether G.L. c. 175, § 132, read together with G.L. c. 175, § 124, permits an insurer to include a fraud exception to the required two-year contestability period for life insurance policies. ⁴ Our analysis begins, as it must, with the language of the statute itself. See Massachusetts Bay Transp. Auth. v. Massachusetts Bay Transp. Auth. Retirement Bd., 397 Mass. 734, 738, 493 N.E.2d 848 (1986). General Laws c. 175, § 132, provides, in relevant part, that no life insurance policy may be issued in the Commonwealth unless it contains in substance the following:

"2. A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years from its date of issue except for non- of premiums or violation of the conditions of the policy relating to military or naval service in time of war and except, if the company so elects, for the purpose of contesting claims for total and permanent disability benefits or additional benefits specifically granted in case of death by accident."

Thus G.L. c. 175, § 132, requires all Massachusetts life insurance policies to provide that, after the policy has been in force during the lifetime of the insured for two years, the policy cannot be contested by the insurer for any but three specific reasons. There is no exception for fraud.

We have said that "[t]he fact that the Legislature specified one exception ... strengthens the inference that no other exception was intended." LaBranche v. A.J. Lane & Co., 404 Mass. 725, 729, 537 N.E.2d 119 (1989). ⁵ See Bagley v. Illyrian Gardens Inc., 401 Mass. 822, 824, 519 N.E.2d 1308 (1988) ("Expressio unius est exclusio alterius"); Collatos v. Boston Retirement Bd., 396 Mass. 684, 687, 488 N.E.2d 401 (1986) ("it is appropriate to follow the maxim that the statutory expression of one thing is an implied exclusion of other things omitted from the statute"); Harborview Residents' Comm., Inc. v. Quincy Hous. Auth., 368 Mass. 425, 432, 332 N.E.2d 891 (1975), and cases cited. See also 2A C. Sands, Sutherland Statutory Construction § 47.23, at 217 (5th ed.1992). Although a...