Suskind v. American Republic Ins. Co.

• Decision Date: 02 October 1978
• Docket Number: Civ. A. No. 76-45,76-46.
• Citation: 458 F. Supp. 680
• Court: U.S. District Court — District of Delaware
• Parties: Shirley B. SUSKIND, Plaintiff, v. AMERICAN REPUBLIC INSURANCE COMPANY, Defendant. Shirley B. SUSKIND, Plaintiff, v. NORTH AMERICAN LIFE & CASUALTY COMPANY, Defendant.

458 F. Supp. 680

Shirley B. SUSKIND, Plaintiff, v. AMERICAN REPUBLIC INSURANCE COMPANY, Defendant.

Shirley B. SUSKIND, Plaintiff, v. NORTH AMERICAN LIFE & CASUALTY COMPANY, Defendant.

Civ. A. Nos. 76-45, 76-46.

United States District Court, D. Delaware.

October 2, 1978.

Daniel L. Twer of Levin, Spiller & Twer, P. A., Wilmington, Del., for plaintiff.

Roderick R. McKelvie of Richards, Layton & Finger, Wilmington, Del., for defendants.

OPINION

LATCHUM, Chief Judge.

Shirley B. Suskind ("Plaintiff") initiated separate actions in state court¹ against American Republic Insurance Company ("American Republic") and North American Life & Casualty Company ("North American") to recover, as the beneficiary, the proceeds of insurance on her husband's ("the decedent") life under two separate group life insurance policies issued by the defendants. Both actions were removed to this Court and later consolidated pursuant to the defendants' motion. Rule 42, F.R. Civ.P. The defendants' answers denied liability on the basis of two separate defenses. Their first defense is that the decedent's (Mr. Suskind) insurance under the group life policies was rendered void by his alleged breach of duties that he owed to them. Their second defense is that the decedent never became eligible for insurance under the terms of the group policies. The plaintiff has moved for summary judgment² on the ground that the defendants are barred from raising the defenses asserted in their answers by the incontestability provisions which are contained in the policies, and duplicated in the margin.³

The following undisputed facts have been established: The decedent was a general agent for, and the sole proprietor of, Walter B. Suskind and Associates, an insurance agency in Wilmington, Delaware. In April of 1973 the decedent learned he had cancer of the pancreas. From that time until his death, approximately one year later, the decedent received various types of in-patient and out-patient treatment for his cancerous condition.

During the month of May, 1973 the decedent's agency applied for and obtained a group life insurance policy from each of the defendants, covering the decedent and his employees at the agency. The decedent received a commission from each of the defendants in connection with the purchase of the group policy by his agency. The decedent obtained insurance on his own life under those policies in the amount of $75,000.⁴ The plaintiff is the named beneficiary of that insurance coverage. In the course of obtaining the group policies and his individual insurance coverage under those policies, the decedent did not inform either defendant that he had cancer. At the same time, however, neither defendant required any evidence or statement from the decedent concerning his insurability, i. e., his health or physical condition.

The effective dates for the North American and American Republic group policies and for the decedent's insurance under them were June 15, 1973 and June 1, 1973, respectively. Neither of the defendants took any action in court to contest the validity of either the group policies or the decedent's individual insurance under those policies until they filed their answers in this Court on March 3rd, 1976.⁵

A motion for summary judgment should be granted where "there is no genuine issue as to any material fact" and the undisputed facts are such that "the moving party is entitled to a judgment as a matter of law." Rule 56, F.R.Civ.P.; Scott v. Plante, 532 F.2d 939, 945 (C.A.3, 1976); see 6 Moore's Federal Practice ¶ 56.041 at 56-68 (2d ed. 1976). Plaintiff's motion should be granted, therefore, if the plaintiff is correct in her assertion that the incontestability provisions contained in the group life policies bar the defendants from asserting the two defenses which they have raised in their answers. See Gifford v. Travelers Protective Ass'n of America, 153 F.2d 209, 211 (C.A.9, 1946); Cragun v. Bankers Life Co., 28 Utah 2d 19, 497 P.2d 641, 643 (1972).

I. The Eligibility Defense

The first defense asserted by the defendants is based on their claim that the decedent never became eligible for insurance under the terms of the policies because the decedent did not meet the "Active Service" requirement of the North American policy and that he did not meet the "Actively at Work" requirement of American Republic policy.

On the other hand, the plaintiff argues that this defense is barred by the incontestability provisions. In support of that argument she cites the decisions of a number of courts across the country and claims that these decisions constitute the majority view. See John Hancock Mutual Life Insurance Co. v. Dorman, 108 F.2d 220 (C.A.9, 1939); Equitable Life Assurance Society v. Florence, 47 Ga.App. 711, 171 S.E. 317 (1933); Freed v. Bankers Life Insurance Co., 216 N.W.2d 357 (Iowa Sup.Ct.1974); Allison v. Aetna Life Insurance Co., 158 So. 389 (La. Ct.App.1935); Bonitz v. Travelers Insurance Co., 372 N.E.2d 254 (Mass.Sup.Ct.1978); Simpson v. Phoenix Mutual Life Insurance Co., 24 N.Y.2d 262, 299 N.Y.S.2d 835, 247 N.E.2d 655 (N.Y.Ct.App.1969); Baum v. Massachusetts Mutual Life Insurance Co., 357 P.2d 960 (Okl.Sup.Ct.1960); Cragun v. Bankers Life Co., 28 Utah 2d 19, 497 P.2d 641 (1972). Defendants contend that this defense is not barred and, like the plaintiffs, they too cite the decisions of a number of courts across the country as supporting their position and claim that it constitutes the majority view. See First Pa. Banking & Trust Co. v. United States Life Insurance Co., 421 F.2d 959 (C.A.3, 1969) (interpreting Pennsylvania law); Washington National Insurance Co. v. Burch, 270 F.2d 300 (C.A.5, 1959) (interpreting Georgia law); Fisher v. United States Life Insurance Co., 249 F.2d 879 (C.A.4, 1957) (interpreting New York law); Home Life Insurance Co. v. Regueira, 313 So.2d 438 (Fla.Ct.App.1975), cert. den. 328 So.2d 844 (Fla.Sup.Ct.1976); Crawford v. Equitable Life Assurance Society, 56 Ill.2d 41, 305 N.E.2d 144 (1973); Fisher v. Prudential Insurance Co., 107 N.H. 101, 218 A.2d 62 (1966).⁶ Having read all of these cases, the Court agrees with the New Hampshire Supreme Court's observation that:

it is difficult to explore even a small area of this subject without becoming lost in a maze of conflicting decisions and subtle distinctions.

Fisher, supra, 218 A.2d at 64. Nevertheless, the Court concludes that it is possible to solve the maze which was created by those cases.

The key to successfully negotiating the maze is the realization that the conflict between the cases is the result of differing views as to the meaning of an incontestability provision in the context of a group insurance policy. The cases upon which the defendants rely are premised on the proposition that an incontestability provision only prohibits contests as to the validity of the group policy itself. See, e. g., Crawford, supra, 305 N.E.2d at 150. Accepting that premise, their conclusion that the incontestability clause does not prohibit a contest as to individual eligibility could logically follow.⁷ The premise underlying the cases upon which the plaintiff relies is that the incontestability provision also prohibits a contest as to the validity of individual insurance issued under a group policy.⁸ See, e. g., Simpson, supra, 247 N.E.2d at 657; Baum, supra, 357 P.2d at 963. Adopting that premise, their conclusion that the incontestability provision bars a contest as to an individual's eligibility for coverage under a group insurance policy is equally valid. See Meyer, supra § 8.21 at 259; Coburn, The Incontestable Clause, 1969 Proc.Leg. Sec.Am.Life Conv. 67, 72 ("Coburn"). Therefore, in order to determine whether or not the plaintiff's motion should be granted with regard to this defense, the Court must decide whether the provisions under consideration prohibit contests as to the validity of the individual insurance under a group policy, or only contests as to the validity of the group policy itself.

It has been noted by several commentators that "often an unfortunate choice of language has been made for incontestable clause language." Coburn, supra at 83. The provisions in this case are no exception to that rule. They are composed of two sentences; the first which provides for general incontestability of the policy after a certain period, and the second which specifically prohibits certain types of contests as to the validity of individual insurance under a group policy when certain circumstances are present. As a result of this structure, and the language used, the provision is clearly susceptible to several different and conflicting interpretations.

At least one commentator has suggested that provisions like the ones in this case should be read as providing general incontestability protection for the group policy itself but only limited incontestability protection for individuals insured under the group policy. See Coburn, supra, at 86. This suggestion is based on two underlying assumptions. First it is assumed that because the first sentence refers to the "Policy" and the second sentence refers to "insurance", the two sentences must be viewed as separate and distinct provisions; the first applying only to those contests which attack the validity of the group life policy itself and the second applying only to those contests which attack the validity of the individual insurance issued under the group policy. The second assumption is that because the second sentence only specifically prohibits one type of contest, all other contests as to the validity of the individual insurance are allowed at any time. The Court is convinced, however, that such a construction is unacceptable.

It must be remembered that an incontestability provision was required in group life policies by Delaware law. The provision, therefore, should be interpreted in accordance with the apparent intent of the legislature. Thus, before the hypertechnical construction noted...