Suskind v. North American Life & Cas. Co.

• Decision Date: 10 October 1979
• Docket Number: No. 78-2591,78-2591
• Citation: 607 F.2d 76
• Parties: Shirley B. SUSKIND v. NORTH AMERICAN LIFE & CASUALTY COMPANY, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 76

607 F.2d 76

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

No. 78-2591.

United States Court of Appeals Third Circuit.

Argued Sept. 4, 1979.

Decided Oct. 10, 1979.

Roderick R. McKelvie (argued), James McC. Geddes (argued), Richards, Layton & Finger, Wilmington, Del., for appellant.

Daniel L. Twer (argued), Levin, Spiller & Twer, Wilmington, Del., for appellee.

Before SEITZ, Chief Judge and GIBBONS and SLOVITER, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This appeal concerns the interpretation of an incontestability clause in a group insurance policy. Defendant insurance company appeals entry of summary judgment against it.

Plaintiff is the widow of Walter B. Suskind and named beneficiary of a certificate of insurance for $50,000 issued by defendant, North American Life & Casualty Company (hereafter "North American"), to Suskind in conjunction with a group life insurance policy covering the employees of Walter B. Suskind and Associates, an insurance agency in Wilmington, Delaware. Plaintiff's husband, Walter B. Suskind, was the sole proprietor of the agency and was a general agent for Mutual Benefit Life Insurance Company (an insurance company not involved in this litigation). Through Walter B. Suskind and Associates he employed a number of other insurance agents and office personnel.

In April, 1973, Suskind first became aware that he had cancer of the pancreas. Inquiry was made of at least eight insurance companies regarding the issuance of an individual or group life insurance policy insuring Walter Suskind's life. Although the record is unclear when the inquiries were made or whether applications were actually made to all eight companies, it is undisputed that between June, 1973 and July, 1973 at least three group policies were issued covering some or all of the employees of Walter B. Suskind and Associates, including in each instance Walter Suskind. None of these policies required evidence of the medical condition of the individuals covered, and Suskind did not inform the companies that he had cancer.

The application for the group policy involved in this appeal was enclosed in a letter by Walter Suskind dated June 14, 1973, ¹ which requested a June 1 effective date. Because the carrier always used an effective date on the 15th of a month, the policy when approved was issued by North American with an effective date of June 15, 1973. Walter Suskind died of cancer on April 28, 1974, following periods of hospitalization and treatment.

Plaintiff filed suit against North American on January 27, 1976, for $50,000 plus an assessment of punitive damages and attorney's fees, claiming that defendant willfully and without reasonable justification or excuse refused to pay her benefits due under the policy. North American's Answer to the Complaint, filed March 4, 1976, denied liability alleging the policy "is null, void and of no effect" because of the misrepresentation of Suskind and others as to the number of eligible employees actually at work and because "Walter B. Suskind was not an eligible employee working on a full-time basis, having contracted an inoperable metastatic carcinoma sometime before he made said statements and misrepresentations."

On June 17, 1977, following discovery, defendant filed a motion for summary judgment, contending that plaintiff should be barred from recovery under the policy for two reasons: first, it argued that Walter Suskind was not an eligible employee under the policy, because he was not in "active service" ² on the effective date of the policy, since he was admittedly hospitalized on June 15, 1973, and that he did not thereafter become eligible because he did not complete the waiting period of 21 consecutive working days required by the policy. ³ Second, North American argued that whether or not Suskind was an eligible employee under the policy, his misstatements, omissions and concealments concerning his health and his status at work breached various duties that he owed to the defendant so that his coverage under the policy should be declared void. Plaintiff resisted summary judgment by a different construction of the policy and facts. Plaintiff conceded that Suskind was not in "active service" on June 15, 1973 but argued that he returned to "active service" on June 18, 1973, that no waiting period was required for Suskind because he had been in "active service" "before the Policy Effective Date" (see note 3), and that under the provision of the policy that "an individual's effective date is the 15th of the month, coinciding with, or next following the date of his eligibility if in ACTIVE SERVICE on that date, or otherwise 'upon his return to ACTIVE SERVICE'," ⁴ he was covered by the policy as of July 15, 1973.

Plaintiff countered the alleged breach of duty by emphasizing that there was no physical examination, medical questionnaire or evidence of insurability required to be furnished by Suskind or any other group member as a precondition to issuance of the policy and coverage in question.

On December 20, 1977 the court denied defendant's motion for summary judgment because "the Court finds the facts in these cases might cause reasonable men to draw inconsistent inferences and conclusions. Such inferences should be drawn by the finder of facts after hearing the evidence presented and not by the Court in disposing of a motion for summary judgment."

Plaintiff then moved for summary judgment on the ground that defendant was barred from raising the defenses asserted in its Answer because of the incontestability provision in the policy. The applicable language of the North American policy is:

INCONTESTABILITY: The validity of the Policy will not be contested by the Company after two years from the Effective Date except for non-payment of premiums. No statement made by an Insured Person or Insured Dependent relating to insurability will be used in contesting the validity of the Insurance with respect to which the statement was made after the Insurance with respect to that individual has been in force prior to contest for a period of two years during the individual's lifetime nor will any such statement be used unless it is contained in a written instrument signed by him.

Delaware law, applicable here, requires that an incontestability provision be included in every group policy delivered in the State of Delaware. ⁵

The district court granted plaintiff's motion for summary judgment. The court held that the incontestability clause barred the defendant's assertion of both the ineligibility defense and the fraud defense. 458 F.Supp. 680.

To reach this result, the court read the first sentence of the incontestability provision as applicable to both the group policy and the individual insurance issued under it; both became incontestable when the period specified in that sentence had expired. The court read the second sentence "as an exception which allows an ongoing right to contest the individual insurance, when the insured dies prior to the expiration of the contestability period and the contest is based on written statements by the insured relating to his health or physical condition." 458 F.Supp. at 685. The court classified the defense based on eligibility as one contesting the "validity" of the decedent's insurance, and therefore within the terms of the first, and not the second, sentence of the incontestability provision. Since the term "contest" is generally interpreted to mean some action taken in a judicial proceeding to cancel the policy or prevent its enforcement, see Travelers Insurance Co. v. Caravasilis, 21 Del.Ch. 164, 182 A. 412 (1936), and North American's first such action took place when it filed its Answer to the Complaint in this case more than two years after the policy was issued, the court held that the defense based on eligibility was barred by the incontestability provision.

Further, the court held that the defense based on fraud was likewise barred because it did not fall within the exception provided by the second sentence which is limited to statements relating to "insurability". Although defendant had argued that Suskind's written statement on his enrollment card regarding his "full-time" status or "eligibility" were statements relating to his "insurability", thereby within the exception provided by the second sentence of the incontestability provision, the Court concluded that such a construction would contravene the intent of the Delaware legislature which elsewhere had distinguished between the concepts of eligibility and insurability. ⁶

Because we believe that the district court misconstrued the incontestability provision in North American's policy, we reverse.

The incontestability clause in insurance policies was introduced by English life insurance companies in the middle of the nineteenth century to overcome public resistance to the purchase of such insurance, and was adopted in the United States for similar reasons. Villaronga, The Incontestable Clause: An Historical Analysis 3-6 (1976) (Monograph No. 5, S.S. Huebner Foundation for Insurance Education, Wharton School, University of Pennsylvania); See J. Fowler, History of Insurance in Philadelphia for Two Centuries 729 (1888). Exposure of various abuses in the life insurance industry led President Theodore Roosevelt to call a conference in 1906 which recommended enactment of uniform life insurance laws. Included among the recommendations was the suggestion for a provision making the policy incontestable after two years from its issue date. This, in time, was adopted by most states. Shield, A New Look at the Incontestability Clause, 11 Association of Life Insurance Council Proceedings 23, 32-36 (1952).

The language of such clauses, often abstruse, has spawned a considerable volume of case law concerning its appropriate interpretation. However, issues relating to its use in the context of the group policy remain unresolved....