Velez Gomez v. SMA Life Assur. Co., Civ. No. 90-2362.

• Decision Date: 08 May 1992
• Docket Number: Civ. No. 90-2362.
• Citation: 793 F. Supp. 378
• Parties: Julio VELEZ GOMEZ, et al., Plaintiffs, v. SMA LIFE ASSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Puerto Rico

793 F. Supp. 378

Julio VELEZ GOMEZ, et al., Plaintiffs, v. SMA LIFE ASSURANCE COMPANY, Defendant.

Civ. No. 90-2362.

United States District Court, D. Puerto Rico.

May 8, 1992.

Cordero, Miranda & Pinto, Luis Ramon Ortiz Segura, San Juan, P.R., for plaintiffs.

Feldstein, Gelpi & Gotay, Luis N. Blanco, San Juan, P.R., for defendant.

OPINION AND ORDER

GIERBOLINI, Chief Judge.

This case arises out of defendant insurance company's failure to pay disability benefits under a sickness and accident disability policy issued to plaintiff on November 24, 1986. Plaintiff previously worked as a customer engineer for IBM Corporation in Hato Rey, Puerto Rico from August 9, 1971, until March 1, 1989, when IBM placed him on medical disability.

On June 2, 1989, plaintiff filed a written claim for disability benefits with defendant, claiming he was totally disabled due to multiple sclerosis beginning in "10/88". Defendant sent plaintiff a letter dated October 18, 1989 which asserted that plaintiff had not disclosed a pre-existing condition of multiple sclerosis at the time of application. Defendant asked the insured to voluntarily surrender the disability policy as of its effective date, in return for payment of all premiums paid to date plus interest.

Plaintiff claims that over two years and ten and a half months elapsed from the date of the policy's issuance, until defendant's letter of October 1989 requesting voluntary surrender of the policy. Plaintiff thus asserts that the two year "incontestability clause" in the policy, prohibited defendant from contesting the policy's validity on October 18, 1989, due to medical conditions pre-existing the date of issuance.

Defendant claims plaintiff became disabled before the two year period for contesting claims ran out. Defendant asserts that because a provision of the policy's incontestability clause excludes periods of disability from the two year period, the two year period was tolled at the time of plaintiff's disability and the contract was still contestable in October of 1989.

Plaintiff further claims that Isidro Ortiz Pepín, an agent of defendant insurance company, had knowledge of plaintiff's pre-existing medical condition prior to the policy's issuance, that such knowledge is attributable to the insurance company and that defendant is now estopped from attacking the policy's validity. Defendant has denied that Ortiz Pepín was its agent, or that it had knowledge of plaintiff's medical condition prior to the time plaintiff filed his claim for disability benefits.

Defendant asserts that even if, arguendo, Ortiz Pepín was its agent and he had knowledge of plaintiff's pre-existing medical condition, defendant is not estopped from contesting the policy's validity, for the following reasons: the insurance contract gave the plaintiff notice that the agent could not alter the terms of the written contract; plaintiff colluded with the agent to defraud the defendant; and plaintiff was aware prior to filing his application for disability benefits that coverage would be denied if plaintiff disclosed his true medical condition.

Parties have filed respective motions for summary judgment, and oppositions to such motions. After considering the evidentiary record as a whole, and giving the deference due the party opposing each respective motion for summary judgment, we find that summary judgment should be GRANTED to plaintiffs for the reasons outlined below. We consequently DENY defendant's motion for summary judgment.

SUMMARY JUDGMENT

The decision whether or not to grant summary judgment rests on a determination as to "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).

Summary judgment is an appropriate remedy "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Not all conflicts of fact will bar summary judgment, "By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment, the requirement is that there be no genuine issue of material fact." Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. at 2510 (emphasis in original); see also Medina Muñoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 7-8 (1st Cir.1990).

The nonmoving party on the motion bears the burden of production, to show that summary judgment is not appropriate by coming forward with specific facts showing that there is a genuine issue for trial; it is not sufficient to "simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); R.J. Reynolds, 896 F.2d at 8.

Rule 56(c) mandates the entry of summary judgment after adequate time for discovery, "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be `no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A defendant bears the burden of proof on an affirmative defense it asserts. See generally 5 Wright & Miller, Federal Practice and Procedure: Civil 2d § 1277 n. 7, p. 461 (1990).

In deciding whether summary judgment is proper, the court must view the record in the light most favorable to the party opposing such motion. Adickes v. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). A nonmoving party's evidence cannot be merely colorable, but must be significantly probative to show differing versions of the facts which justify a trial, R.J. Reynolds, 896 F.2d at 8, 10. Determining the proper scope of coverage of an insurance contract when the underlying material facts are not in dispute is a question of law appropriate to resolution on a motion for summary judgment. Niagara Fire Insur. Co. v. Pepicelli et al., 821 F.2d 216, 219 (3rd Cir.1987).

ANALYSIS

Plaintiff asserts that since the insured filed a claim for benefits on June 2, 1989, and defendant waited until October 18, 1989 to ask plaintiff to surrender his policy, defendant is estopped by the incontestability clause from contesting a medical condition of plaintiff which existed prior to the policy's issuance. Defendant avers as an affirmative defense, that the notice denying plaintiff's claim for benefits and contesting the policy's validity, was made within the period of contestability.

The policy's incontestability clause which is the subject of dispute reads as follows:

Incontestable-(a) After this policy has been in force for two years during your lifetime (excluding any period during which you are disabled), we will not be able to contest the statements you made in the application.

(b) We will not be able to reduce or deny any claim for disability which starts after two years from the date of issue because the disease or physical condition existed before the date of issue. There is one exception. We will be able to reduce or deny the claim if the disease or physical condition is specifically excluded from coverage when the loss occurs.

See Defendant's motion for summary judgment, (Ex. 2).

Defendant claims that the phrase "excluding any period during which you are disabled," means that the two year period for contestability is tolled at the time of disability, if such disability occurs within the two year period before the policy becomes uncontestable. If an insured becomes disabled within the two year time period with an on-going disability, then the period of contestability continues forward, such that the policy never becomes uncontestable. Even were we to accept this analysis as valid, defendant still fails to meet its burden of proof on the affirmative defense that they contested the validity of plaintiff's disability policy within the period of contestability. We perceive an ambiguity in the incontestability clause, which we appropriately resolve in favor of the plaintiff.

It is hornbook law that, "Where there is an ambiguity in an incontestable clause in an insurance policy, such ambiguity will be resolved in favor of the insured ..." 18 Couch on Insurance 2d (Rev ed) § 72.33, p. 306; Accord Rodríguez v. John Hancock Mutual Life, 110 P.R.R. 1, 7 (P.R.1980); and Malloy v. New York Life Insur. Co., 103 F.2d 439 (1st Cir.1939).

We see at least two plausible interpretations of the language of the policy's incontestability clause "excluding any period during which you are disabled." One could plausibly argue that this language means, that if a claimant files a disability claim during the two year period for contestability — i.e. twenty months after issuance of the policy; the period of contestability continues to run so that the policy would not be considered uncontestable, even if the insurance company does not contest the policy and deny the claim until twenty-five months from the date of issuance.

On the other hand, one could equally interpret the clause to mean that if a claimant filed a disability claim outside the two year period for contestability — i.e. twenty-five months after issuance of the policy; then the contract becomes incontestable after the twenty-fourth month and the contestability period is not extended retroactively.

Since the incontestability clause contained in this insurance...