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USCA1 Opinion
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
____________________
No. 96-1080
PROTECTIVE LIFE INSURANCE COMPANY,
Plaintiff, Appellee,
v.
DENNIS J. SULLIVAN,
Defendant,
and
DIGNITY VIATICAL SETTLEMENT PARTNERS, L.P.,
and DIGNITY PARTNERS, INC.
Defendants, Appellants.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge] ___________________
____________________
Before
Selya, Circuit Judge, _____________
Campbell, Senior Circuit Judge, ____________________
and Boudin, Circuit Judge. _____________
____________________
Luke DeGrand with whom Clark & DeGrand, Wayne S. Henderson, and ____________ ________________ ___________________
Heidlage & Reece, P.C. were on briefs for appellants. ______________________
Elliott M. Kroll, Mark S. Fragner, Lori M. Meyers and Kroll & _________________ ________________ ______________ ________
Tract on brief for Cancer Care, Inc., The Viatical Association of _____
America, Affording Care, and the National Association of People With
Aids, Amici Curiae.
John A. Shope with whom John H. Henn and Foley, Hoag & Eliot were _____________ ____________ ___________________
on briefs for appellee.
Rita M. Theisen, Andrea J. Hageman, LeBoeuf, Lamb, Greene & _________________ __________________ _________________________
MacRae, L.L.P. and Phillip E. Stano on brief for American Council of ______ ______ ________________
Life Insurance, Amicus Curiae.
____________________
July 15, 1996
____________________
Per Curiam. Dignity Viatical Settlement Partners, L.P. __________
and Dignity Partners, Inc. (collectively, "Dignity") appeal
from a judgment in favor of Protective Life Insurance Company
in the insurance company's action for rescission of a life
insurance policy. The district court held that the
Massachusetts incontestability statute, Mass. Gen. L. ch.
175, 132, does not bar an action for rescission of a life
insurance policy for fraud, even though the action was
commenced more than two years after the policy was issued.
After careful deliberation, we certify, on our own motion,
two questions concerning the contestability of life insurance
policies under Massachusetts law to the Supreme Judicial
Court of Massachusetts.
On September 24, 1991, Dennis J. Sullivan applied to
Protective Life for a life insurance policy in the amount of
$100,000 with an annual premium of $175. Although Sullivan
had been diagnosed a month earlier as HIV positive and had
begun a course of treatment, he falsely stated that his
health was "excellent", omitted the names of those doctors
who knew of his affliction, and said he was not taking
medication (when in fact he was using AZT). He authorized
Protective Life to conduct medical tests, including a test
for HIV infection, but on November 8, 1991, the insurance
company issued a policy to Sullivan without having ordered an
HIV test. The policy included an optional provision which,
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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 his
HIV infection had progressed to AIDS. He stopped working
around this time and applied in October 1992 for disability
benefits from another insurance company. But he did not
apply to Protective Life for a waiver of his life insurance
premiums on account of disability until about November 8,
1993, exactly two years after the policy was issued.
In October 1993, Sullivan contacted National Viator
Representatives, Inc., a broker of viatical settlements,
agreements under which an insured sells a life insurance
policy for an immediate payment approximating the discounted
face value of the policy. The broker informed Protective
Life that Sullivan wished to assign ownership of his policy.
Sullivan agreed to assign his policy to Dignity, a firm
engaged in making viatical settlements. On December 14,
1993, Dignity submitted the assignment forms to Protective
Life. Protective Life approved the assignment on December
22, 1993, and on the same day Dignity paid Sullivan $73,000.
Massachusetts law requires life insurance policies to
include a provision stating that the policy shall not be
contestable after it has been in effect for two years from
its date of issue,
except for non-payment of premiums or violation of the
conditions of the policy relating to military or naval
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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.
Mass. Gen. L. ch. 175, 132. Sullivan's insurance policy
contained the following incontestability provision: "We
cannot bring any legal action to contest the validity of this
policy after it has been in force two years except for
failure to pay premiums unless fraud is involved." (emphasis ________________________
added). Protective Life had submitted the policy form
containing this provision to the Massachusetts Commissioner
of Insurance, and the Commissioner had approved the form on
September 18, 1988, saying that it "appear[ed] to conform" to
Massachusetts insurance law.
Protective Life filed suit on April 15, 1994 to rescind
the policy because Sullivan had obtained it through
fraudulent misrepresentations. It is undisputed that
Sullivan knew he was HIV positive when he applied for the
life insurance policy, that he failed to disclose that he was
seeing a physician for treatment of this condition despite
questions calling for this information, and that Protective
Life would not have issued the policy had it known Sullivan's
true medical condition.
Dignity and Sullivan moved to dismiss the action on the
ground that the provision allowing the company to contest the
policy for fraud more than two years from its date of issue
was inconsistent with Mass. Gen. L. ch. 175, 132. The
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district court denied the motion on January 12, 1995 and
similarly denied the subsequent motion for reconsideration on
June 9, 1995. After a two-day bench trial, the court ruled
from the bench that state law did not bar the action and
entered judgment for Protective Life against Dignity on
November 17, 1995. Sullivan died of complications associated
with AIDS on April 4, 1995, and the claims against him were
dismissed.
The district court found no clear precedent on the
question whether section 132 permits a fraud exception to the
two-year limitations period for contesting life insurance
policies. The court held that the Commissioner's
interpretation of the statute, implicit in the approval of
the policy form, was entitled to deference. Finding the
statute silent on the precise issue, the court held that the
Commissioner's decision to approve a policy form containing a
fraud exception was reasonable, and therefore that Protective
Life could challenge the policy. The court found by clear
and convincing evidence that Sullivan committed fraud and
rescinded the policy.
On appeal, Dignity argues that section 132 should not be
read to include a fraud exception. Dignity further contends
that the Commissioner's approval of the policy form was not
entitled to deference because it did not constitute a
meaningful interpretation of the statute. Protective Life,
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in response, asserts that the Commissioner's interpretation
of section 132 is reasonable and entitled to deference.
Protective Life also argues as an alternative ground for
affirmance that the incontestability period was equitably
tolled because Sullivan concealed his misrepresentations
through his delay in applying for a waiver of premiums for
disability.
There is a plausible plain-language argument that
section 132 should not be read to include a fraud exception.
The statute expressly enumerates three exceptions to the two-
year limitations period, and fraud is not among them. The
statute governing health insurance policies, in contrast,
states that the validity of a policy may be challenged for
fraudulent misstatements in the application beyond the
ordinary incontestability period. Mass. Gen. L. ch.175,
108(3)(a)(2). Section 132 also states that a policy
provision that "is stated in terms more favorable to the
insured or his beneficiary than are herein set forth" is
acceptable; Dignity argues that a negative inference should
be drawn from this that a provision less favorable to the
insured violates the statute--and that Protective Life's
inclusion of the fraud exception in its contestability
provision makes the policy less favorable.
The interpretation of section 132 is complicated,
however, by its relationship to another provision of
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Massachusetts insurance law, Mass Gen. L. ch. 175, 124.
Section 124 provides that in claims arising under a life
insurance policy issued without a medical examination or
without knowledge and consent of the insured,
the statements made in the application as to the age,
physical condition and family history of the insured
shall be held to be valid and binding on the company;
but the company shall not be debarred from proving as a
defense to such claim that said statements were wilfully
false, fraudulent or misleading.
On Dignity's reading, section 124 operates only during the
two- year period for contesting the policy under section 132,
and makes it more difficult to rescind certain types of
policies (those issued without an examination or without
knowledge and consent) during that time. Section 124
requires proof of fraud, while policies outside the scope of
section 124 may be rescinded on a showing of material factual
inaccuracy, see Mass. Gen. L. ch. 175, 186. Protective ___
Life argues to the contrary that section 124 contains no
express time limitation and creates an exception to the
ordinary two-year time limit for policies issued without
examination or consent, allowing insurance companies to
contest such policies for fraud at any time.
This case presents a question of first impression in
Massachusetts. In Bonitz v. Travelers Ins. Co., 372 N.E.2d ______ __________________
254 (Mass. 1978), the court observed that section 132 "is
designed to require the insurer to investigate and act with
reasonable promptness if it wishes to deny liability on the
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ground of false representation or warranty by the insured."
Id. at 256 (quoting Metropolitan Life Ins. Co. v. De Nicola, ___ __________________________ _________
58 N.E.2d 841, 842 (Mass. 1944)). But Bonitz did not concern ______
the validity of an exception for fraud and so does not
control here. Decisions in other jurisdictions on fraud
exceptions to incontestability statutes have been mixed,
compare Amex Life Ins. Co. v. Slome Capital Corp., 43 Cal. _______ __________________ ____________________
App. 4th 1588, 1605-07 (Cal. App. 1996), with Fioretti v. ____ ________
Massachusetts General Life Ins. Co., 53 F.3d 1228, 1236-37 _____________________________________
(11th Cir. 1995), cert. denied, 116 S. Ct. 708 (1996) _____________
(construing New Jersey law), and none has dealt with the
interaction between two provisions analogous to sections 124
and 132.
Protective Life offers the canon of construction that
the specific controls the general, but that rule does not
help in this case because both statutory provisions are
specific in different ways. Section 132 states clearly that
there is a two-year time limit on contesting the validity of
life insurance policies. Section 124 says, equally clearly,
that particular types of policies--those issued without a
medical examination or knowledge and consent of the insured--
may be contested for fraud, without specifying a time limit.
As a matter of policy, Protective Life claims that section
124 was enacted to encourage the issuance of life insurance
policies cheaply and quickly, without a medical examination.
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Dignity asserts to the contrary that the provision disfavors _________
such policies by making it more difficult for insurance
companies to contest them during the two-year contestability
period. Neither party has presented persuasive legislative
history on the point.
The subsidiary question of the weight to be accorded to
the Commissioner's action in clearing the policy form also
appears to be open to dispute. The Commissioner's
interpretation of Massachusetts insurance law may be entitled
to deference even when the interpretation is evidenced only
by approval of a policy form. See Colby v. Metropolitan ___ _____ ____________
Property and Cas. Ins. Co., 652 N.E.2d 128, 131 (Mass. 1995). __________________________
The district court found that the Commissioner has determined
that there is an implicit exception to the incontestability
clause for actual, willful fraud and has routinely approved
life insurance policies with such an exception. If, however,
the Commissioner's interpretation is contrary to the language
and policy of the statute, it will not be deemed persuasive.
Cardin v. Royal Ins. Co. of America, 476 N.E.2d 200, 205 ______ ___________________________
(Mass. 1985).
Protective Life further argues that the two-year time
limit should be equitably tolled because Sullivan not only
committed fraud in his application, but also concealed the
fraud by deliberately waiting to apply for the disability
waiver of his premium until the incontestability period
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expired. This argument also raises a difficult question of
Massachusetts law. There is no clear precedent on the
question whether the time limit in section 132 is subject to
equitable tolling.
Even if in some cases the time limit could be tolled,
the facts in this case present a further question: the only
act of concealment asserted as a ground for equitable tolling
is Sullivan's delay in applying for his disability waiver.
The district court found that this delay amounted to an
ongoing course of fraudulent conduct designed to conceal the
fraud in the application. Dignity denies that Sullivan
deliberately delayed his application and denies that such
inaction, even if deliberate, could give rise to equitable
tolling.
On our own motion, we certify to the Supreme Judicial
Court of Massachusetts, pursuant to its Rule 1:03, the
questions set forth in the attached certificate, and we
retain jurisdiction over this case pending their
determination.
It is so ordered. ________________
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UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 96-1080
PROTECTIVE LIFE INSURANCE COMPANY,
Plaintiff, Appellee,
v.
DENNIS J. SULLIVAN,
Defendant,
and
DIGNITY VIATICAL SETTLEMENT PARTNERS, L.P.,
and DIGNITY PARTNERS, INC.
Defendants, Appellants.
____________________
CERTIFICATION
____________________
For the reasons discussed in our opinion in this case, we certify
to the Supreme Judicial Court of Massachusetts, pursuant to its Rule
1:03, the following questions:
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?
Although we have framed the questions for the Supreme Judicial
Court, we would welcome discussion by that court on any other issue of
Massachusetts law material to the case. The Clerk of this court will
transmit, under the official seal of this court, the certified
questions and our opinion in this case, along with copies of the
briefs and appendix filed by the parties in this case, to the Supreme
Judicial Court of Massachusetts.
United States Court of Appeals
for the First Circuit
By:_______________________
Bruce M. Selya
Circuit Judge
Document Info
Docket Number： 96-1080
Filed Date： 7/15/1996
Precedential Status： Precedential
Modified Date： 9/21/2015