Officer, Dean v. Chase Insur Life

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 07-2826
D EAN O FFICER,
Plaintiff-Appellant,
v.
C HASE INSURANCE L IFE AND A NNUITY C OMPANY,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Indiana, Lafayette Division.
No. 06 C 127—Allen Sharp, Judge.
____________
D A T E S U BM ITTED J A N U A R Y 24, 2008 Œ— D EC ID ED S EP TEM BER 3, 2008
____________
Before P OSNER, R IPPLE, and T INDER, Circuit Judges.
T INDER, Circuit Judge. This case questions the validity
under Indiana law of a suicide exclusion clause in a life
Œ
Although oral argument was originally scheduled in this case,
the parties filed a joint motion to waive oral argument. The
court granted the motion, and this appeal is submitted on
the briefs and records.
2 No. 07-2826
insurance policy. Dean Officer (“Officer”), as the benefi-
ciary of his wife’s life insurance policy, brought this suit
against Chase Insurance Life & Annuity Company
(“Chase”) to recover the face amount of the policy. The
district court entered judgment in favor of Chase. We
affirm.
I. Background
Chase issued a life insurance policy to Theresa Officer
(“Theresa”) in the amount of one million dollars. Officer
was named as the beneficiary, and the policy became
effective on February 11, 2004. The policy contained a
suicide provision limiting the benefits if the insured
committed suicide within two years of the effective date
of the policy. The Officers paid the premiums due in
2004 and 2005, totaling $540. Sadly, Theresa died of an
apparent self-inflicted gunshot wound on January 4, 2006.
Officer sent a claim to Chase in April 2006 as the benefi-
ciary of Theresa’s life insurance policy. Chase sent Officer
$540, representing the amount the Officers had paid in
premiums. Officer filed suit in August 2006 in Jasper
County, Indiana, to recover the face value of the million
dollar policy. Chase removed the case to the Northern
District of Indiana. Officer filed a motion for summary
judgment, contending that the suicide provision was
ambiguous and constituted an unenforceable forfeiture.
The district court denied Officer’s motion, finding that
as a matter of law the insurance policy was unambiguous,
valid, and enforceable. The parties then stipulated that
Theresa’s death was a suicide and filed an agreed motion
No. 07-2826 3
for entry of final judgment in Chase’s favor, with Officer
reserving the right to appeal the denial of his summary
judgment motion. The court entered final judgment
on the uncontested facts in favor of Chase on July 18,
2007, and Officer now appeals.
II. Analysis
Officer appeals the district court’s determination that
the suicide exclusion clause was unambiguous, valid,
and enforceable as a matter of law; the facts are uncon-
tested since the parties stipulated that Theresa’s death
was a suicide. We review pure questions of law de novo.
Samuel C. Johnson 1988 Trust v. Bayfield County, Wis., 520
F.3d 822, 828 (7th Cir. 2008); Klein v. DePuy, Inc., 506
F.3d 553, 554 (7th Cir. 2007).
A. Insurance Contract Ambiguity
When sitting in diversity, we must apply the substan-
tive law of the state as we believe the highest court of that
state would apply it when faced with the same issue.
Allstate Ins. Co. v. Keca, 368 F.3d 793, 796 (7th Cir. 2004).
Both parties agree that Indiana law applies here. Officer
does not argue that Indiana law prohibits the exclusion
of suicide under life insurance policies; Indiana has
long permitted exclusions of this type. See, e.g., Nw. Mut.
Life Ins. Co. v. Hazelett, 4 N.E. 582 (Ind. 1886) (discussing
a suicide exclusion and noting that “[i]t is neither unlaw-
ful, nor against public policy, for a contract of life insur-
ance to stipulate that upon certain conditions or con-
4 No. 07-2826
tingencies the policy shall become void”); Kunse v. Knights
of the Modern Maccabees, 90 N.E. 89, 91 (Ind. App. 1909)
(enforcing a suicide exclusion). Instead, Officer argues
that the provision is ambiguous and should be construed
in his favor. To determine whether Officer is entitled to
receive the face amount of the insurance policy, we refer
to Indiana’s law of contract interpretation. Nat’l Athletic
Sportswear, Inc. v. Westfield Ins. Co., 528 F.3d 508, 512 (7th
Cir. 2008). An insurance contract is subject to the same
rules of interpretation as other contracts under Indiana
law. Morris v. Econ. Fire & Cas. Co., 848 N.E.2d 663, 666
(Ind. 2006). “If the language in the insurance policy is
clear and unambiguous, then it should be given its
plain and ordinary meaning, but if the language is am-
biguous, the insurance contract should be strictly con-
strued against the insurance company.” Id. Indiana law
is clear that an ambiguity does not arise merely because
the two parties are able to create different interpretations
of the policy language at issue. USA Life One Ins. Co. of Ind.
v. Nuckolls, 682 N.E.2d 534, 538 (Ind. 1997). “Rather, the
policy is ambiguous only if it is susceptible to more than
one interpretation and reasonably intelligent persons
would differ as to its meaning.” Id. (internal quotation
omitted).
Chase’s suicide provision states:
We will limit the proceeds we pay under this
policy if the insured commits suicide, while sane
or insane:
1. within 2 years from the Date of Issue;
and
No. 07-2826 5
2. after 2 years from the Date of Issue,
but within 2 years from the effective date
of the last reinstatement of this policy.
The limited amount will equal all premiums paid
on this policy.
Although courts in Indiana and other others states
have frequently analyzed suicide clauses in insurance
contracts, no court has construed the exact language at
issue here. See, e.g., Commonwealth Life Ins. Co. v. Jackson,
432 N.E.2d 1382, 1384 (Ind. Ct. App. 1982) (construing
a suicide clause that stated: “the amount payable . . . shall
be limited to the premium or premiums paid hereunder
without interest”); Cont’l Assurance Co. v. Krueger, 66
N.E.2d 133, 134 (Ind. App. 1946) (construing a suicide
clause that stated: “the liability of the company shall
be limited to an amount equal to the premiums actually
paid on this policy”); Aetna Life Ins. Co. v. Doerr, 115 N.E.
700, 701 (Ind. App. 1917) (construing a suicide clause
that stated: “If the insured shall commit suicide within
one year . . . this policy shall be null and void.”).
Officer argues that the exclusion is susceptible to two
meanings. First, the amount payable could equal the
face value minus the premiums paid, or $999,460. Second,
the amount payable could equal the amount of premiums
paid, or $540. Obviously, Officer prefers the first inter-
pretation and Chase prefers the second.
The district court rejected Officer’s interpretation of
the suicide provision and concluded that it was unam-
biguous as written. The court noted that the plain and
ordinary meaning of the words “proceeds” and “amount”
6 No. 07-2826
are “virtually interchangeable.” Officer v. Chase Ins. Life &
Annuity Co., 478 F. Supp. 2d 1069, 1075 (N.D. Ind. 2007).
Although we can imagine improved ways to write this
exclusion, we, too, conclude that the policy is not am-
biguous as written. The first clause of the insurance pro-
vision sets out Chase’s exclusion by stating: “We will
limit the proceeds we pay.” It then sets out the circum-
stances under which it will limit the proceeds. The final
sentence states: “The limited amount will equal all premi-
ums paid on this policy.” None of these terms is defined,
and so “the limited amount” most logically refers back
to the first phrase. Combining those two phrases, the
policy’s meaning is clear: “The limited amount [of pro-
ceeds we pay] will equal all premiums paid on this policy.”
Officer’s alternate interpretation—“We will limit the
proceeds, and the amount by which they will be limited
will equal the premiums paid”—is not a reasonable
interpretation. If, as he suggests, the limited amount
were equal to the face value minus the premiums paid,
Chase would be required to pay more money where
an insured committed suicide one day after buying the
policy than it would have to pay one day before the
suicide exclusion expired. Reasonably intelligent persons
would not find that the provision was susceptible to
Officer’s interpretation.
Officer also argues that another portion of the policy uses
clearer language: “The proceeds payable on the death of
the insured are equal to . . . .” He asserts that because
Chase knew how to clearly write “proceeds payable”
elsewhere, the term “limited amount” can reasonably
mean something else in the suicide provision. It is appro-
No. 07-2826 7
priate to look at the insurance contract as a whole in
determining ambiguity, and courts should attempt to
harmonize provisions rather than placing them in con-
flict. Dunn v. Meridian Mut. Ins. Co., 836 N.E.2d 249,
252 (Ind. 2005). These two provisions are not in conflict,
though. Chase could have used the same language in
both provisions, but the fact that it used different lang-
uage to express the amount of proceeds payable does
not compel the conclusion that two otherwise unambigu-
ous statements have become ambiguous.
B. Disproportionate Forfeiture
Officer argues that, if the exclusion is not ambiguous,
then Indiana courts would find that it was a dispropor-
tionate forfeiture or an illegal penalty. He asserts that there
is no rational relationship between the harm Chase suf-
fered by the breach of the suicide clause and the
$999,460 loss he will suffer by being repaid only the
premiums.
Officer cites several cases in which liquidated damages
clauses were included in the parties’ contracts. Liquidated
damages refers to “a specific sum of money that has been
expressly stipulated by the parties to a contract as the
amount of damages to be recovered by one party for a
breach of the agreement by the other, whether it exceeds
or falls short of actual damages.” Time Warner Entm’t Co. v.
Whiteman, 802 N.E.2d 886, 893 (Ind. 2004). While liquidated
damages clauses are enforceable, they are treated as
unenforceable penalties where they are “grossly dispropor-
tionate to the loss that may result from a breach of con-
8 No. 07-2826
tract.” Id. at 894. To determine whether this clause results
in an unenforceable penalty, Officer contends that we
should “weigh the extent of the forfeiture by the obligee
against the importance to the obligor of the risk from
which he sought to be protected and the degree to which
that protection will be lost if the non-occurrence of the
condition is excused to the extent required to prevent
forfeiture.” Restatement (Second) of Contracts § 229 cmt. b
(1981). Officer asserts that the only purpose of the two-year
suicide provision is to prevent fraud. Here, the fraud
purpose had been 95% fulfilled, since Theresa died thirty-
four days prior to the expiration of the exclusion; there-
fore, he argues, a forfeiture of $999,460 is grossly dispro-
portionate.
The district court concluded that the exclusion was
enforceable because Chase was seeking to perform the
policy as written; it was not demanding a forfeiture. Officer
is correct that insurance companies often include
suicide provisions in life insurance policies to prevent
fraud by the insured. See Commonwealth Life Ins. Co., 432
N.E.2d at 1391. Preventing fraud is not the only purpose
of such an exclusion, however. See, e.g., Kunse, 90 N.E. at 91
(enforcing a suicide clause and noting that insurers may
choose “not to assume a risk of a certain mode of death,
and presumably the premiums are calculated on the
elimination of that risk”).1 Regardless of the purpose of
1
Officer assets that Chase has waived any argument that the
exclusion could serve a purpose other than fraud. Chase,
(continued...)
No. 07-2826 9
Chase’s suicide limitation, forfeiture and liquidated
damages are not appropriate concepts to apply to a suicide
exclusion in an insurance contract. Officer cites cases
dealing with lending arrangements, health services con-
tracts, and land sale contracts—notably, he does not cite
any cases dealing with insurance contracts.
Exclusions are generally enforceable in insurance con-
tracts because “[i]nsurance companies are free to limit
their liability in a manner not inconsistent with public
policy as reflected by case or statutory law.” Allstate Ins.
Co. v. Boles, 481 N.E.2d 1096, 1098 (Ind. 1985). The Indiana
Supreme Court has upheld (or, absent issues of fact,
indicated that it would be likely to uphold) insurance
exclusions where the insured injures a member of his
own household, id. at 1101, exclusions for intentional acts,
Allstate Ins. Co. v. Herman, 551 N.E.2d 844, 846 (Ind. 1990),
and exclusions for business activities in a homeowner’s
policy, Frankenmuth Mut. Ins. Co. v. Williams ex rel. Stevens,
690 N.E.2d 675, 680 (Ind. 1997). The court has also approv-
ingly discussed suicide exclusions on many occasions. See,
e.g., Sovereign Camp of Woodmen of the World v. Porch, 110
N.E. 659 (Ind. 1915) (the burden is on the insurer to prove
suicide); Hazelett, 4 N.E. at 587 (suicide clause not applica-
1
(...continued)
however, maintained in its summary judgment brief, summary
judgment oral argument, and appellate brief that insurance
companies define the risks that they insure and determine the
premium rates by the exposure to those risks. Chase has not
waived any argument with respect to the purpose of the
suicide exclusion.
10 No. 07-2826
ble where death was caused by accident). “If a plainly
expressed exception, exclusion or limitation in an insur-
ance policy is not contrary to public policy, it is entitled
to construction and enforcement as expressed.” Boles, 481
N.E.2d at 1098 (emphasis added). Chase is not seeking
to escape its obligations under the policy; it tendered a
check to Officer for the amount it owed. The suicide
exclusion is not an unenforceable penalty and is subject
to enforcement as expressed.
C. Substantial Performance
Officer also argues that the breach of the insurance
contract was immaterial and the doctrine of substantial
performance should prevent Chase from discharging its
obligation to pay. He asserts that the suicide provision
was 95% performed at the time of the breach and its
purpose was effectuated because there was no evidence of
fraud. Substantial performance applies “where perfor-
mance of a nonessential condition is lacking, so that the
benefits received by a party are far greater than the injury
done to him by the breach of the other party.” Gibson v.
Neu, 867 N.E.2d 188, 195 (Ind. Ct. App. 2007) (internal
quotation omitted). Officer would like us to consider
several factors to determine whether the breach was
material enough to excuse Chase from paying the face
amount of the policy. See, e.g., Collins v. McKinney, 871
N.E.2d 363, 375 (Ind. Ct. App. 2007) (applying Restatement
(Second) of Contracts § 241 to determine the materiality
of the breach); Frazier v. Mellowitz, 804 N.E.2d 796, 803
(Ind. Ct. App. 2004) (same).
No. 07-2826 11
The district court concluded that the doctrine of sub-
stantial performance was inapplicable to a suicide exclu-
sion. Officer complains that the district court relied upon
a single irrelevant case, Dove v. Rose Acre Farms, Inc., 434
N.E.2d 931 (Ind. Ct. App. 1982). The district court, how-
ever, only cited that case for the definition of substantial
performance; instead, the court based its reasoning
upon Officer’s inability to cite (and its own inability to
find) any cases where the doctrine of substantial perfor-
mance was applied in the way that Officer suggested. On
appeal, Officer again primarily cites cases dealing with
land sale contracts and services contracts, but this time
he also cites one insurance case, which we will discuss.
In Miller v. Dilts, 463 N.E.2d 257, 260 (Ind. 1984), the
Indiana Supreme Court considered the issue of whether
an insurance company must show actual prejudice to
avoid coverage under a policy where an insured failed to
give the company prompt notice of a claim. The court
recognized that the duty to notify is a “condition[] prece-
dent to the insurance company’s liability to its insured.” Id.
at 260-61. The court held that prejudice can be presumed
by an unreasonable delay in notifying the company about
an accident or lawsuit, but the insured can rebut that
presumption by showing evidence that the insurance
company was not actually prejudiced. Id. at 265-66. Officer
seizes upon the court’s discussion of how an insured
could rebut the presumption, and he argues that it “fore-
closes Chase’s simplistic argument that a two-year provi-
sion is a two-year provision” because the court did not
say the same thing about notice: “Notice was either timely
or it was not.” This is illogical. The notice provision in
12 No. 07-2826
Miller did not contain a specific deadline; it required the
insured “promptly notify” the insurer of the claim. Id. at
260. Timeliness under that provision is measured by preju-
dice—if the insurance company is prejudiced, the notice
is not timely. Additionally, prompt notice serves
an important purpose, in that it allows the insurance
company to begin to investigate and defend a claim;
using prejudice as the measure of timeliness serves that
purpose. Here, the measure of time for the exclusion is
the period assigned by the policy, two years. The im-
portant purpose served (whether the provision was
included to prevent fraud or for any other reason) is to
exclude from coverage a specified risk for a specified
amount of time. Allowing Officer to recover would thwart
the purpose of the exclusion. In any event, the doctrine
of substantial performance is simply inapplicable here;
an insured is not “performing” a life insurance contract
by not committing suicide. We reiterate that “[i]f a plainly
expressed exception, exclusion or limitation in an insur-
ance policy is not contrary to public policy, it is entitled
to construction and enforcement as expressed.” Boles, 481
N.E.2d at 1098 (emphasis added). Officer is entitled only
to the amount of premiums paid.
D. Motion for Certification
Officer moved that we certify two questions to the
Indiana Supreme Court pursuant to our Circuit Rule 52:
whether the doctrines of illegal forfeiture and sub-
stantial performance apply to this insurance contract. “A
case is appropriate for certification where it concerns a
No. 07-2826 13
matter of vital public concern, where the issue will likely
recur in other cases, where resolution of the question to
be certified is outcome determinative of the case, and
where the state supreme court has yet to have an op-
portunity [to] illuminate a clear path on the issue.” Plastics
Eng’g Co. v. Liberty Mut. Ins. Co., 514 F.3d 651, 659 (7th Cir.
2008) (internal quotation omitted). The Indiana Supreme
Court permits a federal court to certify a question when
it appears that “a proceeding presents an issue of state
law that is determinative of the case and on which there
is no clear controlling Indiana precedent.” Ind. R. App. P.
64(a). We believe that the Indiana Supreme Court has
“illuminate[d] a clear path,” Plastics Eng’g Co., 514 F.3d at
659, for us to confidently resolve Officer’s claim under
Indiana law. As such, we decline to certify the questions.
Compare McWaters v. Parker, 995 F.2d 1366, 1371 n.4
(7th Cir. 1993) (denying a motion to certify a question,
noting that “[u]nderlying the foregoing analysis is our
belief that the Indiana Supreme Court’s position on
mutual mistake in this type of case is discernable”) with
Brownsburg Area Patrons Affecting Change v. Baldwin, 137
F.3d 503, 509-10 (7th Cir. 1998) (certifying a question to
the Indiana Supreme Court on the Indiana Code’s defini-
tion of Political Action Committee “due to the breadth of
impact of the issue at bar and the important concerns
of federalism apparent when a federal court is asked to
interpret a state statute”).
III. Conclusion
The district court properly concluded that the suicide
limitation was valid and enforceable. We A FFIRM the
14 No. 07-2826
district court’s judgment and D ENY Officer’s motion for
certification of questions to the Indiana Supreme Court.
9-3-08