Guardian Life Ins. Co. v. Schaefer, 70 N.Y.2d 888 (1987)
When an insurance policy’s incontestability clause uses the ambiguous term “in force,” it will be construed against the insurer, potentially referring to the policy’s date of issuance rather than its effective date.
Summary
Guardian Life sought to void a disability insurance policy issued to Schaefer, alleging material misstatements. The policy was “backdated” to December 4, 1981, but its effective date was February 25, 1982. The incontestability clause stated the policy could not be voided for misstatements after being “in force” for two years. Schaefer argued the two-year period began on the backdated “date of issue,” precluding Guardian’s action. The court held that the term “in force” was ambiguous and construed it against Guardian, the drafter, favoring the earlier date of issue. This decision highlights the importance of clear language in insurance contracts and the protection afforded to insured parties by incontestability clauses.
Facts
1. Guardian Life issued a disability insurance policy to Schaefer on December 18, 1981.
2. The policy was “backdated” with a “date of issue” of December 4, 1981, to provide Schaefer a reduced premium rate.
3. The policy’s “effective date” was February 25, 1982.
4. The policy contained an incontestability clause stating that after the policy was “in force” for two years, Guardian could not void it for material misstatements.
5. Schaefer became disabled on May 19, 1983.
6. Guardian commenced an action on February 23, 1984, to void the policy based on Schaefer’s alleged false statements.
Procedural History
1. Guardian sued to void the policy; Schaefer counterclaimed for enforcement.
2. The Supreme Court granted summary judgment to Schaefer, enforcing the policy.
3. The Appellate Division affirmed the Supreme Court’s decision without opinion.
4. Guardian appealed to the New York Court of Appeals.
Issue(s)
Whether the term “in force,” as used in the incontestability clause of the insurance policy, refers to the “date of issue” or the “effective date” of the policy.
Holding
Yes, the term “in force” should be construed as referring to the date of issuance because the term is ambiguous, and ambiguities in contracts are construed against the drafter.
Court’s Reasoning
The court found that the term “in force” was not defined within the policy or the applicable statute (Insurance Law § 3216 [d] [1] [B] [i]). Because the term could arguably refer to either the date of issue or the effective date, it was deemed ambiguous. The court applied the established rule of contract construction that ambiguities are to be construed against the drafter, which in this case was Guardian Life. The court cited Killian v Metropolitan Life Ins. Co., 251 NY 44, to support this rule. The court reasoned that the insured was entitled to the inference that “in force” referred to the date of issuance, December 4, 1981. As a result, the insurer’s time to void the policy expired on December 3, 1983, fixing its obligations to the insured from that point forward. The court’s decision emphasizes the importance of clear and unambiguous language in insurance contracts to avoid disputes over the interpretation of key terms like “in force.” The ruling serves to protect insured parties by strictly construing ambiguities against the insurer, reinforcing the purpose of incontestability clauses to provide security and certainty to the insured after a specified period.