New York Law Review

Tag: Disability Insurance

  • Friedman v. Connecticut General Life Ins. Co., 9 N.Y.3d 105 (2007): Enforceability of ‘Relation of Earnings to Insurance’ (REI) Clause Location

    9 N.Y.3d 105 (2007)

    The placement of a “Relation of Earnings to Insurance” (REI) clause within the “General Provisions” of a disability insurance policy complies with Insurance Law § 3216.

    Summary

    This case addresses whether an insurance company violated New York Insurance Law § 3216 by placing a “Relation of Earnings to Insurance” (REI) clause in the “General Provisions” section of a disability insurance policy, rather than with the benefit provision it modifies. The New York Court of Appeals held that the placement complied with the law. The court reasoned that because the REI clause is explicitly referenced in subsection (d) of section 3216, it is excepted from the location requirements of subsection (c)(7). This interpretation avoided creating conflict within the statute and gave effect to the legislature’s intent, thereby upholding the enforceability of the clause as written in the policy.

    Facts

    Bruce Friedman purchased a disability income insurance policy from Connecticut General Life Insurance Company in 1983. The policy stated a monthly disability benefit of $2,500. The policy contained a “Relation of Earnings to Insurance” (REI) clause in the “General Provisions” section. The REI clause stipulated that if the total disability benefits from all sources exceeded the insured’s monthly earnings at the time of disability, the insurer would only be liable for a reduced amount, plus a refund of premiums. In 1998, Friedman became disabled. Initially, Connecticut General paid the full $2,500 benefit, but later reduced the monthly payments based on the REI clause.

    Procedural History

    Friedman sued Connecticut General, alleging the placement of the REI clause was unfair and violated New York insurance statutes. The Supreme Court initially denied Connecticut General’s motion to dismiss. The Supreme Court later granted Friedman summary judgment, declaring the REI clause void and awarding him full benefits. Connecticut General appealed, and Friedman cross-appealed the denial of class certification. The Appellate Division reversed the Supreme Court, holding that the placement of the REI clause did not violate the statute. Friedman appealed to the New York Court of Appeals, which granted leave to appeal except for the class certification issue.

    Issue(s)

    1. Whether the placement of the REI clause in the “General Provisions” section of the disability insurance policy violates New York Insurance Law § 3216(c)(7).
    2. Whether Connecticut General correctly calculated Friedman’s benefits even if the REI clause is enforceable.

    Holding

    1. No, because the REI clause is specifically addressed in Insurance Law § 3216(d), it is exempt from the placement requirements outlined in § 3216(c)(7).
    2. The Court did not rule on the merits. The Appellate Division incorrectly dismissed this cause of action, so the Court of Appeals reinstated it and remanded for further proceedings.

    Court’s Reasoning

    The Court of Appeals held that Insurance Law § 3216(c)(7) states that exceptions and reductions of indemnity must be included with the benefit provision to which they apply, “except those which are set forth in subsection (d) of this section.” Subsection (d)(2)(F) explicitly references “RELATION OF EARNINGS TO INSURANCE,” reciting the precise wording used by Connecticut General. Therefore, the REI clause, as an exception “set forth in subsection (d),” is explicitly excepted from the requirements of § 3216(c)(7). The court stated, “The purpose of a proviso is to restrain the enacting clause, to except something which would otherwise have been within it, or in some measure to modify it” (McKinney’s Cons Laws of NY, Book 1, Statutes § 212). Subsection (d)(4) provides its own placement scheme, allowing provisions to “appear as a unit in any part of the policy.” Interpreting subsection (c)(7)’s ending proviso to govern the REI clause would create superfluity or conflict within § 3216. The court must consider a statute as a whole. Regarding the eighth cause of action, the court found it required further adjudication because the parties had not fully presented evidence on the issue of miscalculation of benefits under the REI clause. The court noted, regarding interpreting statutes, that a court should “harmonize [ ] [all parts of a statute] with each other . . . and [give] effect and meaning … to the entire statute and every part and word thereof’ (id. § 98).

  • New England Mutual Life Insurance Co. v. Doe, 93 N.Y.2d 122 (1999): Enforceability of Incontestability Clauses

    New England Mutual Life Insurance Co. v. Doe, 93 N.Y.2d 122 (1999)

    An incontestability clause in an insurance policy prevents the insurer from denying a claim based on a pre-existing condition that manifested itself before the policy’s issuance, unless the policy contains an exception for fraudulent misstatements.

    Summary

    New England Mutual Life Insurance Company sought to disclaim coverage under a disability insurance policy issued to John Doe, arguing his disability stemmed from a condition (HIV) that manifested before the policy’s effective date. The policy contained a two-year incontestability clause. The New York Court of Appeals held that the incontestability clause barred the insurer’s attempt to deny coverage, as the disability occurred more than two years after policy issuance and the policy lacked a fraud exception. The court reasoned that “exist” means exist, regardless of the policyholder’s knowledge and that carriers may include a fraud exception in the incontestability clause to protect against fraudulent misstatements.

    Facts

    John Doe applied for disability insurance with New England Mutual Life in April 1991, answering “no” to questions about prior medical advice, treatment, illness, or abnormalities. He failed to disclose he was HIV positive and receiving treatment. The insurer issued the policy on April 15, 1991, unaware of Doe’s HIV status. In March 1996, Doe became disabled due to HIV/AIDS and claimed benefits. The insurer paid benefits under a reservation of rights.

    Procedural History

    The insurance company filed a declaratory judgment action seeking to disclaim coverage. The Supreme Court dismissed the complaint in favor of Doe. The Appellate Division affirmed that the incontestability clause precluded the denial of benefits. The Court of Appeals granted the insurer leave to appeal.

    Issue(s)

    Whether an incontestability clause in a disability insurance policy prevents the insurer from denying a claim made after the incontestability period, based on the argument that the disabling condition manifested itself before the policy’s effective date, when the policy does not explicitly exclude such pre-existing conditions or contain a fraud exception.

    Holding

    Yes, because the incontestability clause prevents the insurer from denying the claim based on a pre-existing condition that manifested itself before the policy’s issuance. The court reasoned that the word “exist” means exist, regardless of whether the policyholder was aware of the condition. Moreover, the insurer could have included a fraud exception in the incontestability clause but chose not to.

    Court’s Reasoning

    The Court of Appeals emphasized the purpose of the incontestability clause: to provide policyholders with assurance that their claims will be honored after a reasonable period for investigation. The court stated, “The legislative intent behind these incontestability clauses was much the same as in life insurance policies: ‘to encourage insurance buyers to purchase insurance with confidence that after the contestable period has passed they are assured of receiving benefits if they are disabled’ “. The court rejected the insurer’s argument that “existed” should be interpreted to mean “existed without manifestation,” finding such an interpretation inconsistent with the legislative intent behind the statute requiring incontestability clauses.

    The court acknowledged the insurer’s concern about potential fraud but noted that the insurer could have protected itself by including a fraud exception in the incontestability clause, as permitted by Insurance Law § 3216 (d) (1) (B). The court quoted, “A carrier may, compatibly with the incontestability clause, protect itself by including a provision in its incontestability clause creating an exception for ‘fraudulent misstatements’.” By choosing not to include such an exception, the insurer accepted the risk of fraudulent claims in exchange for a more marketable policy. This decision aligns with the principle that carriers may not write definitions that undermine statutory provisions.

    The court aligned itself with the line of cases that holds once the incontestability period is over, a carrier may not deny coverage by claiming that the applicant knew (by manifestation) of any symptom or condition related to the eventual cause of the disability.

  • Panepinto v. New York Life Ins. Co., 90 N.Y.2d 717 (1997): Interpreting ‘Termination of Disability’ in Insurance Policy Limitations Periods

    90 N.Y.2d 717 (1997)

    In disability insurance policies, the limitations period for commencing a lawsuit begins to run upon the actual termination of the insured’s disability, not upon the insurer’s termination of benefits.

    Summary

    Maria Panepinto sued New York Life Insurance Company to reinstate disability payments. New York Life argued the suit was time-barred based on a three-year contractual limitations period triggered by their termination of benefits. The New York Court of Appeals held that the limitations period began upon termination of the disability itself, not the termination of benefits, interpreting policy language requiring proof of loss within 90 days of “termination of any period of disability.” Because a factual issue existed as to whether Panepinto’s disability had terminated, summary judgment for New York Life was inappropriate.

    Facts

    Maria Panepinto filed a disability claim with New York Life in 1984, citing allergic rhinitis preventing her from working with wool. New York Life paid disability benefits for three years and waived premiums. In 1986, New York Life terminated benefits, based on their doctor’s assessment that Panepinto was no longer disabled, and notified her in October 1986. Panepinto sued to reinstate benefits in June 1990, approximately 3.5 years after the notice of termination.

    Procedural History

    The Supreme Court granted summary judgment to New York Life, holding the action was time-barred by the insurance policy’s three-year limitations period. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the three-year limitations period in the disability insurance policies began to run when New York Life terminated disability benefits, or when the insured’s disability actually terminated.

    Holding

    No, because the policy language requires proof of loss within 90 days after “termination of any period of disability,” which refers to the objective termination of the medical condition causing the disability, not the insurer’s decision to cease benefit payments.

    Court’s Reasoning

    The court focused on the policy language requiring proof of loss within 90 days of “termination of any period of disability.” The court reasoned that this phrase refers to the actual end of the disabling condition, not the insurer’s decision to stop payments. The court rejected New York Life’s argument that the limitations period began upon termination of benefits, stating this would require rewriting the policy. The court also rejected the argument that the limitations period ran independently for each monthly installment, finding this inconsistent with the policy’s overall structure, particularly provisions for a “Maximum Benefit Period” and the distinction between monthly benefits and the continuous period of liability. The court cited the principle of practical construction, noting that New York Life initially made payments for three years without requiring monthly proof of loss. The court noted “[t]he practical construction put upon a contract by the parties to it, is sometimes almost conclusive as to its meaning”. The Court stated “reading ‘any period of disability for which the Company is liable’ to mean monthly payment periods is inconsistent with the policy language when read as a whole” and that the policy clearly distinguishes between monthly benefits from the continuous period of liability. The Court stated further “we adopt the interpretation which most closely comports to the literal terms of the policies and hold that the proof of loss requirements, and, by extension, the three-year limitations period in the policies, commence upon the termination of the disability as an objective, medical fact.”

  • Bianchi v. Massachusetts Acc. Co., 159 A.D. 931 (1913): Accrual of Claim in Disability Insurance Policies

    Bianchi v. Massachusetts Acc. Co., 159 A.D. 931 (N.Y. App. Div. 1913)

    A cause of action under a disability insurance policy requiring a period of continuous disability before payment accrues only after the specified period of disability has been completed.

    Summary

    Bianchi sued Massachusetts Accident Co. to recover under a disability insurance policy for paralysis. The policy provided a lump-sum payment for permanent paralysis that rendered the insured unable to work, contingent upon the paralysis lasting 52 consecutive weeks. Bianchi sued before the 52-week period elapsed. The court held that the action was premature because no claim existed until the 52-week period was complete. The court distinguished this situation from cases where a claim exists but is not yet payable, emphasizing that in this case, the claim itself had not yet come into being when the suit was filed.

    Facts

    On July 5, 1905, Massachusetts Accident Co. issued a disability policy to Bianchi, insuring him against loss of life, limb, sight, or time. The policy included two relevant clauses: Clause G, which provided a lump-sum payment for permanent paralysis resulting in the loss of use of a hand and foot, contingent on the paralysis lasting 52 consecutive weeks and rendering the insured unable to work. Clause H provided a weekly indemnity for sickness that prevented the insured from working and confined him to the house. On November 12, 1905, Bianchi suffered a stroke causing paralysis. Two days later, Bianchi notified the company. The company canceled the policy and returned the premium. Bianchi filed a proof of loss claiming weekly benefits under Clause H. Bianchi then sued, seeking a lump-sum payment under the paralysis clause (Clause G).

    Procedural History

    Bianchi initially sought $650 based on 26 weeks of disability under clause H of the policy, but the complaint ultimately set forth a cause of action under clause G, seeking $2,500. The trial court refused the defendant’s request to limit the trial to the claim under clause H. The jury found in favor of Bianchi on all issues, and this was affirmed by the Appellate Division. The Court of Appeals reviewed exceptions related to the timing of the lawsuit under clause G.

    Issue(s)

    Whether a cause of action accrues under a disability insurance policy that requires a claimant to demonstrate a continuous period of disability (here, 52 weeks) before the claimant has completed the required period of disability.

    Holding

    No, because the policy language clearly requires the paralysis to exist for 52 consecutive weeks before a claim arises; therefore, the action was prematurely brought.

    Court’s Reasoning

    The court reasoned that under Clause G of the policy, the 52-week period of paralysis was a condition precedent to any claim arising. Because the lawsuit was initiated before the 52-week period had elapsed, no cause of action existed at the time the suit was filed. The court emphasized, “It is apparent, therefore, that the paralysis resulting in the loss of the usé of a hand and foot must exist for fifty-two consecutive weeks, otherwise there could be no recovery for any amount whatever, and no claim would accrue or exist until the expiration of the fifty-two weeks.” The court distinguished this case from situations where a claim exists but is not yet due, stating, “This case is, therefore, distinguishable from those cases in which a claim exists upon a contract, promissory note, bond, or for goods sold and delivered where the action is brought after the claim existed, but before it became due and payable. In such cases the action would be merely prematurely brought.” Because the claim itself did not exist at the time of filing suit, the general denial in the answer was sufficient to put the existence of the claim in issue. The court found that the trial court erred in not limiting the trial to the claim for weekly allowance under Clause H of the policy. Since the facts related to the Clause H claim were already presented and decided by the jury, the court offered the plaintiff the option to stipulate to a reduced judgment reflecting the amount owed under Clause H, less the returned premium, to avoid a new trial. The court stated: “All of the facts bearing upon this cause of action alleged in the complaint are identical with those embraced in the other claim which was submitted to the jury and passed upon by it. It would seem, therefore, that a new trial is unnecessary unless the plaintiff so elects.”