John D. Holcomb, Plaintiff-appellant, v. Prudential Insurance Company of America, Defendant-appellee, 673 F.2d 102 (5th Cir. 1982)

This diversity case, tried to the court largely on stipulated facts, raises the narrow issue of the correct interpretation of an income protection policy. The District Court entered judgment in favor of the insurer. Finding that the District Court erred as a matter of law in its interpretation of the insurance policy, we reverse.¹ I. Facts

Plaintiff John Holcomb sustained an accidental injury on September 17, 1971. As a result of this injury, Holcomb was totally disabled from that date until November 2, 1971. Holcomb again became disabled on January 1, 1971 and has been disabled continuously since that date.

In April 1957, Holcomb had purchased from Prudential Insurance Company of America (Prudential) an income protection policy covering disability due to sickness or accidental injury.²  Basically, the policy provides for lifetime benefits when total disability results from accidental injury and this disability commences within 60 days after the date of the injury.³  When a disability is due to sickness, the maximum duration of benefits is 24 months.⁴  At the heart of this controversy is the policy "deeming" provision (note 3 supra) which states that a period of total disability commencing more than 60 days after an injury is sustained is "deemed" to be a disability due to sickness, and in that case, benefits are restricted to a maximum of 24 monthly payments.

After sustaining the injury on September 17, 1971, Holcomb applied for benefits which he received until November 1971. Between November 2, 1971 and January 1, 1972, Holcomb was not disabled. Holcomb subsequently filed a second application for total disability, this one for the period beginning as of January 1, 1972. Following this application Prudential paid total disability benefits to Holcomb from January 29, 1973 to January 29, 1975, a period of 24 months. At the end of these payments, Prudential informed Holcomb that he had received the maximum benefits under the sickness provisions of the policy. Prudential contended that this period of disability, which it determined had begun on January 1, 1972, commenced more than 60 days after the September 17, 1971 injury, and thus under the deeming provision of the policy (note 3 supra) was treated as a disability due to sickness with the maximum benefit being 24 months.

In effect, the insurer considered Holcomb to have sustained two separate disabilities, one commencing September 17, 1971 and one commencing January 1, 1972. Holcomb disputed this interpretation of the policy, asserting that the disability caused by the injury of September 17, 1971 began on the date of the injury, caused total disability until November 2, 1971, and then recurred on January 1, 1972. Since the total disability initially commenced within 60 days of the injury (note 3 supra), in this case the date of injury and commencement of disability being the same, Holcomb argued that he was entitled to lifetime benefits rather than the limited period of benefits under the deeming provision.

Holcomb brought suit against Prudential, seeking to recover the disability payments for the period after 24 months and asserting a violation of the Texas Deceptive Trade Practices-Consumer Protection Act and the Texas Insurance Code.⁵  The parties waived a jury trial and stipulated to the material facts.⁶  The stipulations of significance here are: (i) Holcomb sustained an accidental injury on September 17, 1971, entitling him to total disability payment through November 2, 1971; and (ii) Holcomb was totally disabled from January 1, 1972. It was also uncontradicted that the second period of disability related to the accidental injury of September 17, 1971 and that Holcomb is presently disabled within the meaning of the policy. The District Court agreed with the insurer that there were two separate and distinct periods of disability, one from September 17 through November 2, 1971 and one commencing on January 1, 1972. From this determination, the District Court determined that the second disability-that commencing on January 1, 1972-began more than 60 days after the accidental injury in September 1971 and thus the deeming provision, treating such a disability as due to sickness and restricting benefits to 24 months, was applicable. From the judgment for the insurer, Holcomb appeals.

Holcomb's primary contention is that the total disability commenced on the date of his injury, September 17, 1971, abated on November 2, 1971, and reoccurred on January 1, 1972. Since the initial onset of total disability occurred within 60 days of injury, Holcomb claims he is entitled to lifetime benefits under the policy. He points out that the policy has no specific requirement that the disability be continuous. As to the deeming provision, Holcomb asserts that it is irrelevant to his situation. Prudential's position, accepted by the District Court, is that the present period of disability began on January 1, 1972, more than 60 days after the injury in September, and therefore under the policy must be deemed to be due to sickness. Prudential focuses on the language of the deeming provision which refers to "a period of total disability". From this wording, Prudential argues that Holcomb here had two periods of disability, the second one commencing on January 1, 1972, more than 60 days from the date of injury. Under Prudential's position, we look to the most recent period of disability, not to the initial date of injury. The use of the phrase "a period" is the essential element of Prudential's argument that the deeming provision is applicable. Under this language, Prudential would find that the policy contemplates that a disability may come and go and that the determinative factor is the latest "period of disability."

In its findings, the District Court specifically stated that Holcomb sustained an accidental injury on September 17, 1971; was totally disabled until November 2, 1971; and became totally disabled on January 1, 1972. Further, the District Court declared that "(t)he producing cause of this disability was the accidental injury Plaintiff sustained on September 17, 1971.... This disability is separate and distinct from the September 17-November 2, 1971 period of disability; and, the disability commencing on January 1, 1972, commenced more than 60 days after the injury Plaintiff sustained on September 17, 1971." Logically, there is much difficulty in seeing how the District Court could find two disabilities since the parties stipulated and the District Court determined that the producing cause of the second one was the same as that of the first. Considering that the critical facts were both stipulated and uncontradicted, the determination by the District Court that there were two disabilities was, in effect a conclusion of law, not a finding of fact as formally characterized, constituting a legal interpretation of the policy terms.

From the language of the policy, under the stipulated facts, we think it is clear that Holcomb's total disability "commenced" within 60 days after the date of injury and thus falls within the disability due to injury provision (note 3 supra). The deeming provision does not come into play unless the disability commences more than 60 days after injury.

In an attempt to find the deeming provision applicable to this situation of a reoccuring disability, Prudential argues that the time of disability beginning January 1 was "a period of total disability" which period commenced more than 60 days from the date of injury. This interpretation distorts the context in which the deeming provision is included. From a reading of the entire paragraph on benefits for total disability due to injury (note 3 supra), this deeming provision must be seen as a restriction of those benefits when the total disability first manifests itself more than 60 days after injury. The phrase "a period of total disability" can also be read as "any period of total disability" and thus together with the first sentence in Part 2, clarifies what is not treated as disability due to injury. That the deeming provision is merely a further clarification rather than an attempt to create "periods" of total disability, can be seen from the fact that the beginning of the sentence uses the phrase "a period of total disability" while the end of the sentence says "such total disability", a phrase which would negate Prudential's argument that the deeming provision contemplates separate periods of disability. Also, the use of the word "commences" in the deeming provision does not create the inference of intermittent disabilities or support the interpretation that this provision is designed to apply to the situation of a disability which recurs.

While we have no difficulty in finding that the District Court misconstrued the deeming provision language in the policy, we could also reach the same result if we were to find that the insurance policy provisions were ambiguous under the facts of a recurring disability.

Texas follows the well-settled rule that insurance policies will be interpreted liberally in favor of the insured and ambiguities strictly against the insurer, especially when dealing with exceptions and words of limitation.... Furthermore, when the language of the insurance policy is susceptible of more than one reasonable construction, courts should apply that construction which favors the insured and permit recovery.

Dow Chemical Co. v. Royal Indemnity Co., 635 F.2d 379, 386 (5th Cir. 1981) (citations omitted). See Snyder National Bank v. Westchester Fire Insurance Co., 425 F.2d 849 (5th Cir. 1970); Ranger Insurance Co. v. Bowie, 574 S.W.2d 540 (Tex.1978); Glover v. National Insurance Underwriters, 545 S.W.2d 755 (Tex.1977); Ramsay v. Maryland American General Insurance Co., 533 S.W.2d 344 (Tex.1976). Assuming ambiguity, we would hold that the deeming provision applies only when initial total disability commences more than 60 days from the date of the injury and that the determination of the date of commencement looks to the original manifestation of the total disability, not to any recurrences.

This interpretation also accords with the general purpose of the policy, that is, to provide greater benefits when the loss results from total disability due to injury and yet protect the insurer from harassing litigation where causal connection of disability to injury is weak. Certainly, an insured would not ordinarily anticipate that a policy providing lifetime benefits for disability due to injury will not include full coverage if the nature of the disability is such that there may be a remission for a period of time. Nor would he ordinarily realize that he is better advised to stay in bed for the first 60 days following injury rather than to attempt to overcome the disability. Under Prudential's interpretation, if the insured tries to work for even one day, so that he is not "totally disabled", he runs the risk of losing his lifetime benefits if that one day occurs more than 60 days after the original date of injury. If Prudential's interpretation were correct, some might suggest that the policy should come with a warning: "Caution: work may be hazardous to your benefits". While it is true that Holcomb could have selected a policy providing more than 24 months of coverage for total disability due to sickness,⁷  we find the existence of this option irrelevant when the initial total disability occurs within 60 days of the date of injury.

REVERSED AND REMANDED.