Security Mut. Life Ins. Co. of NY v Harpaul

[*1] Security Mut. Life Ins. Co. of NY v Harpaul 2006 NY Slip Op 50676(U) [11 Misc 3d 1083(A)] Decided on March 9, 2006 Supreme Court, New York County Cahn, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 9, 2006
Supreme Court, New York County

SECURITY MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Plaintiff,

against

DEENCHANDRA HARPAUL, (AKA DINCHANDRA HARPAUL) AND CHANDRADUTT HARPAUL, Defendants.



603732/04

Herman Cahn, J.

Defendants move (seq. no. 1) to dismiss the complaint, CPLR 3211 (a)(1) and (a)(7).

The issue on this action is whether plaintiff insurance company filed its complaint contesting the insurance policies on Chandradutt Harpaul's life within the two-year period required by the policies' incontestability clause.

Background:

Plaintiff Security Mutual Life Insurance Company is an insurance company with its principal place of business in Binghamton, New York.

Non-parties Ajay and Vijay Dhawan sold the life insurance policies issued by Security Mutual on the life of Deenchandra Harpaul.

Defendants Chandradutt Harpaul and Deenchandra Harpaul are, respectively, the owner and insured of two life insurance policies issued by Security Mutual. Chandradutt Harpaul is a resident of the state of New York, while Deenchandra Harpaul is a resident of New Jersey. They were solicited to purchase the insurance policies by the Dhawans.

The applications for the policies were submitted on New Jersey forms. Upon receipt thereof, plaintiff issued two life insurance policies to Chandradutt Harpaul on the life of Deenchandra Harpaul in the aggregate amount of $20 million. The policies contain the letters "NJ" on every page. Also, there are several references to New Jersey law in the policies. In fact, the clause relating to payment of insurance proceeds contains the words "In accordance with New Jersey Law" (Candido Aff., Ex. A at A18). However, the policies were prepared by Security Mutual, a New York Company, and issued to Chandradutt Harpaul, a New York resident. Chandradutt Harpaul paid the first premium in New York.

Security Mutual alleges that the applications contain materially false and misleading statements made for the purpose of fraudulently obtaining the policies, which [*2]resulted in expenses to Security Mutual of hundreds of thousands of dollars in commissions and other expenses related to the policies. In this action, plaintiff seeks to rescind the policies.

In its amended complaint, Security Mutual asserts five causes of action, three for rescission of the policies and two for fraud.

The Incontestability Clause

The policies each contain an incontestability clause, which prevents plaintiff from contesting them after they have been in force "for two years from the earlier of [the] Policy Date or Issue Date" (Candido Aff., Ex. A at A6). It is the interpretation of this clause with which this action and motion are concerned. As set forth in the policies, the "Issue Dates" are November 8, 2002 and December 3, 2002, respectively. The "Policy Date" is November 1, 2002. The policies each state that "[n]o insurance takes effect under this policy until the initial premium is paid" (Candido Aff., Ex. A at A8). Plaintiff commenced this action on November 8, 2004.

Defendants contend that the two-year contestability period has run and that plaintiff, therefore, is barred from now making this claim. Plaintiff contends that the two-year period commenced on or after the Issue Date and not the Policy Date, and therefore, that its claim is not barred.

Discussion:

The incontestability clause bars rescission claims after the two-year period runs. The issue here is whether the two-year period started on the Policy Date of November 1 or on or after the Issue Dates of November 8, and December 30, 2002, and therefore, whether Security Mutual commenced this action within the two-year period. While New Jersey will ordinarily plainly construe an incontestability clause referring to the "earlier of" two dates to be the earliest of those dates, New Jersey's insurance regulations contain an exception for backdating to save age (NJAC. 11:4-41.2(b)(3)). In other words, in a case where the Policy Date predates the Issue Date or the date when the policy became effective in order to save the insured money on premiums, the date from which the two-year period starts to run is not the earliest date, but the date the policies became effective. In contrast, New York law does not contain an exception for backdating to save age. Rather, the Court of Appeals has specifically interpreted a similar incontestability clause to mean that the two-year period began to run from the earlier date, despite the existence of backdating to save age (Guardian Life Insurance of America, Inc. v Schaefer, 70 NY2d 888, 889-890 [1987]).

Therefore, the issue here is whether New York or New Jersey law applies to the interpretation of the incontestability clause, as the application of one as opposed to the other may lead to opposite results. The "center of gravity" or "grouping of contracts" is the test normally used by New York to resolve choice of law issues. This approach looks at several factors to determine which jurisdiction has more significant contacts with the matter in dispute (Auten v Auten, 308 NY 155 [1954]). While under this approach the parties' intent or the place of contracting are no longer regarded as conclusive, these traditional factors are still given "heavy weight" in determining which jurisdiction has more significant contacts with the matter in dispute (Haag v Barnes, 9 NY2d 554, 559 [1961]). Other factors include the place of negotiation, the location of the subject matter of the contract and the domicile of the contracting parties (Kaszak v Liberty Mutual Insurance Company, 744 NYS2d 286, 287 [2nd Dept 2002]).

The place of contracting was indeed New York, as that is where the policies were issued and where the first premium was paid. However, the other factor given heavy weight is the intent of the parties; despite the place of contracting, there are several indications that the [*3]parties intended New Jersey law to apply. Not only are the policies written on New Jersey forms,[FN1] but New Jersey insurance law is referenced several times in the policies. In fact, one clause actually begins, "In accordance with New Jersey law. . ." (Candido Aff., Ex. A at A18). An evidentiary hearing must be held to determine whether the parties intended to be bound by New Jersey law or by New York law, and, considering as well the other aforementioned factors, to determine which state has more significant contacts with and the most interest in the matter in dispute. These are issues which cannot be decided on a CPLR 3211 motion.

A motion to dismiss is not appropriate in the situation where an evidentiary hearing is necessary prior to the court rendering a decision.[FN2] Issue has not been joined and no discovery has been had. No further dispositive motion should be made until after discovery is completed.

Consequently, the motion to dismiss is denied.

Accordingly, it is

ORDERED that the motion to dismiss is denied; and it is further

ORDERED that defendants shall serve a verified answer within twenty days of the service of a copy of this decision and order on defendant's counsel.

Dated: March 9, 2006E N T E R :

/s/

J.S.C Footnotes

Footnote 1: Each page contains the letters "NJ".

Footnote 2: Security Mutual also argues that the incontestability clause does not apply to its fraud claim for damages. As this court has determined that a motion to dismiss is not appropriate even as to the claims in equity, the court will not now decide whether a fraud claim separate from rescission is barred by an incontestability clause.