Dwyer v First Unum Life Ins. Co.
Annotate this CaseDecided on December 13, 2006
Supreme Court, New York County
Philip J. Dwyer, Plaintiff,
against
First Unum Life Insurance Company AND UNUM PROVIDENT, Defendants.
604342-2001
APPEARANCES:
Attorneys for the Plaintiff:
Joseph D. McCann, Esq
Murray & McCann
100 Merrick Road
Suite 514 West
Rockville Centre, NY 11570
Attorneys for the Defendants:
Brian G. Kanner, Esq.
Patrick W. Begos, Esq.
Begos & Horgan, LLP
7 Pondfield Road
Bronxville, NY 10708
Bernard J. Fried, J.
In this action to recover benefits under a disability policy, plaintiff moves for summary judgment on his complaint, and for dismissal of the affirmative defense and the counterclaim for rescision. Plaintiff also seeks summary judgment on his own claim for a declaration of rights under the policy, and for damages. Defendants have moved for summary judgment on the counterclaim, and a declaration that the policy is void ab initio, dismissal of all claims against UnumProvident, and dismissal of several of plaintiff's causes of action. The two motions, sequences No. 004 and # 005, are consolidated for disposition. [*2]
The complaint alleges that First Unum Life Insurance Company (First Unum) issued a long-term disability insurance policy to Philip J. Dwyer (Dwyer) on August 16, 1993, under policy no. LND247015 (the policy). A replacement policy was issued to Dwyer in 1997. Dwyer exercised options for benefit increases in 1995, 1997, 1999, and 2000.
Dwyer allegedly applied for disability benefits under the policy in January 2001, eight years after he first applied for coverage. In May 2001, defendants First Unum and UnumProvident Corporation (Unum) purported to rescind the policy, and repeatedly attempted to return the premiums plaintiff had paid. Plaintiff alleges that he returned the drafts representing the policy premiums to defendants.
This matter was previously before the court on a motion to dismiss the plaintiff's amended complaint. See Decision and Order dated March 31, 2004, as amended September 1, 2004. At that time, substantially all of the first cause of action, for a declaratory judgment, was dismissed, except for the request for a declaration that the policy remains in effect. The claims contained in the second cause of action, for consequential damages based on a pattern of bad faith and unfair practices, remain in the case, as do the claims in the third cause of action, for repudiation by defendants' attempts to rescind the policy. The fourth cause of action, for attorney's fees, was severed and dismissed. The request for treble damages in the fifth cause of action, pursuant to General Business Law § 349, was amended to limit plaintiff's recoverable damages in an amount not to exceed three times the actual damages, up to one thousand dollars.
Defendant's answer alleges three "defenses," the third of which has also been denominated a counterclaim. The first defense alleges that the complaint fails to state a cause of action. This is not a proper subject for an affirmative defense, and is dismissed sua sponte. Konow v Sugarman, 71 AD2d 1016 (2nd Dept 1979). The second defense alleges that plaintiff's complaint is barred by the doctrine of "unclean hands."
The third defense/counterclaim alleges that Dwyer made fraudulent misstatements in his application for insurance, when it was submitted to defendants in 1993, in that plaintiff had been diagnosed and treated for pain in his back and other disorders of the muscles, bone, joints or skin, which he failed to disclose in his application. More specifically, defendant alleges that plaintiff had been diagnosed as having chronic pain in the lower left side of his back during the eight to nine years preceding a medical visit on May 9, 1997; that plaintiff had a long-standing history of back pain dating back at least 20 to 30 years according to medical records of November 2000 and January 2001; and that plaintiff had suffered pain in his left shoulder since at least July 1993, which resulted in arthroscopic surgery on his left shoulder in February 1994.
Defendants claim that these misrepresentations were material to the risk, and to the subject matter of the insurance applied for, and that defendants would not have issued the policy to plaintiff had they known of the falsity of these representations. According to defendants, the policy is contestable for fraudulent misstatements in the application, by the express terms of the policy. Defendants seek to have the policy declared void ab initio.
Dwyer claims that the policy contains a contestability clause that precluded defendants from contesting the validity of the policy at any time after two years from the policy's effective date. Since defendants have failed to provide any specific evidence that plaintiff suffered from a preexisting condition on the effective date of coverage (August 23, 1993), or during the two years before coverage became effective (August 23, 1991), any alleged misstatements or omissions by [*3]plaintiff as to prior medical complaints existing more than two years before the effective date of coverage are immaterial as a matter of law, argues Dwyer.
Whether the contestability provision contained in the policy bars defendants from challenging allegedly fraudulent misstatements concerning an insured's preexisting condition is an issue of contract interpretation for the court to determine as a matter of law. Bethlehem Steel Co. v Turner Construction Co., 2 NY2d 456 (1957).
The contestability clause limits the time within which defendants were permitted to reduce or a deny a claim based on a preexisting condition to two years from the effective date of coverage. That provision states:
Except for fraudulent misstatements, we will not contest those statements made by you in the application for a coverage provided under this policy after that coverage has been in effect for two years during your lifetime.
If disability begins after a coverage has been in effect during your lifetime for two years from the effective date of that coverage, we will not reduce or deny a claim which is based on that disability because of a preexisting condition unless the condition is excluded from coverage by name or description.
"Contest" means we question the validity of coverage under this policy by letter to you. This contest is effective on the date we mail the letter and refund the premium to you. (Emphasis added).
Plaintiff claims that the "fraudulent misstatements" exception to the two-year limit on contestability applies only to misstatements about income or age, but not to allegedly fraudulent misstatements about a preexisting condition.
Defendant counters that the policy's time limitation for contestability and the exception for fraudulent misstatements are derived from statutory language contained in New York Insurance Law §3216 (d)(1) (B). That statute states, in relevant part:
(d) Each policy of accident and health insurance delivered or issued for delivery to any person in this state shall contain the provisions specified herein in the words in which the same appear in this subsection, ...
* * *
(B) TIME LIMIT ON CERTAIN DEFENSES:
(I) After two years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability (as defined in the policy) commencing after the expiration of such two year period. (Emphasis added).
A movant's burden on a motion for summary judgment is to establish that there are no material issues of fact. Zuckerman v City of New York, 49 NY2d 557 (1980). Once a movant [*4]has met this burden, the party opposing the motion must come forward with proof of the existence of a triable issue. Indig v Finkelstein, 23 NY2d 728 (1968).
There is no inconsistency between the general and the specific clauses contained in the policy, as urged by plaintiff, and no need to interpret the contestability clause against the drafter. The policy clearly states that, except in the case of fraudulent misstatements, First Unum may only contest coverage within two years of the issuance of the policy. The meaning of this clause is clear and unambiguous.
Plaintiff cites New England Mutual Life Insurance Company v Doe (93 NY2d 122 [1999]) as authority for a limitation on defendants' right to contest fraudulent misstatements. New England, however, involved a policy that did not include an express exception for fraudulent misstatements. Such is not the case here. Plaintiff has failed to establish a prima facie case of entitlement to summary judgment on the defense/counterclaim for fraud.
In support of that branch of plaintiff's motion which seeks summary judgment on the cause of action for rescision based on defendants' "unclean hands," plaintiff claims that he is a victim of defendants' well-documented practice of targeting legitimate but expensive disability claims for termination, particularly those based on the unprofitable "noncancellable, own occupation" disability policies similar to the one issued to Dwyer, and that defendants have violated Insurance Law § 409 by failing to follow their own fraud guidelines.
Further, plaintiff claims that defendants' well-documented policy of denying legitimate claims or rescinding expensive disability policies precludes defendants from invoking this court's equitable relief, and that defendants are collaterally estopped from denying their fraudulent claim practices by a history of adverse determinations against them.
The doctrine of "unclean hands"refers to immoral, unconscionable conduct that is directly related to the subject matter in the litigation. National Distillers & Chemical Corp. v Seyopp Corp., 17 NY2d 12 (1966). The doctrine is only applicable when the party seeking to invoke the doctrine was injured by the conduct. Id.
Although plaintiff claims that defendants have refused to do equity to their insureds, in general, or to Dwyer in particular, the evidence offered by plaintiff as to defendants' inequitable conduct, as it relates to Dwyer, fails to rise to the level of immoral, or unconscionable conduct that would entitle Dwyer to summary judgment. At best, plaintiff's offer of evidence that defendants did not follow their own internal policies and plans for investigating fraud raises a question of fact regarding defendants' practices and procedures as applied to Dwyer's disability claim. Such offer of evidence is not conclusive on the issue of defendants' unclean hands.
Insurance Law § 409, which requires insurers to establish a plan for fraud prevention, is only enforceable by the Superintendent of Insurance, and does not create a private right of action. The Superintendent may impose a fine, and/or a plan for fraud prevention if an insurance company fails to satisfy the statutory requirements for such a plan. Plaintiff's claims, to the degree that they rely on a right of action under the Insurance Law, fail to establish a prima facie case for summary judgment. [*5]
Plaintiff claims that defendants are estopped from denying that they have a policy and practice of fraudulently terminating disability claims in violation of GBL § 349, based on factual findings in other litigation involving First Unum and Unum, such as Hangarter v Paul Revere Life Insurance Company, 236 F Supp 2d 1069 (ND Cal 2002), affd in relevant part, 373 F3d 998 (9th Cir 2004); Radford Trust v First Unum Life Insurance Co. of America, 321 F Supp 2d 226 (D Mass 2004); and Brereton v UnumProvident Corp., Civ. Action No. 1:02-CV-1402 (ND NY 2005). In all three of these cases, the issue of bad faith was determined by a jury.
In Radford Trust, the court discussed First Unum and Unum's reputation in the industry, without drawing any conclusion:
This is not the first time that First Unum has sought to avoid its contractual responsibilities, and an examination of cases involving First Unum and Unum Life Insurance Company of America, which like First Unum is an insuring subsidiary of Unum Provident Corporation, reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics. These cases suggest that segments that have run in recent years on "60 Minutes" and "Dateline," alleging that Unum Provident "regularly declines disability claims as a way of boosting profits," may have been accurate. This Court cannot tell whether First Unum and other Unum Provident companies are considered pariahs in the industry, or whether their ability to retain customers is a result of low prices, market inefficiency, or other factors.
Id. at 248 - 249. (Citations omitted).
Collateral estoppel may be invoked in certain limited circumstances. Quoting from
plaintiff's brief:
In order to invoke the doctrine of collateral estoppel, there "must be an identity of issue which was necessarily decided in the prior action and is decisive in the present action," and there "must have been a full and fair opportunity to contest the decision now said to be controlling." (Citation omitted).
(Plaintiff's Memorandum of Law in Support of His Motion in Limine and/or for Summary Judgment, at 31). Even assuming that plaintiff has established an identity of issues between this litigation and the cited decisions, there is no evidence that defendants were given a full and fair opportunity to contest this plaintiff's claim under GBL § 349 in those previous litigations. Plaintiff's motion for summary judgment on his claim for relief under GBL § 349 is therefore denied.
With respect to defendants' motion for summary judgment on its counterclaim for fraud and rescision, defendants claim, and plaintiff does not deny, that plaintiff suffered a ruptured spleen, lacerated liver, collapsed lung and possible fractured ribs after an altercation in 1985. However, plaintiff argues that he made a complete recovery from these injuries, and that, since he suffered no residual effects, any alleged omissions in his application, some eight years later, [*6]regarding these injuries, are immaterial as a matter of law.
Dwyer also concedes that he suffered from occasional low-back pain following over-exertion in athletics, but claims that this, too, was immaterial and would not have disqualified him from obtaining a standard disability policy.
A misrepresentation is material as a matter of law if the insurer was induced, by reason of the misrepresentation, to accept an application that it might otherwise have refused. Process Plants Corp. v Beneficial National Life Ins. Co., 53 AD2d 214 (1st Dept 1976), affd 42 NY2d 928 (1977). An insurer's underwriting guidelines constitute evidence that a policy would not have been written had the truth been disclosed. Shapiro v Allstate Ins. Co. of New York, 202 AD2d 659 (2nd Dept 1994); Cohen v Mutual Benefit Life Ins. Co., 638 F Supp 695 (ED NY 1986). It is for the insurer, rather than the insured, to determine which information about the insured's prior medical history is important in determining the insurability of a particular applicant. Process Plants Corp., 53 AD2d 214, supra. By failing to disclose relevant information, an applicant deprives the insurance company of freedom of choice in determining whether to accept or reject a risk. Leamy v Berkshire Life Ins. Co., 46 AD2d 965 (3rd Dept 1974), affd 39 NY2d 271 (1976). First Unum's Chief Underwriter, Nancy Brenerman, submitted an affidavit stating that plaintiff's misrepresentations concerning his back pain were material, and that First Unum would not have issued the policy had plaintiff accurately completed the application. Affidavit of Nancy Brenerman dated April 17, 2006, ¶ 31. However, when questioned at her deposition, Brenerman could not recall whether she had referred to the company's guidelines in reaching her conclusion some eight years after the application had been submitted. Brenerman Deposition dated 8/26/05, at. 51, attached to McCann Affirmation, dated April 17, 2006, exhibit 6.'
Michele Barnett (Barnett) testified at her deposition that, with respect to Dwyer's claim, she was a Lead Customer Care Specialist at Unum in the Quality Performance Support Department, Claim Audit division, examining whether or not appropriate steps had been taken within the claim evaluation process, with respect to randomly selected claims. Barnett Deposition dated July 21, 2005, attached to McCann Affirmation, exhibit 4,' at 38 - 45. In examining Dwyer's claim, Barnett found that the medical records submitted with the claim form were inconsistent with the answers to the questions contained in the accompanying application. For example, Barnett testified, Dwyer had answered "no" to question 17-D of the application: whether he had ever been treated or diagnosed with any disease or disorder of the liver, but the medical records that Dwyer submitted along with his application revealed that he had suffered a lacerated liver. Barnett further testified that similar inconsistencies between the application and the medical records that Dwyer had submitted with the application, or telephone conversations he had with Barnett, existed with respect to questions ## 17-K, 17-L, 18-A, and 19-B, regarding chronic back pain, disease or disorder of the muscles and bones, doctors Dwyer had visited in the late eighties or early nineties, and nonprescription medications he was taking (Aleve). Barnett testified that she felt that since Dwyer offered this information readily in a telephone interview she had with him, and that since he willingly provided this information in the medical records he submitted with the application, he should have included this information on his application. Barnett Deposition, at 63 - 78.
In order to be granted summary judgment on their counterclaim for rescision, defendants [*7]need not prove that a misrepresentation was made with the intent to deceive. Process Plants Corp v Beneficial National Life Ins. Co.,53 AD2d 214, supra. However, defendants must prove the existence of a material misstatement in the first instance. Based on the evidence acquired through depositions and disclosure, a question of fact exists as to whether Dwyer made a material misrepresentation regarding his medical history, which question precludes summary judgment on the counterclaim for rescision.
That branch of plaintiff's motion which seeks a declaration of rights under the policy, and the branch of defendants' motion which seeks dismissal of the claims against Unum, being inextricably intertwined in the resolution of the claims based on breach of contract and rescision, will have to await a full trial.
Accordingly, it is
ORDERED that the plaintiff's motion for summary judgment, and for relief in limine, and defendants' motion for summary judgment are denied; and it is further
ORDERED that the action shall continue. The parties are to contact the Clerk of Part 60 to schedule a Pretrial Conference. (Rules 30, Rules of the Commercial Division of the Supreme Court.)
Dated:_______________________
ENTER:
______________________________
J.S.C.
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