No announcement yet.

ERISA Incontestability Clause Argument Fails – W.D.Ok.

  • Filter
  • Time
  • Show
Clear All
new posts

  • ERISA Incontestability Clause Argument Fails – W.D.Ok.

    ERISA Incontestability Clause Argument Fails – W.D.Ok.

    Attached is a case out of the Western District of Oklahoma, Smith v. Standard Insurance Company, et. al. In this case, plaintiff seeks supplemental life insurance coverage under an ERISA governed plan. Plaintiff’s decedent (his wife) was provided basic and supplemental life insurance coverage. Upon his wife’s death, plaintiff made a claim for both basic and supplemental life insurance benefits, however, defendant only paid the basic benefits. Defendant denied plaintiff’s supplemental claim asserting that his wife never completed the Evidence of Insurability required for the supplemental policy and, therefore, she did not effectively enroll in the supplemental coverage. Plaintiff’s motion for summary judgment focuses on his second cause of action: that defendant is prevented from denying his claim based on the Incontestability Clause of the policy. Defendant argued that the Incontestability Clause did not apply because Evidence of Insurability was never provided, therefore, the policy was never in force. The court denied plaintiff’s motion finding that the Incontestability Clause, alone, did not cause plaintiff’s claim to be denied and that the Incontestability Clause issue could not be decided without deciding the Evidence of Insurability issue.

    The parties’ dispute regarding Plaintiff’s Incontestability Claim hinges on opposite interpretations of the Incontestability Clause of the Policy.7 Specifically, Plaintiff bases his claim for benefits on the last sentence of the provision, which states: “[Standard] will not use a misrepresentation to reduce or deny a claim after the insured’s insurance has been in effect for two years during the lifetime of the insured.” (AR 56.) See Pl.’s Mot. Summ. J. at 23.

    Plaintiff argues that Mrs. Smith “became insured effective January 1, 2012,” for the additional life insurance coverage in which she enrolled in December 2011, and remained covered when she died on September 23, 2014, so “Standard is barred from denying or reducing her claim.” Id. In Plaintiff’s view, the incontestability clause is triggered equally by an insured’s failure to submit EOI as by an insured’s submission of false EOI because an opposite reading “makes little sense;” it would “excuse express, outright, demonstrable fraud” but “not come to the aid of one guilty of mere silence where disclosure is allegedly required.” Id. at 24.

    Standard argues that “[n]o additional life insurance coverage ever went into effect” for Mrs. Smith. See Def. Standard’s Resp. Br. at 14. Standard relies on provisions of the Policy regarding the effective date of coverage and the requirement that some applicants for additional life insurance were required to submit EOI. Under Standard’s view, the controlling policy provision is one that states: “‘Life Insurance subject to Evidence of Insurability becomes effective on the date we approve your Evidence of Insurability.’” Id. at 3 (quoting AR 38). By operation of these provisions, Standard takes the position that because Mrs. Smith was required to but did not submit EOI, and thus Standard never approved her EOI, “Mrs. Smith failed to satisfy the Policy requirements for obtaining additional life coverage” and it was never “in effect” for purposes of the Incontestability Clause. Id. at 15, 17, 18-19. 8

    In interpreting and applying the provisions of an ERISA plan, federal courts “‘apply general principles of contract construction. In particular, the Supreme Court has directed us to interpret an ERISA plan like any contract, by examining its language and determining the intent of the parties to the contract.’” Fulghum v. Embarq Corp., 785 F.3d 395, 403 (10th Cir. 2015) (quoting Deboard v. Sunshine Min. & Ref. Co., 208 F.3d 1228, 1240 (10th Cir. 2000) (internal quotation omitted) (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 112-13 (1989)). “In interpreting an ERISA plan, the court examines the plan documents as a whole and, if unambiguous, construes them as a matter of law. In doing so, we give the language its common and ordinary meaning as a reasonable person in the position of the plan participant, not the actual participant, would have understood the words to mean.” Admin. Comm. of Wal-Mart Assocs. Health & Welfare Plan v. Willard, 393 F.3d 1119, 1123 (10th Cir. 2004) (citations and internal quotation omitted); accord Miller v. Monumental Life Ins. Co., 502 F.3d 1245, 1249 (10th Cir. 2007) (“[T]he proper inquiry is not what [the insurer who issued the group insurance policy] intended a term to signify; rather we consider the ‘common and ordinary meaning as a reasonable person in the position of the [plan] participant . . . would have understood the words to mean.’”) (quoting Willard, 393 F.3d at 1123); accord Rasenack ex rel. Tribolet v. AIG Life Ins. Co., 585 F.3d 1311, 1318 (10th Cir. 2009).

    None of the words used in the Incontestability Clause are defined terms in the Policy. Accordingly, focusing on the common and ordinary meaning of those words, the two-year incontestability period runs when the insured’s insurance is “in effect.” The Policy has a provision that determines “When Life Insurance Becomes Effective.” (AR 38.) This is the provision on which Standard based its decision. (AR 138-39.) Plaintiff does not identify any other provision of the Policy from which to determine when Mrs. Smith’s additional life benefit coverage was “in effect.” Thus, the Court agrees with Standard that the section of the Policy regarding “When Life Insurance Becomes Effective” contains the operative provisions.

    This section has separate provisions for life insurance “subject to [EOI]” and “not subject to [EOI].” (AR 38.) The former provides that coverage “becomes effective on the date we approve your [EOI].” Id. (¶ E.1.) The latter provides that coverage becomes effective on a date that depends on whether the insurance is “contributory” or “noncontributory” and, for contributory life insurance (like Mrs. Smith’s additional life coverage), the date depends on when the required written application for coverage is made. When an employee applies during the annual enrollment period or open season, “Contributory Life Insurance not subject to [EOI] becomes effective on . . . [t]he beginning of the next plan year following the date you apply.” Id. (¶ E.2.b.iv.) Plaintiff assumes this is the operative date for Mrs. Smith.

    As this discussion makes clear, the application of the Incontestability Clause of the Policy to Plaintiff’s claim for benefits cannot be decided in a vacuum, separated from the question of whether Mrs. Smith’s additional life insurance coverage was “subject to EOI” or “not subject to EOI.” Thus, the Court finds that Plaintiff’s effort to bifurcate his Incontestability Claim from contested issues is ineffectual. As presented in his current briefs, Plaintiff bases his position on insurance principles and policy arguments; he does not rely on the terms of the Policy. While the Court expresses no opinion on the ultimate issue of whether Plaintiff is entitled to payment of the additional life coverage benefit that Mrs. Smith applied and paid for, the Court finds no abuse of discretion by Standard in basing its benefit decision as claims administrator on its interpretation of the terms of the Incontestability Clause of the Policy.
    Attached Files