Source: https://caselaw.findlaw.com/us-2nd-circuit/1658154.html
Timestamp: 2019-04-20 13:49:12+00:00

Document:
NUNN AND v. Sun Life Assurance Company of Canada, Defendant.
Plaintiffs–Appellants appeal from a September 10, 2012 order of the United States District Court for the District of Connecticut (Arterton, J.) granting Defendant's motion for summary judgment. The district court erred in failing to apply Pennsylvania's reasonable expectations doctrine to Plaintiffs' reformation claims and in finding the breach of contract claims to be time-barred. We therefore REVERSE and REMAND in accordance with the following.
In August 2010, Plaintiffs filed suit in the United States District Court for the District of Connecticut, alleging breach of contract and/or seeking reformation with respect to each policy. MCIC moved for summary judgment, asserting that Plaintiffs' claims were barred by Connecticut's six-year statute of limitations, and that the insurance policies contained unambiguous language limiting Plaintiffs to sixty months of supplemental disability insurance payments if they were able to perform any gainful occupation thereafter. The district court (Arterton, J.) granted MCIC's motion for summary judgment.
Pennsylvania law is somewhat unique in that it employs the reasonable expectations of the insured in some situations to govern contract interpretation. Gilderman v. State Farm Ins. Co., 437 Pa.Super. 217,224 (1994). As in other jurisdictions, the default rule in Pennsylvania is to allow “the language of an insurance policy [to] provide the best indication of the content of the parties' reasonable expectations.” Bensalem Twp. v. Int'l Surplus Lines Ins. Co., 38 F.3d 1303, 1309 (3d Cir.1994). But unlike most jurisdictions, which will not look beyond the four corners of an unambiguous writing, Pennsylvania law instructs that we examine “the totality of the insurance transaction involved to ascertain the reasonable expectations of the consumer.” Dibble v. Sec. of Am. Life Ins. Co., 404 Pa.Super. 205, 210 (1991). Thus, even a clear and unambiguous writing will not bind the insured where the insurer or its agent gives the insured a reasonable expectation that coverage is different than that stated in the written policy. See Tonkovic v. State Farm Mut. Auto. Ins. Co., 513 Pa. 445,455–56 (1987). Under Pennsylvania law when an insurer's agent makes a representation with regard to coverage which is inconsistent with the later delivered policy, that inconsistency creates an ambiguity in that regard notwithstanding the clarity of the policy's provisions and entitles the insured to rely on the agent's representation. See id. at 455.
The Third Circuit surveyed the Pennsylvania Supreme Court's decisions on the doctrine of reasonable expectations eight years ago in Tran v. Metro. Life Ins. Co., 408 F.3d 130,136 (3d Cir.2005). Tran reviewed three cases that provide a roadmap of Pennsylvania's reasonable expectations doctrine: Rempel v. Nationwide Life Ins. Co., 471 Pa. 404 (1977); Standard Venetian Blind Co. v. Am. Empire Ins. Co., 503 Pa. 300 (1983), and Tonkovic v. State Farm Mut. Auto. Ins. Co., 513 Pa. 445 (1987). In Rempel, the insured received a verbal confirmation from an agent that the insurance company would match a competitor's offer for life insurance, but signed a contract inconsistent with that commitment. Following the insured's death, the beneficiary sought to collect on the policy as promised by the agent and not surprisingly, the company denied coverage. The Pennsylvania Supreme Court acknowledged that insureds make the purchase decision at the time they apply and “[b]y the time the written policy is received, it has lost its importance to the insured․ It is not unreasonable ․ for a purchaser of insurance to ‘pass' when the time comes to read the policy.” Rempel, 471 Pa. at 410 (citation omitted).
Venetian argued that because the exclusion had never been noted or explained to its principals the exclusion could not be enforced against it. Id. at 305–06. The Pennsylvania high court was not impressed. The court found that the exclusion was clear and unambiguous and therefore had to be enforced as written. Id. at 307.
Unlike the insured in Rempel, Venetian never asked for or received a specific representation that the policy would cover damage to its products. Venetian's principals simply assumed that the general liability policy would cover that category of property damage. Lacking an affirmative misrepresentation, the Pennsylvania Supreme Court concluded that reformation was unjustified. Compare Standard Venetian, 503 Pa. at 306–07, with Rempel, 471 Pa. at 410–11. Some might have been tempted to view Standard Venetian as a signal that the state high court was stepping back from the reasonable expectations doctrine, but this was not to be the case.
These cases reveal that reasonable expectations cases fall into two camps. In one, “where one applies for a specific type of coverage and the insurer unilaterally limits that coverage, resulting in a policy quite different from what the insured requested,” the insured's expectations are reasonable and therefore govern the contract. West v. Lincoln Ben. Life Co., 509 F.3d 160, 168 (3d Cir.2007) (internal quotation marks omitted). In the other, where “the insured received precisely the coverage that he requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for,” any other expectations are simply unreasonable. Id. at 168 (internal quotation marks omitted).
Lucas' representations to Vaden and Nunn with regard to specific provisions of the policy he subsequently sold to them establish the reasonable expectations of the parties.4 Vaden and Nunn never read their policies, instead assuming that each reiterated the terms Lucas had previously described to them. When they were subsequently injured and unable to work as NBA referees, they anticipated that, as Lucas had promised, they would receive payments until age sixty-five.
Plaintiffs' failure to read the policy does not defeat their reasonable expectations. As the Supreme Court of Pennsylvania explained in Tonkovic, “[w]hen the insurer elects to issue a policy differing from what the insured requested and paid for ․ [t]he burden is not on the insured to read the policy to discover such changes, or not read it at his peril.” 513 Pa. at 454 (emphasis added). Pennsylvania law recognizes that “[c]onsumers ․ view an insurance agent ․ as one possessing expertise in a complicated subject[, and i]t is therefore not unreasonable for consumers to rely on the representations of the expert rather than on the contents of the insurance policy itself.” Rempel, 471 Pa. at 409. Indeed, “the insurance industry forces the insurance consumer to rely upon the oral representations of the insurance agent.” Collister v. Nationwide Life Ins. Co., 479 Pa. 579, 594 (1978). Under the circumstances in this case, “it [was not] unreasonable [for Plaintiffs] not to read [the policy].” See Tonkovic, 513 Pa. at 452 (quoting Rempel, 471 Pa. at 411). Under Pennsylvania law, Vaden and Nunn are therefore entitled to reformation of their policies in line with their reasonable expectations.
Contrary to the holding of the district court, nothing in Pennsylvania precedent suggests that Plaintiffs must allege fraud or misrepresentation before the reasonable expectations of the insured can be applied—in fact, it suggests the opposite. In Tonkovic, the Supreme Court of Pennsylvania applied the reasonable expectations doctrine and found for the insured even though the insured “did not set forth a separate cause of action ․ for negligent misrepresentation.” 513 Pa. at 460 (Zappala, J., dissenting) (emphasis added). Similarly, in Rempel, although the insured's claim was formally a claim of negligent misrepresentation, the Court noted that the insured more simply “sought recovery on the basis of the policy as it should have been written,” and permitted recovery based on the insured's reasonable expectations. 471 Pa. at 413. In short, Plaintiffs' failure to plead negligent misrepresentation or fraud does not prohibit the court from looking past the plain language of their written policies.
But even if we reform the contract to meet the reasonable expectations of the insured, MCIC still presses that Plaintiffs' attempt to enforce the contract is untimely. Its argument is premised on a strained understanding of the relationship between a procedural matter—the applicable state statute of limitations—and the substantive policies inherent in Pennsylvania contract law.
Plaintiffs concede in their brief that Connecticut law controls the statute of limitations—6 years—on their breach of contract claims. See Connecticut General Statutes § 52–576(a). Connecticut, however, does not follow Pennsylvania's version of the reasonable expectations doctrine; nor does it excuse an insured from not reading her policy. Connecticut's view is that the statute of limitations commences for a non-conforming policy at delivery of the insurance contract. See Tolbert v. Conn. Gen. Life Ins. Co., 257 Conn. 118,125–26 (2001).
But the parties and the district court agree that Pennsylvania substantive law defined the contract's interpretation and the parties' obligations thereunder; Pennsylvania is the contract state. Pennsylvania law determines Plaintiffs' right to reformation; absolves the insured from not reading the policy at delivery; and allows the contract to be interpreted (or recast) from the date the carrier acts in a manner inconsistent with the insured's reasonable expectations of coverage. The policies that underlay Pennsylvania's substantive contract law of the reasonable expectations doctrine directly contradict those that drive Connecticut's view of when a claim for non-conforming coverage accrues.
The district court's order and judgment dismissing Plaintiffs' complaints is REVERSED with costs and the matter is REMANDED to the district court for further proceedings in accord with this decision.
2. The court denied MCIC's motion to dismiss the reformation claim for laches but then curiously concluded that even if the reasonable expectations doctrine applied, contract reformation would be improper because it “is an equitable remedy that is sparingly applied, and here, there has been extreme delay in filing suit․” Nunn, 2012 WL 3985162, at *9.
3. We review an award of summary judgment de novo, construing the evidence in the light most favorable to the nonmoving party and drawing all reasonable inferences in his favor. McBride v. BIC Consumer Prods. Mfg. Co., 583 F.3d 92, 96 (2d Cir.2009). Summary judgment is appropriate where the record reveals that there is “no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A factual dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
4. This might be a tougher case if the carrier had established that disability policies never define disability beyond five years in terms of inability to perform the job the insured performed at the time the disability began. But Lucas' success on behalf of the Major League Baseball umpires forecloses that argument here.
5. The district court correctly decided that MCIC failed to show any prejudice from the delay in Plaintiffs' bringing their claim for reformation. This conclusion would seem to preclude its later finding that even if Plaintiffs had made out a claim for reformation it would deny the claim in an exercise of its discretion as a result of Plaintiffs' “extreme delay” in commencing suit. The standard for determining laches also measures the court's discretion. To have employed the correct standard only to ignore it later was error as a matter of law.
6. MCIC also asserted in its motion for summary judgment at the district court that it is not accountable as a matter of Pennsylvania law for Lucas' representations, which are the subject of this lawsuit. The district court never reached this issue. On remand, the district court will be required to resolve this issue, as well as the issue of damages, costs, and interest if required by law.

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