Opinion ID: 77633
Heading Depth: 2
Heading Rank: 2

Heading: Fraud Claims Barred Once Contestability Period For Policies Has Passed

Text: 59 Each of the life insurance policies that the insurers challenged in their amended complaint contain two-year incontestability clauses. As we noted recently in Allstate Life Insurance Co. v. Miller, 424 F.3d 1113, 1115 (11th Cir.2005) ( citing Prudential Ins. Co. of Am. v. Prescott, 130 Fla. 11, 176 So. 875, 878 (1937)), incontestability clauses function much like statutes of limitations. While they recognize fraud and all other defenses, they provide insurance companies with a reasonable time in which to assert such defenses, and disallow them thereafter. In each of the cases at issue here, contestability periods ended years ago. In some cases they ended only one or two years before the insurers filed their complaint; in other cases they ended more than fifteen years before the insurers filed a complaint. 60 Nevertheless, to determine whether the insurers can challenge these policies at this late date, we must first determine what law will guide our interpretation of the contracts. Federal courts adjudicating state law claims apply the substantive law of the state where they render decisions. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). Here, the forum state is Florida, but none of the parties to the challenged contracts are citizens of Florida, a situation which raises conflict of law concerns. In such cases, we follow the conflict of law rules of the forum state. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477, 1480 (1941). 61 Absent a specific contractual provision to the contrary, Florida conflict of law rules dictate that courts should apply lex loci contractus, or the law of the state where the contract was made, to questions of contracts (other than those that deal with contracts for the performance of services). See Equitable Life Assurance Soc'y v. McRee, 75 Fla. 257, 78 So. 22, 24 (1918); Shaps v. Provident Life & Accident Ins. Co., 244 F.3d 876, 881 (11th Cir.2001) (relying on Fioretti v. Mass. Gen. Life Ins. Co., 53 F.3d 1228, 1235 (11th Cir.1995)). When the contract deals with an insurance policy, the locus contractus is generally the state where the insured executed the insurance application. See Fioretti, 53 F.3d at 1236; Shaps, 244 F.3d at 881. Accordingly, we approach this analysis by examining each of the policies in turn with respect to the insurers' claims that the policies were: 1) void ab initio on account of fraud, 2) that the receivership entities aided and abetted fraud, and 3) that the receivership entities conspired to commit fraud. Since two of the insurers, Jefferson Pilot and AUL, also asserted RICO claims based on predicate acts of mail fraud, we will consider those claims under this section as well.
62 Wendell Mullins, a resident of Arkansas, applied for two $1 million policies through insurer VFL on November 17, 1997. Mullins executed the applications at a VFL broker's office in Waterville, Ohio. In response to a query on VFL's insurance application as to whether he had ever been diagnosed or treated for AIDS in the past ten years, Mullins checked the answer choice labeled no. 13 Apparently, he had tested positive for HIV in 1994. Mullins submitted to a blood test on February 10, 1998 at VFL's request and passed, showing no signs of HIV infection. VFL contended that Mullins likely enlisted the aid of an impostor who took the blood test in his place, but the insurer was unable to provide further details of how this worked. 63 After Mullins passed the blood test, VFL issued two $1 million life insurance policies to him on March 23, 1998. The policies contained identical incontestability clauses, which read: 64 [Valley Forge] cannot contest this policy, except for non-payment of premiums, after it has been in force during the Insured's lifetime for 2 years from the Policy Date or if reinstated the date of reinstatement. 65 Two years later, Mullins asked to have the policies amended in order to exercise an option for a Guaranteed Insurance Rider (GIR) that VFL had offered under an earlier policy. The GIR on the earlier policy gave Mullins the right to purchase additional insurance up to two times the initial face amount of the policy, without having to answer additional medical questions, present evidence of insurability or attest to current employment. Mullins executed the amendment to the policies in Charleston, West Virginia on March 15, 2000. VFL alleged that the amendment to the policies is fake, and that MBC submitted a doctored version of Mullins' original application and other false correspondence in support of the amendment. 66 MBC viaticated both of the Mullins policies within a few months of their amendment, in May and June 2000. By this point in time, the policies had been in force for at least two years and the contestability period had expired. Mullins died of AIDS-related complications on September 24, 2003. VSI submitted claims on both his policies on January 27, 2004. VFL did not allege fraud in connection with the Mullins policies until August 31, 2004, however, when the insurers filed their original ancillary complaint. VFL amended the complaint on March 15, 2005, to allege additional claims in connection with the Mullins' policies such as aiding and abetting fraud, civil conspiracy, and RICO claims. Thus, VFL did not seek to challenge the policies until long after the incontestability bar took effect. 67 To determine whether the incontestability clauses absolutely bar VFL from asserting fraud-based claims at this point, we must look to the law of the state where Mullins executed the contracts. The receiver contends that Mullins filed the last document required to complete the contract in West Virginia because that is where he signed the amendment to the policies. The insurers argue that the purported final amendment is a fake, and that Ohio law applies because that it where Mullins signed his original applications for insurance. 68 Regardless of whether we apply West Virginia law or the law of Ohio, the result is the same. Neither state will bar enforcement of an incontestability clause on the grounds of fraudulent procurement once the two-year contestability period has lapsed. See e.g., Morris v. Mo. State Life Ins. Co., 114 W.Va. 278, 281, 171 S.E. 740, 741 (1933) (fraud in the procurement of the policy cannot be made a defense subsequent to the date fixed by the policy when it shall be deemed incontestable); see also Poffenbarger v. N.Y. Life Ins. Co., 277 F.Supp. 726, 729 (D.W.Va.1967) (affirming Morris). 69 An Ohio statute plainly dictates that any life insurance policy that is issued by a company organized under the laws of the state or delivered to an insured within the state must contain a provision that: [it] shall be incontestable after it has been in force during the lifetime of the insured for a period of not more than two years from its date, except for nonpayment of premiums. Ohio Rev.Code Ann. § 3915.05(C) (1998). The statute does not provide for any exceptions on account of fraud. Although the insurers argue that Ohio case law recognizes an exception where the insured lacked an insurable interest at the time he applied for the policy, 14 they do not state why that exception should apply. The insurable interest doctrine holds that a person who procures a life insurance policy on the life of another person must have an insurable interest in the continuation of that other person's life. See Couch on Insurance § 41:17 (3d ed.1997). Failure to disclose an HIV infection may affect an insured's premium rates, but that does not mean he would lack an insurable interest, as the term is understood in the law. 70 Thus, we affirm the district court's decision to dismiss VFL's request to declare the Mullins policies void ab initio and its common law fraud and civil conspiracy claims (counts V, III, and IV, respectively). Although the court did not specifically find that these claims were barred under the policies' incontestability clauses, we do find this to be the case. And, as we noted previously, we may affirm the district court's decision to dismiss on any grounds that finds support in the record. See, e.g., W.W. Grainger, 257 F.3d at 1256.
71 On June 6, 1988, Jack Johnson, a resident of Massachusetts, applied for a $100,000.00 life insurance policy through Allianz Life Insurance Company of North America, whose policies are administered by Reassure. Johnson submitted the application in Massachusetts. In response to a query on the insurance application as to whether he had ever been treated for or diagnosed with an immune system disorder or a disorder of the blood, Johnson answered no. Reassure contended that doctors had diagnosed Johnson with HIV in 1986. 72 Allianz issued a $100,000.00 life insurance policy to Johnson on August 8, 1988. The policy contained an incontestability clause that read: 73 The application you signed is a legal document. If the information on your application was false and we relied on that false information and gave you insurance that you were not entitled to, we may treat your insurance as if we never issued it to you . . . However, we will not question any information that you gave us on the application if this certificate has been in effect for 2 years during your lifetime. 74 Allianz reduced Johnson's coverage to $50,000.00 on March 10, 1993, after it discovered an error on the Certification Schedule that was used to compute his premium rates. Johnson assigned the policy to MBC on November 29, 1995. At that point, the policy had been in effect for more than seven years. Johnson died of AIDS on June 6, 2004. Reassure did not allege fraud in connection with the Johnson policy until the insurers filed their amended ancillary complaint on March 15, 2005. 75 Since Johnson executed his application in Massachusetts, we apply Massachusetts law to determine whether Reassure can assert any exceptions to the incontestability clause. Under the General Laws of the Commonwealth of Massachusetts, a life insurance policy issued within the Commonwealth must contain: 76 A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years from its date of issue except for non-payment of premiums or violation of the conditions of the policy relating to military or naval service in time of war and except, if the company so elects, for the purpose of contesting claims for total and permanent disability benefits or additional benefits specifically granted in case of death by accident. 77 Mass. Gen. Laws ch. 175, § 132(2) (1989). The statute does not contain an exception for fraud. And the Legislature omitted any mention of fraud intentionally, the Massachusetts Supreme Judicial Court concluded in Protective Life Ins. Co. v. Sullivan, 425 Mass. 615, 620, 682 N.E.2d 624, 628-29 (1997). The facts of Sullivan are similar to those that Reassure alleges here, namely, that an HIV-positive individual failed to disclose his infection when he applied for a life insurance policy. The insurer issued a policy in reliance upon the insured's fraudulent application and did not discover the fraud until the insured died of AIDS. By that time, the incontestability period on the policy had expired. The insurer sought to rescind the policy on the grounds of fraud. Although the court noted that the insured's wilful concealment of his medical condition was deplorable, and deserving of condemnation, it held that the Massachusetts legislature did not intend to provide a fraud exception to the state incontestability statute for sound policy reasons. Id. at 629, 682 N.E.2d at 634. 78 Accordingly, we find that the incontestability clause in the Johnson policy bars Reassure from challenging the validity of the policy on the basis of fraud, and we affirm the district court's decision to dismiss Reassure's claim for a declaratory judgment that the policy was void ab initio (count IX). The incontestability clause also necessarily bars Reassure from pursuing its other fraud-based claims — that the receivership entities aided and abetted Johnson to commit fraud (count VIII) and that they conspired to acquire his fraudulently procured policy and to submit a claim for improper benefits once he died (count VII). Thus, we also affirm the district court's decision to dismiss these claims, even though the district court did not specifically reach the issue of whether these claims were barred by the incontestability clause in Johnson's policy.
79 Gerald Metoyer, a California resident, applied for a $1.5 million life insurance policy from Jefferson Pilot on February 13, 1999. He signed the application in California. A query on the insurance application asked whether he had been diagnosed or treated within the past seven years for either AIDS, an AIDS-related complex, or HIV. Metoyer responded no. Metoyer also denied ever being treated for cancer in response to another query on the application. 80 According to count X of the insurers' complaint, doctors had diagnosed Metoyer with both HIV and cancer in 1993. Metoyer submitted to medical tests and blood tests as part of the application process, but the tests did not disclose evidence of either condition. Jefferson Pilot argued that Metoyer most likely enlisted the aid of an impostor when it came time to take these tests. Jefferson Pilot did not allege further details of how Metoyer managed to accomplish this fraud or identify the impostor who stood in for him during the medical tests. 81 On February 25, 1999, Jefferson Pilot issued Metoyer a $1 million policy on his life. Thereafter, Metoyer asked to raise the policy limits closer to $2 million, and on April 18, 1999, Jefferson Pilot complied, raising the coverage to $1.5 million. The policy contained a two-year incontestability clause, in keeping with the California Insurance Code, which requires that: 82 An individual life insurance policy delivered or issued for delivery in this state shall contain a provision that it is incontestable after it has been in force, during the lifetime of the insured, for a period of not more than two years after its date of issue. 83 Cal. Ins.Code § 10113.5(a) (1999). Metoyer assigned his policy to VBLLC on May 6, 2002. VSI began to service the policy shortly thereafter, paying regular premiums to ensure that it remained in force and submitting change of ownership/beneficiary notices. The receivership entities did not submit any claims for benefits under the policy as Metoyer is still alive. Nevertheless, on March 15, 2005, Jefferson Pilot asked the court to declare that the policy was void ab initio to relieve the company from its future obligations on the policy. At this point in time, the policy had been in effect for six years and the contestability period had lapsed four years earlier. 84 Under California law, once the contestability period has expired on a life insurance policy, an insurance company can no longer contest the policy for reasons of fraudulent procurement. Amex Life Assurance Co. v. Superior Court, 14 Cal.4th 1231, 1233-34, 60 Cal.Rptr.2d 898, 930 P.2d 1264, 1265 (1997). The contestability period on the Metoyer claim expired on February 25, 2001. The insurers contended in their brief that California amended its insurance code in 1998, the year that Jefferson Pilot issued the Metoyer policy, to allow challenges to policies in cases where the policies had been procured with the aid of impostors. 85 The pertinent provision only applies, however, if photographic identification is presented during the application process, and if an impostor is substituted for a named insured in any part of the application process. Cal. Ins.Code § 10113.5(b)(1) (1999). In such cases, the California Insurance Code states that any purported insurance contract is void from its inception. Id. The record does not indicate whether Jefferson Pilot required that Metoyer present photographic identification during the application process. Jefferson Pilot merely alleges that Metoyer likely made use of an impostor to obtain the medical results that he did, which made him appear AIDS and cancer-free at the time he applied for life insurance. 86 The district court found that the plaintiffs had alleged sufficient facts to show why the incontestability clause should not apply in the case of the Metoyer policy. Final Order of Dismissal and Order Denying All Pending Motions As Moot, August 15, 2005, at 8 n.7. We do not know which facts the court was alluding to in this footnote. California law on incontestability clauses does provide a limited exception for fraud in cases where an impostor is used. However, it simply is not clear whether this exception applies in Jefferson Pilot's case because Jefferson Pilot has failed to provide the necessary details of the alleged fraud. 87 Accordingly, we make no finding as to whether the incontestability clause applies to bar Jefferson Pilot's fraud claims. Nevertheless, we do agree with the district court that Jefferson Pilot's fraud claims suffer from a more basic problem — failure to plead fraud with particularity — and this deficiency provides grounds for dismissal. As we noted in Cooper v. Blue Cross & Blue Shield of Fla., Inc., 19 F.3d 562, 568 (11th Cir.1994), the plaintiff's complaint must allege the details of the defendants' allegedly fraudulent acts, when they occurred, and who engaged in them. Jefferson Pilot's allegations do not satisfy this requirement since they fail to allege unequivocally that an impostor stood in for Metoyer when it came time to submit to medical exams, when this fraud occurred, or what involvement the receivership entities had in perpetrating or perpetuating this fraud ( see infra ). 88 Accordingly, we affirm the district court's decision to dismiss Jefferson Pilot's claim for a declaratory judgment that the Metoyer policy was void ab initio (count XV). We do so because Jefferson Pilot presented only general conclusory allegations of fraud and conjecture on the use of an impostor. Such general conclusory allegations do not conform to the heightened pleading requirements for fraud claims. See Fed.R.Civ.P. 9(b). 89 Jefferson Pilot's remaining fraud claims — the aiding and abetting claim (count XII) and the conspiracy to commit fraud claim (count XI) — suffer from the same deficiency. As the district court noted in its dismissal order, Jefferson Pilot failed to allege any facts that would show how the receivership entities assisted Metoyer to file a fraudulent insurance application. Thus, Jefferson Pilot's aiding and abetting claim also fails to conform to the requirements of Rule 9(b) of the Federal Rules of Civil Procedure. And, as the district court noted, where a conspiracy claim alleges that two or more parties agreed to commit fraud, the plaintiff must also plead this act with specificity. Jefferson Pilot did not do so in this case and consequently, failed to make out a valid claim for conspiracy to commit fraud. Accordingly, we affirm the district court's decision to dismiss these two claims. 90 Jefferson Pilot also asserted two RICO claims against the receivership entities pursuant to section 1962(c) and (d) of Title 18 of the U.S.Code. Section 1962(c) makes it unlawful for anyone employed by or associated with an enterprise affecting interstate or foreign commerce to conduct the enterprise's affairs through a pattern of racketeering activity. Section 1962(d) makes it unlawful to conspire to violate section 1962(c). 91 Section 1961(1)(a) and (b) of the RICO statute provides a list of crimes or threats that constitute an act of racketeering for the purposes of section 1962(c). The list includes major crimes such as murder, arson, etc. that are chargeable under State law and punishable by imprisonment of more than a year, and crimes that are indictable under various sections of the United States Code, such as the mail fraud statute. To assert a pattern of racketeering activity, a plaintiff must allege that the defendant engaged in at least two discrete acts from the preceding list of predicate acts. 18 U.S.C. § 1961(5). 92 Jefferson Pilot based its RICO claims (counts XIII and XIV) on two predicate acts of mail fraud. The district court did not provide a reason for dismissing these two claims, but, and as we have noted above, the district court justifiably decried Jefferson Pilot's other fraud allegations for their lack of specificity. Thus, the court could have properly concluded that Jefferson Pilot failed to plead the predicate acts of mail fraud with the particularity required under Rule 9(b) of the Federal Rules of Civil Procedure. Jefferson Pilot's mail fraud allegations suffer from an additional deficiency, however. 93 Under the mail fraud statute, a plaintiff must allege a scheme to defraud where some type of deceptive conduct occurred. Pelletier v. Zweifel, 921 F.2d 1465, 1500 (11th Cir.1991). Jefferson Pilot did not allege that the receivership entities made any affirmative misrepresentations in these mailings. Rather, it seemed to suggest that the receivership entities engaged in a scheme to defraud the insurer because they failed to disclose what they learned in the process of acquiring the Metoyer policy. 94 We have stated that nondisclosure of material information can constitute a violation of the mail and wire fraud statutes where a defendant has a duty to disclose either by statute or otherwise. McCulloch v. PNC Bank Inc., 298 F.3d 1217, 1225 (11th Cir.2002). However, as the district court noted in its order to dismiss, if the insurers intended to assert a claim for fraudulent concealment, or nondisclosure, they needed to plead that the receivership entities had a duty to disclose. Jefferson Pilot did not do so in the amended complaint. Accordingly, it failed to state a claim upon which relief can be granted and we affirm the district court's dismissal of Jefferson Pilot's RICO claims for this reason.
95 William Buchner, a resident of Illinois, applied for a $100,000.00 life insurance policy with AUL on March 5, 1986. AUL asserts that he had been diagnosed with HIV in 1985. AUL had Buchner complete an interview with a medical examiner on April 14, 1986 as part of the application process and the examiner asked Buchner whether he had been diagnosed within the past ten years with any symptoms of a blood disorder or been affected by any serious illness, disease, or injury not listed on the application. Buchner did not disclose his HIV infection. 96 On April 28, 1986, AUL issued Buchner a $100,000.00 life insurance policy, which contained the following incontestability clause: 97 INCONTESTABILITY. This policy will not be contested after it has been in force during the lifetime of the insured for 2 years from its date of issue. 98 Buchner assigned his policy to MBC on July 20, 1995. Thus, Buchner held the policy for at least nine years before he assigned it, and the contestability period expired seven years earlier. AUL did not assert that Buchner procured the policy through fraud or that the receivership aided and abetted his efforts until the insurers filed their amended ancillary complaint on March 15, 2005. Buchner is still alive, and the receivership entities have not asserted a claim for benefits on his policy. 99 Since Buchner executed his insurance application in Illinois, we apply Illinois law to determine whether AUL can challenge the validity of the Buchner policy at this point. Illinois, like the other states that we have examined, does not recognize a fraud exception to incontestability clauses. The Supreme Court of Illinois held as far back as 1921 that the incontestability clause in a life insurance policy is a valid provision, which bars the insurer from making any defense against the policy, after the expiration of the contestable period, except for nonpayment of premiums. Ramsay v. Old Colony Life Ins. Co., 297 Ill. 592, 595, 131 N.E. 108, 109 (1921). The court cautioned that even fraud in procuring the policy is not available [as a defense] to avoid [the effect of the incontestability clause]. Id. 100 Thus, we find that AUL's claim for a declaratory judgment that the Buchner policy was void ab initio on the grounds of fraud (count XXI) is time-barred since the contestability period on the policy expired nearly twenty years ago. Additionally, the incontestability clause in the Buchner policy also bars AUL's other claims, which all rely upon allegations that the Buchner policy is tainted by fraud. AUL's other claims include the aiding and abetting fraud (count XVIII), a conspiracy claim (count XVII), and two RICO claims predicated on mail fraud (count XIX and XX). Once again, we affirm the district court's decision to dismiss these claims even though the court reached its decision for alternative reasons. 101