Opinion ID: 77633
Heading Depth: 3
Heading Rank: 2

Heading: The Jack Johnson Policies Issued by Reassure

Text: 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.