Opinion ID: 217533
Heading Depth: 3
Heading Rank: 1

Heading: Interpretation of Total Disability Definition in Summary Judgment Ruling

Text: The parties do not dispute that Pennsylvania law applies in this diversity matter. Under Pennsylvania law, an insurance contract is governed by the law of the state in which the contract was made. Crawford v. Manhattan Life Ins. Co. of New York, 221 A.2d 877 (Pa.Super.Ct.1966). The interpretation of the scope of coverage of an insurance contract is a question of law properly decided by the court. Regents of Mercersburg College v. Republic Franklin Ins. Co., 458 F.3d 159, 163 (3d Cir.2006) (citing Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir.1999) (internal quotation marks omitted)). The goal of that task is to ascertain the intent of the parties as manifested by the language of the written instrument. J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 363 (3d Cir.2004) (citing Standard Venetian Blind Co. v. Am. Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (1983) (internal quotation marks omitted)). The policy definition of Total Disability provides: during the first 12 consecutive months of disability means that a member is not able to perform substantially all of the duties of his occupation on the date his disability commenced because of a medically determined sickness or accidental bodily injury. After the first 12 consecutive months of disability, the definition changes and requires the member to be unable to perform any of the duties of his occupation or any occupation for which he is reasonably qualified by education, training or experience. (App. at 39.) Meyer contends, as he did before the District Court, that this language is unambiguous and means that after the first 12 consecutive months, the insured qualifies as totally disabled if he can show either (1) that he is unable to perform the duties of his occupation; or (2) that he is unable to perform the duties of any occupation for which he is reasonably qualified by education, training, or experience. CUNA argues that the clause should not be interpreted that way because the policy creates a shift from an own occupation definition of disability to an any occupation definition after 12 months. In effect, in the phrase, or any occupation for which he is reasonably qualified by education, training or experience, the or should be read conjunctively as, and. Applying Pennsylvania law, the District Court found that the definition of Total Disability was ambiguous. Although the Court found CUNA's interpretation of Total Disability more reasonable than Meyer's, it noted that its role was not to pick the most reasonable interpretation, but, where two reasonable interpretations creating an ambiguity exist, to choose the interpretation favoring the insured. Taken in the context of the overall policy and applying the plain meaning of words and phrases, it found Meyer's interpretation reasonable, since the ordinary meaning of or suggested a choice between two alternatives. ( Id. at 54.) CUNA claims that the District Court erred in concluding that Meyer's interpretation was reasonable and further argues that there was no evidence in the record of Meyer's intent to enter the insurance contract under that definition. CUNA also argues that adoption of Meyer's interpretation is unreasonable because it allegedly violates Pennsylvania law, including its rules of insurance policy construction and applicable regulations governing credit disability insurance coverage. After examining the parties' conflicting interpretations, relevant case law, the policy's language and purpose as a whole, and Pennsylvania principles of contract construction, we conclude, as did the District Court, that the definition of Total Disability is ambiguous and must be construed in favor of Meyer, the insured. The rules of analysis of insurance policies in Pennsylvania are well established. Regents, 458 F.3d at 171 (citing E. Associated Coal Corp. v. Aetna Cas. & Sur. Co., 632 F.2d 1068, 1075 (3d Cir. 1980)). The goal of interpreting an insurance policy, like that of interpreting any other contract, is to determine the intent of the parties. It begins with the language of the policy. See Madison Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 735 A.2d 100, 106 (1999). A policy must be read as a whole and its meaning construed according to its plain language. Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir.1999); Melrose Hotel Co. v. St. Paul Fire and Marine Ins. Co., 432 F.Supp.2d 488, 495 (E.D.Pa.2006). The burden of drafting with precision rests with the insurance company, the author of the policy. Pilosi, 393 F.3d at 365. An ambiguity in contract language exists when the questionable term or language, viewed in the context of the entire policy, is `reasonably susceptible of different constructions and capable of being understood in more than one sense.' Id. at 363 (quoting Med. Protective, 198 F.3d at 103); see also Madison Constr., 735 A.2d at 100. Where a term is ambiguous, it is to be construed against the insurer, in favor of the insured. McMillan v. State Mut. Life Assur. Co. of Am., 922 F.2d 1073, 1075 (3d Cir.1990) (citing Standard Venetian Blind, 469 A.2d at 566). The policy rationale underlying strict application of the doctrine is that because most insurance agreements are drafted by the insurance industry, they are essentially contracts of adhesion. Pittston Co. Ultramar Am. Ltd. v. Allianz Ins. Co., 124 F.3d 508, 520 (3d Cir.1997) (applying New Jersey law). Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language. Madison Constr., 735 A.2d at 106. Courts should not distort the meaning of the language or strain to find an ambiguity. Id. ; Pacific Indem. Co. v. Linn, 766 F.2d 754, 761 (3d Cir.1985). A contract is not rendered ambiguous merely because the parties disagree about its construction. Williams v. Nationwide Mut. Ins. Co., 750 A.2d 881, 885 (Pa.Super.Ct.2000). The instant case is not the typical one where a technical term appearing in a policy is undefined within the policy. In this case, the actual policy term in dispute, Total Disability, is defined in the policy; however, the language in that definition itself is at issue. Specifically, CUNA's use of the word or in the second clause of the post-12 month definition must be subject to scrutiny to edify the definition of Total Disability. The Supreme Court of Pennsylvania has not interpreted or in this particular context. In the absence of a definitive ruling by a state's highest court, we must predict how that court would rule if faced with the issue. Covington v. Cont'l Gen. Tire, Inc., 381 F.3d 216, 218 (3d Cir.2004). In so doing, `we must look to decisions of state intermediate appellate courts, of federal courts interpreting that state's law, and of other state supreme courts that have addressed the issue,' as well as to `analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand.' Spence v. ESAB Group, Inc., 623 F.3d 212, 216-17 (3d Cir.2010) (quoting Norfolk S. Ry. Co. v. Basell USA Inc., 512 F.3d 86, 92 (3d Cir.2008)). Looking first to the plain language of the definition, we note that in Pennsylvania, when words of common usage are used in an insurance policy, they should be construed in their natural, plain and ordinary sense. Madison Constr., 735 A.2d at 108 (citing Easton v. Washington Cnty. Ins. Co., 391 Pa. 28, 137 A.2d 332, 335 (1957)). The court may also look to the dictionary definition. Genaeya Corp. v. Harco Nat'l Ins. Co., 991 A.2d 342, 347 (Pa.Super.Ct.2010) (citing Wall Rose Mut. Ins. Co. v. Manross, 939 A.2d 958, 962 (Pa.Super.Ct.2007)). Merriam Webster's Eleventh Collegiate Dictionary (2005) defines or as used as a function word to indicate an alternative. Pennsylvania's intermediate appellate court has made a similar finding. See Frenchak v. Sunbeam Coal Corp., 344 Pa.Super. 37, 495 A.2d 1385, 1387 (1985) (interpreting a lease and noting that [t]he pertinent dictionary definition of `or' is `choice between alternative things, states, or courses.') (citations omitted). In the statutory interpretation context, the Pennsylvania Supreme Court has also held that [t]he word `or' is defined as a conjunction used to connect words, phrases, or clauses representing alternatives. In re Paulmier, 594 Pa. 433, 937 A.2d 364, 373 (2007) (internal quotation marks omitted). [6] Though this definition appears in the context of the court's statutory interpretation, we find it instructive. The commonly used and understood definition of or suggests an alternative between two or more choices. CUNA points to a 1942 Pennsylvania Superior Court case, Kensington Nat'l Bank of Philadelphia v. Sampson, 149 Pa.Super. 43, 26 A.2d 115 (1942), to support its proposition that and can be substituted for or depending on the context of the language involved. We find Kensington distinguishable and unpersuasive. It involved a life insurance policy which insured the lives of a husband and wife and provided for payment to the survivor upon either spouse's death. The superior court affirmed the trial court's finding that the whole essence of the contract, called a joint policy, and whose premium was payable during the joint lifetime of the insured, was to give to one benefits upon the death of the other. To allow one person to change it destroys the whole plan of insurance and clearly the intention of the parties. [7] Id. at 117-18. Although the context of that policy required a conjunctive reading, we do not find such obvious intent in the context of this case; one is certainly not required to read the clause conjunctively, and in that sense, do not find that Meyer's disjunctive reading is unreasonable. Our conclusion that Meyer's disjunctive interpretation of or is reasonable is further supported by the fact that we may consider whether alternative or more precise language, if used, would have put the matter beyond reasonable question in resolving ambiguity. [8] Vlastos v. Sumitomo Marine & Fire Ins. Co. (Europe) Ltd., 707 F.2d 775, 778 (3d Cir.1983) (citing Celley v. Mut. Benefit Health and Accident Ass'n, 229 Pa.Super. 475, 324 A.2d 430, 434 (1974) (internal quotation marks omitted)). Here, if CUNA had used the word and instead of or to convey that it indeed intended a conjunctive meaning in the second clause of the definition, it would have put the matter beyond reasonable question in resolving ambiguity. [9] CUNA advances numerous arguments about why Meyer's interpretation, the interpretation ultimately adopted by the District Court, is unreasonable. Based on our analysis of a plain reading of the language and common, disjunctive meaning of the word or, we find that Meyer's interpretation is not unreasonable. Regarding CUNA's next argument that Meyer's interpretation is unreasonable as repugnant to Pennsylvania law, we recognize that in Pennsylvania, stipulations in a contract of insurance in conflict with, or repugnant to, statutory provisions which are applicable to, and consequently form a part of, the contract, must yield to the statute, and are invalid, since contracts cannot change existing statutory laws. Pennsylvania Nat'l Mut. Cas. Co. v. Black, 591 Pa. 221, 916 A.2d 569, 579 (2007) (citing Prudential Prop. and Cas. Ins. Co. v. Colbert, 572 Pa. 82, 813 A.2d 747, 751 (2002) (internal citations omitted)). CUNA argues that 31 Pa.Code § 73.11(4) (1971), a Pennsylvania Department of Insurance regulation in place at the time the policy was drafted, mandates a shift for coverage after 12 months from an own occupation standard to an any occupation standard for disability insurers who charge prima facie rates. [10] The regulation provided, in relevant part: The following premium rate standards are applicable to policies providing credit accident and health coverage which are issued with or without evidence of insurability offered to all debtors and containing:    (4) No definition of disability which defines disability during the first 12 months of disability as inability to perform any occupation. The definition of disability during such time period must be related to the occupation of the borrower at the time such disability occurs. Thereafter, disability will be defined as the inability to perform any gainful occupation for which the borrower is reasonably fitted by education, training and experience. 31 PA.CODE § 73.11(4) (1971). The District Court found that the regulation was a list of attributes in a credit insurance contract for the policy to qualify for premium rate standards. [11] We agree with the District Court's assessment. The statute lists the requirements for an insurer that wishes to charge prima facie rates; however, the statute does not indicate that the insurer is required to charge prima facie rates. CUNA argues that record evidence supports charging prima facie rates for its group credit disability insurance coverage. Assuming this is the custom and practice in the industry, CUNA has not presented evidence that under Pennsylvania law, it is required to charge prima facie rates and therefore required to utilize an own to any occupation shift in its definition of Total Disability. Notwithstanding that this evidence may otherwise support CUNA's proffered intent and its reasonableness, it is not evidence of Meyer's intent. Furthermore, under Pennsylvania law, in close cases, a court should resolve the meaning of insurance policy provisions in favor of coverage for the insured. Motley v. State Farm Mut. Auto. Ins. Co., 502 Pa. 335, 466 A.2d 609, 611 (1983) ([I]f [a court] should err in determining the meaning of an insurance policy provision ..., [its] error should be in favor of coverage for the insured.). Additionally, the Pennsylvania Supreme Court has held that [i]n the insurance setting, a policy of insurance may expand, but cannot reduce, coverage that is mandated by statute. Burstein v. Prudential Prop. & Cas. Ins. Co., 570 Pa. 177, 809 A.2d 204, 220 (2002). We also find unpersuasive CUNA's last argument that Meyer's interpretation is unreasonable because it allegedly conflicts with industry custom and practice. CUNA cites to Nationwide Life Ins. Co. v. Commonwealth Land Title Ins. Co., 579 F.3d 304 (3d Cir.2009), where we stated that, among other factors in determining ambiguity in an insurance contract, a court may look to industry custom and practice. In that case, a title insurance policy dispute arose between two insurance companies over whether rights of first refusal not explicitly listed were covered by the policy, and we looked to the title insurance industry's treatment of American Land Title Association Endorsements. We found against defendant drafter of the policy, and concluded that along with the text and purpose of the policy, the custom and practice of the title insurance industry also led to the same result. Id. at 311 (finding that the alternate result r[an] roughshod over the policy's language, purpose, and usage.). Here, the text of the policy definition does not align with drafter CUNA's evidence of custom and industry practice. The plain language of the provision is not consistent with CUNA's evidence of custom and industry practice. CUNA makes no allegation and presents no evidence of Meyer's awareness of this industry practice or custom. Thus, CUNA's additional evidence, though arguably enlightening regarding its own intent, does not change our belief that Meyer's interpretation, based on the plain language of the provision, is reasonable. Along this vein, CUNA claims that its interpretation is the only reasonable one because Meyer's proposed interpretation renders half of the definition's terms meaningless by reading out the shift in the policythat after 12 months, it changes. [T]his Court takes care not to render other portions of a provision or contract superfluous when construing contract language. New Castle Cnty., Delaware v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA., 174 F.3d 338, 349 (3d Cir.1999) (applying Delaware law) (citing Contrans, Inc. v. Ryder Truck Rental, Inc., 836 F.2d 163, 169 (3d Cir.1987) (applying Pennsylvania law)). CUNA's argument, however, is unavailing, by looking at the language of the definition in context. The plain language in the first clause, modifying own occupation, could certainly be read to shift from requiring a claimant to show that he cannot perform substantially all of the dutiesless than all of those dutiesto not being able to perform any of the duties. This puts a greater onus on a claimant to meet the threshold for coverage after the first 12 months of disability. However, we recognize that reading the phrase conjunctively creates an ambiguity if the duties of any occupation for which a claimant is reasonably qualified is read as being inclusive of his prior occupation. Looking at the post-12 month clause in the order in which it is writtenfirst to one's abilities with respect to his own occupationwould eliminate a need to continue reading the second part of the clause to determine whether one can perform duties of any occupation, if any occupation includes the duties of one's former occupation. Under that premise, after 12 months, an insured could be in one of two situations with respect to his own occupation. He could either (1) be able to perform none of the duties of his former occupation; or (2) be able to perform one or some of the duties of his former occupation. If he cannot perform any of the duties of his occupation, construing `or' disjunctively, he is qualified for coverage, and there is no need to move to the second part of the clausewhether he can perform the duties of any occupation for which he is qualifiedto determine coverage. If, on the other hand, an insured can perform one or more tasks of his former occupation, he is not qualified for coverage and there is no need to look to the second part of the clause because he has already failed to qualify for coveragehis own occupation is a subset of any occupation for which he is qualified. Courts should not distort the meaning of the language or strain to find an ambiguity. Madison, 735 A.2d at 106. However, such a reading is not a distortion; it does create some degree of ambiguity, making the phrase capable of being understood in more than one sense. Notwithstanding this potential contextual defect, we will not override our conclusion that Meyer's interpretation of Total Disability is reasonable when the plain language, written by CUNA, offers an otherwise reasonable reading. Cf. New Castle Cnty., 174 F.3d at 350 (3d Cir.1999) (applying Delaware law) (finding that the potential defect of rendering the word wrongful surplusage in an insurance contract in certain contexts would not override the conclusion that the plaintiff's interpretation was reasonable when that defect itself was subject to competing interpretations and only a potential infirmity). However, this reading does lead us to find that the phrase is capable of being understood in more than one sense and that a conjunctive interpretation is also reasonable. [12] We thus find that the definition of Total Disability is ambiguous as it is capable of being understood in more than one sense. However, as noted earlier, in Pennsylvania, a court construes ambiguities in an insurance policy strictly against the insurer. USX Corp. v. Liberty Mut. Ins. Co., 444 F.3d 192, 198 (3d Cir.2006) (citing Standard Venetian Blind, 469 A.2d at 566). Construing the ambiguity against CUNA, we find that Meyer should have been covered after the first twelve months while he could not perform any of the duties of his former occupation. We will affirm the District Court's interpretation.