Court Opinion

ID: 9676818
Source: CourtListenerOpinion
Date Created: 2023-08-24 05:34:56.137015+00
Date Added: 2024-06-11T18:16:51.518888
License: Public Domain

STRINGER, Justice
(dissenting).
I respectfully dissent. The majority’s holding violates fundamental principles of insurance law relating to indemnification of a defined risk and misconstrues the statutory provisions that it relies upon to conclude that coverage is compelled.
The operative facts are that respondent was treated for depression and anxiety in 1974. Minnesota Mutual issued a disability insurance policy to respondent on October 18, 1985. The policy, which was approved by the Commissioner of Commerce,3 included coverage for “sickness,” defined as “[a] disease or illness which first manifests itself while this policy is in force.” (emphasis added). Respondent received disability benefits from Minnesota Mutual but the benefits were discontinued when Minnesota Mutual discovered that the cause of respondent’s disability had not first manifested itself during the policy period but rather more than ten years prior to the policy’s inception.
Respondent’s claim that he should nonetheless be entitled to disability benefits is inconsistent with the clear language of his disability policy and basic principles of insurance law. “The primary requisite essential to a contract of insurance is the assumption of a risk of loss and the undertaking to indemnify the insured against such loss.” 1 George J. Couch, Couch on Insurance § 1:8, at 6-7 (Ronald A. Anderson ed., 2d ed.1983). We have defined insurance as “any agreement whereby one party, for a consideration, undertakes to indemnify another to a specified amount against loss or damage from specified causes,” State v. Bean, 193 Minn. 113, 114-15, 258 N.W. 18, 18 (1934), and have held that the date the policy goes into effect is determined by the terms of the policy. See Oster v. Riley, 276 Minn. 274, 277, 150 N.W.2d 43, 46 (1967). Moreover, “it is customary for policies to bear a certain date and to insure against losses arising after that date. * * * [T]he insured may not recover for losses occurring *879prior to that date.” 1 John Appleman & Jean Appleman, Insurance Law and Practice § 102, at 330 (1981) (emphasis added). Minnesota case law reflects this bedrock principle-insurance covers losses occurring during, not before, the period of coverage. See, e.g., Kilborn v. Prudential Ins. Co., 99 Minn. 176, 179, 108 N.W. 861, 862 (1906).
The majority finds coverage for a loss resulting from a sickness that manifested itself years before the policy became effective based upon Minn.Stat. § 62A.04, subd. 2(2)(b), the incontestability provision required to be included in all accident and sickness insurance policies:
No claim for loss incurred or disability (as defined in the policy) commencing after two years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or specific description effective on the date of loss had existed prior to the effective date of coverage of this policy.
Minn.Stat. § 62A.04, subd. 2(2)(b). The majority creates coverage where none existed before by denying Minnesota Mutual’s right to enforce the “first manifests itself’ policy provision. But creating coverage is not the purpose of the incontestability provision as it is not intended to preclude the insurer from denying coverage based on preexisting conditions. As noted in Couch on Insurance, an incontestability clause “does not bar the insurer from showing that the condition or disability is not covered by the policy because it originated or had its inception prior to the attachment of the risk.” 18 Couch, supra, § 72:61, at 329. Similarly, “[wjhere loss is claimed by reason of disability covered by the policy, it is necessary * * * that the cause of such disability arise within the policy terms and after the insurance has been effected. * * * The incontestable clause does not apply * * * and there can be no recovery unless the cause of disability arose within the time designated.” 1A Appleman & Appleman, supra, § 333, at 390. Importantly, the “Standard provisions” statute, Minn.Stat. § 62A.04, subd. 2, permits insurers to use words different from the statutory language in defining the standard provisions, but the provision must not be “less favorable in any respect to the insured” and must be approved by the Commissioner of Commerce. Here Minnesota Mutual’s policy requiring the disease or illness to “first manifest! ] itself while this policy is in force” was approved by the Commissioner, and the conclusion is therefore compelling that the “first manifests itself’ clause is not inconsistent with the mandatory incontestability provision.
The purpose of the incontestability provision, as noted in Appleman, is to give insurers an incentive to within a “reasonable period of time * ⅜ * check into and to ascertain the truth of the declarations made by the applicant and to take such action as will protect its rights. If it fails to do so, these defenses are barred.” 1A Appleman & Appleman, supra, § 333, at 385-86. We also held long ago that an incontestability clause is intended to “render all statements by the insured in the application for the insurance representations and not warranties [,] ” Sellwood v. Equitable Life Ins. Co. of Iowa, 230 Minn. 529, 536, 42 N.W.2d 346, 351 (1950) (emphasis added)-that is, to protect an insured from the harsh results of an inadvertent mistake in the policy application which might otherwise be grounds for re-cision. See, e.g., Schaedler v. New York Life Ins. Co., 201 Minn. 327, 333, 276 N.W. 235, 239 (1937) (stating that an incontestability clause permits the insurer a defense for false statements made in a policy but “[n]o oral or written misrepresentation made by the assured * * * in the negotiation of insurance, shall * * * defeat or avoid the policy, or prevent its attaching, unless made with intent to deceive and defraud”). In short, the incontestability provision prevents the insurer from denying the validity of a policy because of inadvertent misstatements made by the insured, but cannot create coverage for illnesses manifesting themselves prior to *880the policy’s inception when such illnesses have been explicitly excluded from coverage by the policy.
These principles are reflected in Metropolitan Life Ins. Co. v. Conway, where then Chief Judge Cardozo held:
The provision that a policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years is not a mandate as to coverage * * *. It means only this, that within the limits of the coverage the policy shall stand, unaffected by any defense that it was invalid in its inception, or thereafter became invalid by reason of a condition broken.
252 N.Y. 449, 169 N.E. 642, 642 (1930). More recently, in Massachusetts Cas. Ins. Co. v. Forman, 516 F.2d 425, 429 (5th Cir.1975), the Fifth Circuit held that an incontestability clause similar to the one here4 did not extend coverage to a disability where the disability first manifested itself prior to the term of the policy.5 The court reasoned that because the condition manifested itself almost a year before the policy became effective, “disability resulting from [the condition] was never within the scope of policy coverage,” and the incontestability provisions of the policy could not breathe life into a claim that never existed. Forman, 516 F.2d at 428. The court then concluded that extending eover-age beyond the date of the policy “is contrary to the general principle that incontestable clauses do not operate to extend coverage * * * .” Id. at 429. The purpose of an incontestability clause is thus to preclude insurers from denying the validity of a policy based upon a defect in the application, with the sole exception of fraud. It has not and should not be construed to expand coverage to risks clearly not intended to be insured by the policy.
Respondent’s depression is a sickness that was never within the scope of policy coverage because it did not manifest itself during the policy period. Because there never was coverage for the sickness, the expiration of two years or five years or ten years is wholly irrelevant. Not only does basic insurance law-that insurable losses are those that occur during the policy period and the parties to an insurance contract can agree to exclude from coverage losses caused by preexisting sicknesses-compel this conclusion, it also appropriately puts the burden on the insured to disclose and bear the risk of non-coverage for sicknesses manifesting themselves prior to the policy period.6
Finally, the majority relies on Minn. Stat. § 62A.05, subd. 1, providing that a policy cannot provide “less favorable” coverage than the statute prescribes and argues that the “first manifests itself’ provi*881sion significantly reduces the number of preexisting conditions covered by the policy and thus violates the statute. Of course that is true, but the provision defines the risks the parties agreed to. Further, the Commissioner of Commerce specifically approved the “first manifests itself’ language, as noted above.
I would reverse the ruling of the court of appeals because the incontestability provision does not have its roots in creating coverage where it never existed. Its purpose is instead to prevent the denial of the validity of a policy after the expiration of the requisite years of being in force.

. The majority suggests that the Commissioner of Commerce may not have approved Minnesota Mutual's insurance policy. While there was no detailed finding made by the lower courts as to this point, Minnesota Mutu-ai’s request for approval was stamped as received by the Department of Commerce on January 29, 1985, and stamped as approved on February 1, 1985.

.Clause (b) of the incontestability clause stated "No claim * ⅜ ⅜ commencing after two years from the date of issue of this Policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or specific description effective on the date of loss had existed prior to the effective date of coverage of this Policy.” Forman, 516 F.2d at 428.
The majority asserts that the language in clause (b) had no impact on the Forman court’s analysis. However, the Forman court takes care to discuss clause (b) at some length, noting for instance that "[t]his statutory clause only prohibits denials of claims based on the prior existence of a disease ” and that reading the clause to extend coverage “would not promote the purpose or policy” of the statute. Id. at 429 (emphasis added).

. See also Neville v. American Republic Ins. Co., 912 F.2d 813 (5th Cir.1990) (holding that insured’s deafness was not a "sickness” under the policy where it first manifested before the policy was in force, thus the incontestability clause did not require coverage for surgery more than two years after the policy was issued to cure insured’s deafness).

. The majority states that this represents a misunderstanding of the distinction between a "loss” and a "sickness” as defined by Minnesota Mutual's disability policy. A "loss” occurs under a disability policy when the injured is disabled, to be sure, and here the disability occurred while the policy was in force. But the loss was caused by a sickness manifesting itself years before the policy was in force and coverage for such a loss is explicitly excluded by the policy.