Court Opinion

ID: 2964243
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:22:40.38798+00
Date Added: 2024-06-11T08:52:33.274859
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USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 96-1080

                          PROTECTIVE LIFE INSURANCE COMPANY,

                                 Plaintiff, Appellee,

                                          v.

                                 DENNIS J. SULLIVAN,

                                      Defendant,

                                         and

                     DIGNITY VIATICAL SETTLEMENT PARTNERS, L.P.,
                              and DIGNITY PARTNERS, INC.

                               Defendants, Appellants.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. Robert E. Keeton, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                 Selya, Circuit Judge,
                                        _____________

                           Campbell, Senior Circuit Judge,
                                     ____________________

                              and Boudin, Circuit Judge.
                                          _____________

                                 ____________________

            Luke DeGrand  with whom Clark &  DeGrand, Wayne  S. Henderson, and
            ____________            ________________  ___________________
        Heidlage & Reece, P.C. were on briefs for appellants.
        ______________________
            Elliott M.  Kroll, Mark  S. Fragner,  Lori M. Meyers  and Kroll  &
            _________________  ________________   ______________      ________
        Tract  on brief  for Cancer  Care, Inc.,  The Viatical  Association of
        _____
        America, Affording Care,  and the National Association of  People With
        Aids, Amici Curiae.

            John A. Shope with  whom John H. Henn and Foley, Hoag & Eliot were
            _____________            ____________     ___________________
        on briefs for appellee.
            Rita  M.  Theisen,  Andrea J.  Hageman,  LeBoeuf,  Lamb,  Greene &
            _________________   __________________   _________________________
        MacRae, L.L.P. and Phillip E. Stano  on brief for American Council  of
        ______  ______     ________________
        Life Insurance, Amicus Curiae.

                                 ____________________

                                    July 15, 1996
                                 ____________________

                 Per Curiam.  Dignity Viatical  Settlement Partners, L.P.
                 __________

            and  Dignity Partners, Inc.  (collectively, "Dignity") appeal

            from a judgment in favor of Protective Life Insurance Company

            in the insurance  company's action for  rescission of a  life

            insurance  policy.     The  district  court   held  that  the

            Massachusetts  incontestability statute,  Mass.  Gen. L.  ch.

            175,    132, does not bar an  action for rescission of a life

            insurance  policy  for  fraud,  even though  the  action  was

            commenced more  than two years  after the policy  was issued.

            After careful  deliberation, we  certify, on our  own motion,

            two questions concerning the contestability of life insurance

            policies  under  Massachusetts  law to  the  Supreme Judicial

            Court of Massachusetts.

                 On  September 24,  1991, Dennis  J. Sullivan  applied to

            Protective  Life for a life insurance policy in the amount of

            $100,000  with an annual premium  of $175.  Although Sullivan

            had  been diagnosed a month  earlier as HIV  positive and had

            begun  a course  of  treatment, he  falsely  stated that  his

            health was  "excellent", omitted  the names of  those doctors

            who  knew of  his  affliction, and  said  he was  not  taking

            medication  (when in fact he  was using AZT).   He authorized

            Protective Life  to conduct  medical tests, including  a test

            for HIV  infection, but  on November  8, 1991,  the insurance

            company issued a policy to Sullivan without having ordered an

            HIV  test.  The policy  included an optional provision which,

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            for  an  increase in  the annual  premium, gave  Sullivan the

            right to waive the premium in the event he became disabled.

                 In 1992, Sullivan's health worsened and by June 1992 his

            HIV  infection had  progressed to AIDS.   He  stopped working

            around this time  and applied in October  1992 for disability

            benefits  from another  insurance  company.   But he  did not

            apply to Protective Life  for a waiver of his  life insurance

            premiums  on account  of disability  until about  November 8,

            1993, exactly two years after the policy was issued.

                 In  October 1993,  Sullivan  contacted  National  Viator

            Representatives,  Inc.,  a  broker  of  viatical settlements,

            agreements  under which  an  insured sells  a life  insurance

            policy for an immediate  payment approximating the discounted

            face value  of the  policy.   The broker  informed Protective

            Life that Sullivan wished to assign ownership of  his policy.

            Sullivan  agreed  to assign  his  policy to  Dignity,  a firm

            engaged  in making  viatical  settlements.   On December  14,

            1993,  Dignity submitted  the assignment forms  to Protective

            Life.   Protective Life  approved the assignment  on December

            22, 1993, and on the same day Dignity paid Sullivan $73,000.

                 Massachusetts  law requires  life insurance  policies to

            include a  provision stating  that  the policy  shall not  be

            contestable  after it has been  in effect for  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

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                 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.

            Mass.  Gen. L. ch. 175,    132.   Sullivan's insurance policy

            contained  the  following  incontestability   provision:  "We

            cannot bring any legal action to contest the validity of this

            policy  after it  has  been in  force  two years  except  for

            failure to pay premiums unless fraud is involved."  (emphasis
                                    ________________________

            added).    Protective  Life  had submitted  the  policy  form

            containing  this provision to  the Massachusetts Commissioner

            of  Insurance, and the Commissioner had  approved the form on

            September 18, 1988, saying that it "appear[ed] to conform" to

            Massachusetts insurance law.

                 Protective Life  filed suit on April 15, 1994 to rescind

            the   policy  because   Sullivan  had  obtained   it  through

            fraudulent   misrepresentations.    It   is  undisputed  that

            Sullivan knew he  was HIV  positive when he  applied for  the

            life insurance policy, that he failed to disclose that he was

            seeing a  physician for  treatment of this  condition despite

            questions  calling for this  information, and that Protective

            Life would not have issued the policy had it known Sullivan's

            true medical condition.

                 Dignity and  Sullivan moved to dismiss the action on the

            ground that the provision allowing the company to contest the

            policy  for fraud more than two years  from its date of issue

            was  inconsistent with Mass.  Gen. L.  ch. 175,    132.   The

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            district  court  denied the  motion on  January 12,  1995 and

            similarly denied the subsequent motion for reconsideration on

            June 9, 1995.   After a two-day bench trial,  the court ruled

            from  the bench  that state law  did not  bar the  action and

            entered  judgment for  Protective  Life  against  Dignity  on

            November 17, 1995.  Sullivan died of complications associated

            with AIDS on  April 4, 1995, and the  claims against him were

            dismissed.

                 The  district  court found  no  clear  precedent on  the

            question whether section 132 permits a fraud exception to the

            two-year limitations  period  for contesting  life  insurance

            policies.      The   court  held   that   the  Commissioner's

            interpretation of  the statute,  implicit in the  approval of

            the  policy form,  was entitled  to deference.   Finding  the

            statute  silent on the precise issue, the court held that the

            Commissioner's decision to approve a policy form containing a

            fraud exception was reasonable, and therefore that Protective

            Life  could challenge the policy.   The court  found by clear

            and  convincing evidence  that Sullivan  committed  fraud and

            rescinded the policy.

                 On appeal, Dignity argues that section 132 should not be

            read to include a fraud exception.  Dignity further  contends

            that the Commissioner's  approval of the policy  form was not

            entitled  to  deference  because  it  did  not  constitute  a

            meaningful interpretation of  the statute.   Protective Life,

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                                         -6-

            in response, asserts  that the Commissioner's  interpretation

            of  section  132 is  reasonable  and  entitled to  deference.

            Protective  Life also  argues  as an  alternative ground  for

            affirmance  that  the incontestability  period  was equitably

            tolled  because  Sullivan  concealed  his  misrepresentations

            through  his delay in applying  for a waiver  of premiums for

            disability.

                 There  is  a  plausible  plain-language   argument  that

            section  132 should not be read to include a fraud exception.

            The statute expressly enumerates three exceptions to the two-

            year  limitations period, and fraud  is not among  them.  The

            statute  governing health  insurance  policies, in  contrast,

            states  that the validity of  a policy may  be challenged for

            fraudulent  misstatements  in  the  application   beyond  the

            ordinary incontestability  period.   Mass. Gen. L.  ch.175,  

            108(3)(a)(2).    Section  132   also  states  that  a  policy

            provision that  "is  stated in  terms more  favorable to  the

            insured or  his beneficiary  than are  herein  set forth"  is

            acceptable; Dignity argues that  a negative inference  should

            be drawn from  this that  a provision less  favorable to  the

            insured  violates  the  statute--and that  Protective  Life's

            inclusion  of  the  fraud  exception  in  its  contestability

            provision makes the policy less favorable.

                 The  interpretation  of   section  132  is  complicated,

            however,  by  its   relationship  to  another   provision  of

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                                         -7-

            Massachusetts insurance law,  Mass Gen.  L. ch.  175,    124.

            Section  124 provides  that in  claims  arising under  a life

            insurance  policy issued  without  a medical  examination  or

            without knowledge and consent of the insured,

                 the statements  made in the  application as to  the age,
                 physical condition  and  family history  of the  insured
                 shall  be held to be  valid and binding  on the company;
                 but  the company shall not be debarred from proving as a
                 defense to such claim that said statements were wilfully
                 false, fraudulent or misleading.

            On Dignity's  reading, section  124 operates only  during the

            two- year period for contesting the policy under section 132,

            and  makes it  more  difficult to  rescind  certain types  of

            policies  (those  issued without  an  examination  or without

            knowledge  and  consent)  during  that  time.    Section  124

            requires proof  of fraud, while policies outside the scope of

            section 124 may be rescinded on a showing of material factual

            inaccuracy, see Mass.  Gen. L.  ch. 175,    186.   Protective
                        ___

            Life  argues to  the contrary  that section  124 contains  no

            express  time  limitation and  creates  an  exception to  the

            ordinary  two-year  time limit  for  policies  issued without

            examination  or  consent,  allowing  insurance  companies  to

            contest such policies for fraud at any time.

                 This  case presents  a question  of first  impression in

            Massachusetts.  In Bonitz  v. Travelers Ins. Co., 372  N.E.2d
                               ______     __________________

            254 (Mass. 1978),  the court  observed that  section 132  "is

            designed to require  the insurer to investigate and  act with

            reasonable promptness if  it wishes to deny  liability on the

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            ground of  false representation or warranty  by the insured."

            Id.  at 256 (quoting Metropolitan Life Ins. Co. v. De Nicola,
            ___                  __________________________    _________

            58 N.E.2d 841, 842 (Mass. 1944)).  But Bonitz did not concern
                                                   ______

            the  validity of  an  exception for  fraud  and so  does  not

            control  here.   Decisions  in other  jurisdictions on  fraud

            exceptions  to  incontestability  statutes have  been  mixed,

            compare  Amex Life Ins. Co.  v. Slome Capital  Corp., 43 Cal.
            _______  __________________     ____________________

            App.  4th 1588, 1605-07  (Cal. App.  1996), with  Fioretti v.
                                                        ____  ________

            Massachusetts General  Life Ins.  Co., 53 F.3d  1228, 1236-37
            _____________________________________

            (11th  Cir.  1995),  cert.  denied,  116 S.  Ct.  708  (1996)
                                 _____________

            (construing  New Jersey  law), and  none  has dealt  with the

            interaction between  two provisions analogous to sections 124

            and 132.

                 Protective Life  offers the  canon of  construction that

            the specific  controls the general,  but that  rule does  not

            help  in  this case  because  both  statutory provisions  are

            specific in different ways.  Section 132  states clearly that

            there  is a two-year time limit on contesting the validity of

            life insurance policies.   Section 124 says, equally clearly,

            that  particular types  of policies--those  issued without  a

            medical examination or knowledge and consent of the insured--

            may be contested for fraud, without specifying a time  limit.

            As a  matter of policy,  Protective Life claims  that section

            124  was enacted to encourage the  issuance of life insurance

            policies  cheaply and quickly, without a medical examination.

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            Dignity asserts to the  contrary that the provision disfavors
                                                                _________

            such  policies  by making  it  more  difficult for  insurance

            companies to contest them during the two-year  contestability

            period.  Neither  party has presented  persuasive legislative

            history on the point.

                 The subsidiary question of the weight to be  accorded to

            the Commissioner's  action in  clearing the policy  form also

            appears  to   be  open   to  dispute.     The  Commissioner's

            interpretation of Massachusetts insurance law may be entitled

            to deference  even when the interpretation  is evidenced only

            by  approval of  a policy  form.   See Colby  v. Metropolitan
                                               ___ _____     ____________

            Property and Cas. Ins. Co., 652 N.E.2d 128, 131 (Mass. 1995).
            __________________________

            The district court found that the Commissioner has determined

            that there  is an implicit exception  to the incontestability

            clause for  actual, willful fraud and  has routinely approved

            life insurance policies with such an exception.  If, however,

            the Commissioner's interpretation is contrary to the language

            and  policy of the statute, it will not be deemed persuasive.

            Cardin  v. Royal  Ins. Co.  of America,  476 N.E.2d  200, 205
            ______     ___________________________

            (Mass. 1985).

                 Protective Life  further argues  that the  two-year time

            limit should  be equitably  tolled because Sullivan  not only

            committed fraud  in his  application, but also  concealed the

            fraud  by deliberately  waiting to  apply for  the disability

            waiver of  his  premium  until  the  incontestability  period

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            expired.  This argument  also raises a difficult  question of

            Massachusetts  law.   There  is  no  clear  precedent on  the

            question  whether the time limit in section 132 is subject to

            equitable tolling.

                 Even  if in some cases  the time limit  could be tolled,

            the facts in this case present a  further question:  the only

            act of concealment asserted as a ground for equitable tolling

            is Sullivan's  delay in  applying for his  disability waiver.

            The  district court  found  that this  delay  amounted to  an

            ongoing course of fraudulent  conduct designed to conceal the

            fraud  in  the application.    Dignity  denies that  Sullivan

            deliberately  delayed his  application and  denies  that such

            inaction, even  if deliberate,  could give rise  to equitable

            tolling.

                 On our  own motion, we  certify to the  Supreme Judicial

            Court  of  Massachusetts,  pursuant  to its  Rule  1:03,  the

            questions  set  forth in  the  attached  certificate, and  we

            retain   jurisdiction   over    this   case   pending   their

            determination.

                 It is so ordered.
                 ________________

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                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 96-1080

                          PROTECTIVE LIFE INSURANCE COMPANY,

                                 Plaintiff, Appellee,

                                          v.

                                 DENNIS J. SULLIVAN,

                                      Defendant,

                                         and

                     DIGNITY VIATICAL SETTLEMENT PARTNERS, L.P.,
                              and DIGNITY PARTNERS, INC.

                               Defendants, Appellants.

                                 ____________________

                                    CERTIFICATION

                                 ____________________

            For the reasons discussed in our opinion in this case, we certify

        to the Supreme Judicial Court of Massachusetts, pursuant to its Rule

        1:03, the following questions:

            1.  Does Mass. Gen. L. ch. 175,   132, taken together with   124,

            bar an insurance company from contesting the validity of a life

            insurance policy more than two years after its date of issue on

            the ground that the insured made fraudulent misrepresentations in

            applying for the policy, where the policy provided that it was

            contestable for fraud at any time and where the Massachusetts

            Commissioner of Insurance approved the policy form?

            2.  If the incontestability statute bars such an action, is the

            contestability period nonetheless equitably tolled under the

            circumstances of this case by Sullivan's failure to apply for the

            disability waiver to which he was entitled until two years after

            the policy was issued?

            Although we have framed the questions for the Supreme Judicial

        Court, we would welcome discussion by that court on any other issue of

        Massachusetts law material to the case.  The Clerk of this court will

        transmit, under the official seal of this court, the certified

        questions and our opinion in this case, along with copies of the

        briefs and appendix filed by the parties in this case, to the Supreme

        Judicial Court of Massachusetts.

                                               United States Court of Appeals
                                               for the First Circuit

                                               By:_______________________
                                                  Bruce M. Selya
                                                  Circuit Judge