Opinion
[REVIEW GRANTED BY CAL. SUPREME COURT]
[Reprinted without change in the Jan. 2000 Review Granted Opinions Pamphlet to permit tracking pending review and disposition by the Supreme Court.]
Superior Court of Los Angeles County, No. BC154229, Malcolm H. Mackey, Judge. [Copyrighted Material Omitted] COUNSEL
Law Offices of Robert K. Scott, Robert K. Scott, Christian J. Garris; Law Offices of H. Vincent McNally and H. Vincent McNally for Plaintiff and Appellant.
Barger & Wolen, Gail E. Cohen and Heather Peters for Defendant and Respondent. OPINION
EPSTEIN, J.
Patricia Callahan purchased a disability insurance policy from Mutual Life Insurance Company of New York (MONY). Subsequently, she became disabled due to multiple sclerosis and filed for benefits. MONY initially paid benefits, but stopped when it discovered her condition may have first manifested itself prior to the effective date of the policy. Ms. Callahan filed suit, and the trial court granted MONY's motion for summary judgment. The first question presented in this appeal is the effect of the incontestability clause on a provision limiting coverage to conditions which first manifest themselves while the policy is in force. We conclude the incontestability clause is of no consequence in determining the extent of coverage. The next question concerns whether appellant's condition manifested itself prior to the effective date of the policy. We conclude that it did. The judgment is affirmed.
Factual and Procedural Summary
In March 1987, Ms. Callahan saw a neurologist, Dr. Leo Treciokas. She complained of severe headaches followed by a week-long numbness on the left side of her body. She had experienced a similar numbness in 1972. Following the visit, Dr. Treciokas wrote a letter to Ms. Callahan's physician, Dr. Henry Hasserjian, stating, "Most likely in view of previous episodes, this would be demyelinating disease (multiple sclerosis)." Dr. Treciokas recommended an MRI of the brain. That procedure revealed that Ms. Callahan suffered from either multiple sclerosis or vasculitis. Dr. Treciokas concluded that "nothing is absolute," but the MRI tended to support the hypothesis that Ms. Callahan suffered from multiple sclerosis. Dr. Treciokas discussed the MRI findings with Ms. Callahan. After that discussion, Ms. Callahan contacted the Multiple Sclerosis Society and asked for information. While visiting another physician, Ms. Callahan indicated that she was diagnosed with multiple sclerosis in 1987. Dr. Hasserjian stated, in his deposition, that there was a possibility Ms. Callahan suffered from multiple sclerosis, but "no medical diagnosis [had been] made at the time [she applied for insurance]."
In February 1991, Ms. Callahan completed an application for a disability insurance policy with MONY. (The form was filled in by Craig Steinhauer, an insurance agent, and signed by Ms. Callahan.) The application included several questions concerning Ms. Callahan's medical history. One of them asked whether she ever had symptoms of "fainting, convulsions, migraine headache, paralysis, epilepsy or any mental or nervous disorder[.]" The "no" box was checked. When asked if she had been examined or treated by a physician in the last five years, Ms. Callahan listed Dr. Hasserjian. No other physician was listed. Ms. Callahan did not inform Mr. Steinhauer that she may suffer from multiple sclerosis. Mr. Steinhauer told Ms. Callahan that the policy would be incontestable after two years.
Ms. Callahan purchased a disability insurance policy from MONY on March 1, 1991. Page 2 of the policy states: MONY "will pay the benefits provided in this Policy subject to all policy provisions." Page 4 of the policy states: "Income Benefits - After the Elimination Period is satisfied, we will pay income benefits to you as follows.... [¶] (a) The Basic Monthly Income for a full month of Total Disability; and [¶] (b) 1/30th of the Basic Monthly Income for each day of Total Disability in a partial month." The section of the contract labeled "Definitions" defines "Total Disability" as "that due to Injury or Sickness you are under the Regular Care of a Physician and: [¶] (a) During the first 24 months of the Maximum Benefit Period, you are not able to perform the substantial and material duties of your Regular Occupation, and you are not gainfully employed in another occupation, [¶] (b) After the first 24 months of the Maximum Benefit Period, you are not able to perform the substantial and material duties of any gainful occupation for which you are, or may be reasonably fit by education, training, or experience." [¶] "Total Disability must begin while this Policy is in force." The contract defines sickness as: "sickness or disease which first manifests itself while this Policy is in force." (Italics added.)
The incontestability clause included in appellant's contract provides: "Incontestable - After this Policy has been in force for two years during your lifetime, we may not contest any statements in the application. We will not count as part of that two years any period when you have a loss. [¶] If Total Disability or other loss is incurred more than two years after the Policy Date, we will not reduce or deny the claim on the ground that the disease or physical condition existed prior to the Policy Date unless that disease or condition is excluded from coverage by name or specific description." (Italics added.) No specific disease or condition was excluded from appellant's coverage. Listed exceptions included those "(a) due to war, declared or not, or any incident to that war, or [¶] (b) due to any Injury sustained or Sickness first manifesting itself [¶] (1) during your Service with Armed Forces or [¶] (2) during the act of committing a felony, or [¶] (c) while you are incarcerated in jail or prison for 30 days or more as a result of a conviction."
In April 1991, MONY contacted Dr. Hasserjian. He provided a report stating that Ms. Callahan's present condition was "excellent" and that no other physicians or surgeons had been consulted. He did not mention the letter he had received from Dr. Treciokas. Ms. Callahan became disabled due to multiple sclerosis on June 3, 1995, and submitted a claim 17 days later. MONY paid benefits from June until September 1995. It informed Ms. Callahan that it would stop payment on her claim because it had discovered that she had been suffering from multiple sclerosis before the policy was in force.
Ms. Callahan filed an action against MONY alleging breach of the duty of good faith and fair dealing, breach of contract, and fraud. Ms. Callahan also filed a claim for professional negligence against Mr. Steinhauer. The action against Mr. Steinhauer was dismissed and is not a subject of this appeal. The trial court granted summary judgment for MONY. Ms. Callahan filed a timely notice of appeal.
Discussion
I
" 'Incontestability clauses have been used by the insurance industry for over one hundred years to encourage persons to purchase life insurance.' (Note, AIDS and the Incontestability Clause (1990) 66 N.D. L.Rev. 267.) 'Insurance companies initially offered the incontestability clause as a policy provision because of public distrust of insurers and their promises to pay benefits in the future.' (Id. at p. 268.) Today, these clauses are 'required by statute in most states because without them, insurers were apt to deny benefits on the grounds of a pre-existing condition years after a policy had been issued. This left beneficiaries, particularly those in life insurance settings, in the untenable position of having to do battle with powerful insurance carriers. See 7 Williston on Contracts section 912.394 (3d ed. 1963) (noting that these clauses came from the "early greed and ruthlessness of the insurers" who "too often ... resisted liability stubbornly on the basis of some misstatement made by the insured at the time of applying for the policy").' (Wischmeyer v. Paul Revere Life Ins. Co. (S.D.Ind. 1989) 725 F.Supp. 995, 1000.) (1) The 'clauses are designed "to require the insurer to investigate and act with reasonable promptness if it wishes to deny liability on the ground of false representation or warranty by the insured." G. Couch, 18 Couch on Insurance section 72.2 at 283 (1983). "It prevents an insurer from lulling the insured, by inaction, into fancied security during the time when the facts could best be ascertained and proved, only to litigate them belatedly, possibly after the death of the insured." Id. at 283-84.' (Ibid.) [¶] Justice Holmes stated succinctly the purpose behind the incontestability clause: 'The object of the clause is plain and laudable—to create an absolute assurance of the benefit, as free as may be from any dispute of fact except the fact of death, and as soon as it reasonably can be done.' (Northwestern Life Ins. Co. v. Johnson (1920) 254 U.S. 96, 101-102 [41 S.Ct. 47, 49, 65 L.Ed. 155].)" (Amex Life Assurance Co. v. Superior Court (1997) 14 Cal.4th 1231, 1236-1237 [60 Cal.Rptr.2d 898, 930 P.2d 1264].) The incontestability clause also serves "to put a checkmate upon litigation; to prevent, after the lapse of a certain period of time, an expensive resort to the courts—expensive both from the point of view of the litigants and that of the citizens of the state." (1A Appleman, Insurance Law and Practice (rev. ed. 1981) section 311, p. 311.)
California's incontestability requirement was codified in 1951 in Insurance Code section 10350.2. It includes two options for a noncancellable policy, such as the one in this case. The first (Form A) is as follows: "Time Limit on Certain Defenses: (a) After two years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability (as defined in the policy) commencing after the expiration of such two-year period. [¶] (b) 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."
All further statutory citations are to this code.
The second (Form B), which is almost identical to that included in appellant's contract, states: "Incontestable: (a) After this policy has been in force for a period of two years during the lifetime of the insured (excluding any period during which the insured is disabled), it shall become incontestable as to the statements contained in the application. [¶] (c) [Fn. omitted.] 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."
II
Unless fraud is expressly or impliedly excepted from the effect of the incontestability clause, that provision bars rescission of an insurance policy based on fraudulent statements by the insured made in the application. (See Amex Life Assurance Co. v. Superior Court, supra, 14 Cal.4th at p. 1234 [incontestability clause precludes insurer from rescinding a policy when insured knew he was HIV positive and sent an impostor to provide blood and urine samples]; Dibble v. Reliance Life Ins. Co. (1915) 170 Cal. 199, 208 [149 P. 171] ["a provision in a life insurance policy to the effect that after being in force the specified time, it shall be incontestable, precludes any defense after the stipulated period on account of false statements warranted to be true, even though such statements were fraudulently made, ..."]; United Fidelity Life Ins. Co. v. Emert (1996) 49 Cal.App.4th 941, 945[57 Cal.Rptr.2d 14] [incontestability clause prohibits rescission or invalidation of contract even if contract was procured by fraud].)
The incontestability clause, however, does not preclude all challenges to a policy. "Every resistance by the insurer against a claim of the insured or the beneficiary is in one sense a contest, but it is not a contest of the policy within the meaning of the 'incontestable clause,' that is, a contest against the terms of the policy for the purpose of destroying its validity as distinguished from a contest for or in favor of the terms of the policy for the purpose of securing its enforcement. [Citations.]" (New York Life Ins. Co. v. Hollender (1951) 38 Cal.2d 73, 77 [237 P.2d 510].)
III
There is a split of authority concerning whether the incontestability clause bars an insurer from denying coverage on the ground that a condition that manifested itself before the policy period is not covered under the policy terms. As we have quoted, the incontestability clause in appellant's contract states: "[W]e will not reduce or deny the claim on the ground that the disease or physical condition existed prior to the Policy Date, unless that disease or condition is excluded from coverage by name or specific description." Her contract provides benefits for a sickness which "first manifests itself while this Policy is in force." The question is whether the incontestability clause trumps the coverage provision.
Our Supreme Court is currently considering this question. (Galanty v. Paul Revere Life Ins. Co. (S073678, review granted Nov. 4, 1998.).)
The California rule is that the incontestability clause does not extend coverage. (New York Life Ins. Co. v. Hollender, supra, 38 Cal.2d at p. 85.) In Cohen v. Metropolitan Life Ins. Co. (1939) 32 Cal.App.2d 337, 346 [89 P.2d 732], the court held that "[a]n incontestable clause in an insurance policy does not extend the coverage beyond the terms of the policy." Similarly, in John Hancock etc. Ins. Co. v. Markowitz (1944) 62 Cal.App.2d 388, 415[144 P.2d 899] the court held that an incontestability clause did not bar an insurer from denying a claim based on a disability sustained before the date of the policy.
A majority of the Supreme Court approved Markowitz and Cohen in New York Life Ins. Co. v. Hollender, supra, 38 Cal.2d at page 85. In discussing those cases, the majority stated: "[T]he incontestable clause of the policy did not foreclose the insurance company from introducing evidence in dispute of the insured's statements on his insurance application and to show the insured's claim for disability benefits was without the terms of the company's agreed coverage in that the disability had occurred prior to the effective date of the policy." (Ibid.) The court continued: "[T]he right to recover moneys paid by an insurance company under a mistake as to the policy coverage, and in reliance upon the insured's representations in his application, has been recognized in this state as without the scope of the incontestable clause ...." (Ibid.) The Hollender majority held that the incontestability clause did not override an age adjustment clause and the insurer was permitted to adjust the payments to reflect the insured's true age, not the age listed on the policy. (Id. at pp. 81-82.) " '[W]here there has been no assumption of the risk, there can be no liability.' [Citations.]" (Id. at p. 81.)
Other jurisdictions have interpreted the same or an almost identical incontestability clause as that used in the parties' contract. Several courts have held that notwithstanding the incontestability clause, an insurer may assert the defense that the disabling condition is not covered under the terms of the policy. (See, e.g., Massachusetts Casualty Insurance Co. v. Forman (5th Cir. 1975) 516 F.2d 425 [applying Florida law]; Paul Revere Life Ins. Co. v. Haas (1994) 137 N.J. 190 [644 A.2d 1098]; Keaten v. Paul Revere Life Ins. Co. (5th Cir. 1981) 648 F.2d 299 [applying Georgia law]; Button v. Connecticut General Life Ins. Co. (9th Cir. 1988) 847 F.2d 584 [applying Arizona law]; Neville v. American Republic Ins. Co. (5th Cir. 1990) 912 F.2d 813 [applying Mississippi law].) Central to their reasoning is the principle that an incontestability clause does not extend coverage. As one court explained, the incontestability clause does not apply to a condition that was never a part of the contract. (Neville v. American Republic Ins. Co., supra, 912 F.2d at p. 815.)
But other courts have disagreed. The Seventh Circuit found the incontestability clause "is most naturally understood to include any pre-existing disease or condition, regardless of whether it manifested prior to the policy date." (Equitable Life Assur. Soc. of U.S. v. Bell (7th Cir. 1994) 27 F.3d 1274, 1281 [applying Indiana law].) The Bell court recognized that absent the incontestability clause "the policy terms quite clearly eliminate coverage for pre-manifesting illnesses." (Id. at p. 1280.) The court acknowledged "an intuitive distinction between diseases that manifest and those that exist unbeknownst to the insured." But, the court held, neither the distinction nor the possibility of fraud overcame the incontestability clause. (Id. at p. 1283.)
Similarly, the Maryland high court concluded that the incontestability clause "precludes denial of a claim, after two years from the date the policy was issued, 'on the ground that a disease or physical condition . . . had existed prior to the effective date of coverage' of the policy. A condition which manifests itself prior to the effective date of the policy obviously 'exists' prior to the effective date of the policy." (Mutual Life v. Insurance Comm. (1999) 352 Md. 561 [723 A.2d 891, 896].) The incontestability clause may be avoided only by specifically excluding the disabling condition in the exclusion section. (Ibid.; see also New England Mutual Life Insurance Company v. Doe (N.Y. Mar. 30, 1999) 1999 WL 171451 ; Equitable Life Assur. Soc. of U.S. v. Poe (6th Cir. 1998) 143 F.3d 1013, 1018; Estate of Doe v. Paul Revere Ins. Group (1997) 86 Hawaii 262 [948 P.2d 1103]; Penn Mutual Life Ins. Co. v. Oglesby (Del. Supr.Ct. 1997) 695 A.2d 1146; McMackin v. Great American Reserve Ins. Co. (1971) 22 Cal.App.3d 428, 440 [99 Cal.Rptr. 227].)
This case is not yet final.
Several of these cases base their conclusion, entirely or in large part, on the faulty syllogism that since a disease must exist to be manifest and the incontestability clause bars denial of coverage on the ground the condition preexisted the policy, coverage also cannot be denied on the ground that the condition was manifest before the policy. The non sequitur is apparent: while existence of a disease process may be inferred from manifestations of its symptoms, it does not follow that because a disease exists its symptoms have become manifest.
IV
There is a valid distinction between a condition that is "manifest" and one that "exists." As the Bell court noted, the distinction between a disease known to the insured and one that exists but is undetected is intuitive. (Equitable Life Assur. Soc. of U.S. v. Bell, supra, 27 F.3d at p. 1282.) A condition may exist for a significant period of time before it manifests itself. Manifestation requires something more than mere existence. (We reserve the question of what constitutes manifestation for our discussion in pt. V.) The incontestability clause in appellant's contract bars the insurer from contesting a claim on the ground that the "sickness" which has resulted in disability existed prior to the policy. But it does not expand the coverage provision, by which the insurer promises to pay benefits only if the sickness first manifests itself after issuance of the policy.
This view is supported by the weight of California authority. As we have discussed, an incontestability clause does not extend coverage beyond that specified in the contract. (New York Life Ins. Co. v. Hollender, supra, 38 Cal.2d at p. 85.) The incontestability clause relates to the validity of the contract, not the scope of coverage. (Id. at p. 77.) "[T]he right to recover moneys paid by an insurance company under a mistake as to the policy coverage, and in reliance upon the insured's representations in his application, has been recognized in this state as without the scope of the incontestable clause [citation], ..." (Id. at pp. 85-86.) A contrary finding would impose liability on insurance carriers where no risk is assumed.
It is true that a bright-line rule precluding any challenge after the two-year incontestability period has expired would reduce litigation, a purpose advanced by the incontestability clause. In that case, there would be no need to dispute whether a sickness had become manifest before the inception of a policy. Nevertheless, "[a]s a general matter at least, we do not add to, take away from, or otherwise modify a contract for 'public policy considerations.' " (Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 75 [70 Cal.Rptr.2d 118, 948 P.2d 909].) The parties agreed to the provision in the contract limiting coverage to a sickness that first manifests itself while the policy is in force. We may not rewrite their agreement. (See Legarra v. Federated Mutual Ins. Co. (1995) 35 Cal.App.4th 1472, 1480 [42 Cal.Rptr.2d 101].) Because the incontestability clause is based on statute, we must apply the rules of statutory construction, which require us to examine the actual language of the statute. (Halbert's Lumber, Inc. v. Lucky Stores, Inc. (1992) 6 Cal.App.4th 1233, 1237-1239 [8 Cal.Rptr.2d 298].) We may not expand the meaning of the word "existed," as used in the incontestability clause, to mean "existed and was manifest."
Appellant argues that a coverage restriction cannot be contained in the definition section of a policy. In Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709 [193 Cal.Rptr. 632], the court found the insurance contract, prepared by the insurer, is an adhesion contract. (Id. at p. 719.) The court held that an exclusion for temporomandibular joint syndrome appearing in section VI of the contract under the category "General Limitations" in a paragraph labeled "Dental Care" on a page with 2,056 words was not conspicuous. (145 Cal.App.3d at p. 722.) It found the exclusion suffered from " 'complexified occultation clause syndrome.' " (Id. at p. 728.)
We do not find the coverage provision in appellant's contract hidden or unclear. The real issue is the interrelationship of the coverage provisions and the statutorily required incontestability clause.
Finally, appellant makes much of the fact that MONY could have chosen a different incontestability clause, one that would have permitted rescission based upon fraud. But the existence of an alternative does not explain the language contained in the contract before us. We conclude that the incontestability clause does not alter the scope of the coverage provisions in appellant's contract. Thus, under the policy, appellant's coverage depends on whether her multiple sclerosis first manifested itself during the policy period.
V
We turn now to whether appellant's multiple sclerosis manifested itself prior to the inception of the MONY disability policy.
Citing Bower v. Roy-Al Corp. (1973) 33 Cal.App.3d 1027 [109 Cal.Rptr. 612], appellant argues that a sickness is "not manifest until the disease or physical condition has demonstrated distinct symptoms and progressed to a point sufficient to prevent the insured from being able to work." She points out that she continued to work for four years after the policy was issued.
The Bower court interpreted a disability insurance policy that contained the following contractual language: " ' "Sickness" as used in this policy means sickness, illness or disease of the Insured which originates after the Effective Date hereof and while this policy is in effect and which results in total and continuous disability which commences while this policy is in effect. The word "sickness" or "illness" or "disease" as used herein shall be construed to mean one and the same thing.' " (33 Cal.App.3d. at p. 1030, italics added.) The court held "plaintiff's atherosclerosis originated under the terms of this policy when it manifested itself by distinctive symptoms sufficient to interfere with his regular employment or from which a reasonably accurate medical diagnosis could be made." (Id. at p. 1041, italics added; see also Fohl v. Metropolitan Life Ins. Co. (1942) 54 Cal.App.2d 368 [129 P.2d 24] and Cimino v. Reserve Life Ins. Co. (1960) 181 Cal.App.2d Supp. 840 [5 Cal.Rptr. 850], interpreting the same contract provision.)
We do not find Bower helpful. First, Bower uses the disjunctive, not the conjunctive, employed by appellant. Under Bower, a disease originated if an individual suffered symptoms from which a reasonably accurate medical diagnosis could be made or if it interfered with a person's regular employment. More importantly, the Bower court specifically distinguished the definition of sickness in the policy it was interpreting from a case defining sickness in terms of an illness that becomes manifest during the policy period: "The limiting language of the policy under consideration in Hovis [v. Industrial Hospital Association (1967) 71 Wn.2d 169] was different from that employed in the policy presently before this court. In Hovis the policy covered illness 'which becomes manifest ... after Membership hereunder has been continuously effective for thirty or more days.' In the instant case sickness is defined as 'sickness, illness or disease of the Insured which originates after the Effective Date hereof and while this policy is in effect and which results in total and continuous disability which commences while this policy is in effect.' " (Bower v. Roy-Al Corp. supra, 33 Cal.App.3d at p. 1040, italics omitted.) Because the language in Bower does not include the word manifest, the meaning of which is critical to this case, the case does not aid appellant.
Interpreting the same language as in appellant's contract, a Florida court found that the meaning of manifest centers around symptoms: "That point in time when the sickness or disease becomes symptomatic and not necessarily when the exact nature of sickness or disease is diagnosed by a physician after extensive testing." (Preferred Risk Life Ins. Co. v. Sande (Fla.Dist. Ct.App. 1982) 421 So.2d 566, 568].) Applying Georgia law, the Fifth Circuit found that the word manifest contemplates "the advancement of the disease beyond the point of origin and to the state where its presence was plain, distinct or beyond question or doubt." (Continental Casualty Company. v. Robertson (5th Cir. 1957) 245 F.2d 604, 607-608.) Merriam Webster's Collegiate Dictionary defines manifest as "readily perceived by the senses and esp. by the sight ... easily understood or recognized by the mind: obvious ... evident." (Webster's Collegiate Dict. (10th ed. 1995) p. 707.) In her opening brief, appellant defines manifest as the opposite of dormant: "Pre-existing conditions can be either dormant or manifest. A 'manifest' pre-existing condition is nevertheless still pre-existing and thus cannot be excluded under the plain meaning of the incontestability clause." Similarly, in Metropolitan Life Ins. Co. v. Devore (1967) 66 Cal.2d 129, 139 [56 Cal.Rptr. 881, 424 P.2d 321, 30 A.L.R.3d 376], the court compared a manifest and latent condition.
Applying any of these definitions to the present case, we conclude the trial court properly granted summary judgment. Even if appellant's condition was not conclusively diagnosed, it was evident. She experienced symptoms as early as 1972 and was told in 1987 of the possibility that these symptoms were a result of multiple sclerosis. An MRI confirmed that she suffered either from multiple sclerosis or vasculitis. Appellant knew of the condition, informing another physician that she was diagnosed with multiple sclerosis. She contacted the Multiple Sclerosis Society, and received information from it for a period of time. There is no genuine issue of material fact whether appellant's multiple sclerosis manifested itself prior to the policy period. Disposition
The judgment is affirmed.
Vogel (C. S.), P. J., and Hastings, J., concurred.