Protective Life v. Dignity Viatical, 89 F.3d 1, 1st Cir. (1996)

89 F.
3d 1
PROTECTIVE LIFE INSURANCE COMPANY, Plaintiff,

Appellee,
v.
Dennis J. SULLIVAN, Defendant,
and
Dignity Viatical Settlement Partners, L.P., and Dignity
Partners, Inc., Defendants, Appellants.
No. 96-1080.
United States Court of Appeals,

First Circuit.
Argued June 5, 1996.
Decided July 15, 1996.
Luke DeGrand with whom Clark & DeGrand, Chicago, IL, Wayne S.
Henderson, and Heidlage & Reece, P.C., Boston MA, were on briefs, for
appellants.
Elliott M. Kroll, Mark S. Fragner, Lori M. Meyers and Kroll & Tract,
New York City, 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,
Boston, MA, were on briefs, for appellee.
Rita M. Theisen, Andrea J. Hageman, LeBoeuf, Lamb, Greene & MacRae,
L.L.P., Washington, DC, and Phillip E. Stano, Washington, DC, on brief,
for American Council of Life Insurance, Amicus Curiae.
Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and
BOUDIN, Circuit Judge.
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, 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,

6
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.
7
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 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.
10
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.

11
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, 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.
12
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.
13
The interpretation of section 132 is complicated, however, by its relationship to

another provision of 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,
14 statements made in the application as to the age, physical condition and family
the
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.
15
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.
16
This case presents a question of first impression in Massachusetts. In Bonitz v.

Travelers Ins. Co., 374 Mass. 327, 372 N.E.2d 254 (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 ground of false
representation or warranty by the insured." Id. 372 N.E.2d at 256 (quoting
Metropolitan Life Ins. Co. v. De Nicola, 317 Mass. 416, 58 N.E.2d 841, 842
(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 Assurance Co.
v. Slome Capital Corp., 43 Cal.App.4th 1588, 1605-07, 51 Cal.Rptr.2d 354
(1996), with Fioretti v. Massachusetts General Life Ins. Co., 53 F.3d 1228,
1236-37 (11th Cir.1995), cert. denied, --- U.S. ----, 116 S.Ct. 708, 133 L.Ed.2d
663 (1996) (construing New Jersey law), and none has dealt with the interaction
between two provisions analogous to sections 124 and 132.
17
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.
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.
18
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., 420 Mass.
799, 652 N.E.2d 128, 131 (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, 394 Mass. 450, 476
N.E.2d 200, 205 (1985).
19
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 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.
20
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.
21
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.
22
It is so ordered.
CERTIFICATION
23
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:
24Does Mass. Gen. L. ch. 175, 132, taken together with 124, bar an insurance
1.
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?
25If the incontestability statute bars such an action, is the contestability period
2.
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?

26
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.

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89 F.

PROTECTIVE LIFE INSURANCE COMPANY, Plaintiff,

United States Court of Appeals,

Dignity Viatical Settlement Partners, L.P. and Dignity Partners, Inc.

In October 1993, Sullivan contacted National Viator Representatives, Inc., a

Massachusetts law requires life insurance policies to include a provision stating

from its date of issue,

fraud and rescinded the policy.

There is a plausible plain-language argument that section 132 should not be

The interpretation of section 132 is complicated, however, by its relationship to

This case presents a question of first impression in Massachusetts. In Bonitz v.

The subsidiary question of the weight to be accorded to the Commissioner's

insurance policies with such an exception. If, however, the Commissioner's

On our own motion, we certify to the Supreme Judicial Court of Massachusetts,

after the policy was issued?

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