The United States Court of Appeals for the Second Circuit, applying Pennsylvania law, recently held that two insureds had the right to see their supplemental disability insurance policies reformed to reflect their reasonable expectations. Nunn v. Massachusetts Cas. Ins. Co., 743 F.3d 365 (2d Cir. 2014).
In September 1996, referees from the National Basketball Association participated in a union meeting where a representative for the Defendant, Massachusetts Casualty Insurance Company (“MCIC”) gave a presentation about supplemental disability insurance. The MCIC representative stressed that the referees current disability insurance might be insufficient if they became unable to work, and that MCIC’s supplemental disability insurance policy would cover the referees “in their own occupation” and change the benefit period from “ten years to age sixty-five.” Shortly thereafter, two referees, Ronald Nunn and Donald Vaden (“Plaintiffs”) sent MCIC applications for supplemental disability insurance. MCIC approved coverage for both Plaintiffs and sent them copies of their MCIC supplemental disability insurance policies. Neither Plaintiff read the policy, had they examined their policies, the Plaintiffs would have discovered that the MCIC supplemental policies stated “after 60 months of paid benefits total disability shall them mean the Insured’s substantial inability to perform the material duties of any gainful occupation” and did not cover them if they were unable to work in their own occupation as the representative conveyed.
In 2002, both Plaintiffs suffered career-ending injuries and began receiving monthly payments pursuant to their MCIC supplemental insurance policies. After 60 months, the payments stopped because both Plaintiffs were able to work at other jobs. In August 2010, the Plaintiffs filed suit alleging breach of contract and / or seeking reformation of the policies to reflect the statements made by the MCIC representative. The United States District Court for the District of Connecticut granted MCIC’s motion for summary judgment, holding the Plaintiffs’ claims were barred by Connecticut’s six year statute of limitations and the insurance policies contained unambiguous language limiting Plaintiffs to sixty months of supplemental disability insurance payments if they were able to perform any gainful occupation. In reaching its decision, the District Court found that Pennsylvania law governed the substance of the contract.
The Second Circuit Court of Appeals reversed the lower court’s decision. The Court found Pennsylvania law instructs courts to examine the totality of the insurance transaction to ascertain the reasonable expectations of the consumer. The Court emphasized that Pennsylvania law is unique in that many other jurisdictions do not look beyond the four corners of an unambiguous insurance contract.
The Court of Appeals determined under Pennsylvania law, the comments from the MCIC representative established the reasonable expectations of the Plaintiffs and that the Plaintiffs failure to read the policies did not defeat their reasonable expectations. Thus, the Court held that the definition of disability should be defined in terms of the Plaintiffs current job rather than any gainful occupation. The Court also determined that Connecticut’s six year statute of limitation commenced when the insurer stopped providing promised benefit under contract not at the delivery of the contract.
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