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,

________________ ___________________

Heidlage & Reece, P.C. were on briefs for appellants.

______________________
Elliott M. Kroll, Mark S. Fragner,
_________________ ________________
Tract
_____

on brief

for Cancer

America, Affording Care,

Aids, Amici Curiae.

Care, Inc.,

Lori M. Meyers
______________
The Viatical

and Kroll
_____

Association

and the National Association of

People W

John A. Shope with

_____________

whom John H. Henn and Foley, Hoag & Eliot w

____________
___________________

on briefs for appellee.

Rita M. Theisen,
_________________

Andrea J. Hageman,
__________________

MacRae, L.L.P. and Phillip E. Stano

______ ______
________________

LeBoeuf, Lamb, Green

______________________

on brief for American Council

Life Insurance, Amicus Curiae.

____________________

July 15, 1996

____________________

Per Curiam.
__________

and

Dignity Viatical

Dignity Partners, Inc.

Settlement Partners, L.P.

(collectively, "Dignity") appeal

from a judgment in favor of Protective Life Insurance Company

in the insurance

insurance

policy.

Massachusetts

company's action for

The

district

rescission of a

court

incontestability statute,

held

Mass.

life

that

the

Gen. L.

ch.

175,

132, does not bar an

insurance

policy

for

action for rescission of a life

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,

Protective

$100,000

had

begun

J. Sullivan

applied to

Life for a life insurance policy in the amount of

with an annual premium

been diagnosed a month

a course

health was

who

1991, Dennis

knew of

of

Although Sullivan

earlier as HIV

treatment, he

"excellent", omitted

his

of $175.

affliction, and

falsely

positive and had

stated that

the names of

said

he was

his

those doctors

not

taking

medication

(when in fact he

Protective Life

for HIV

to conduct

infection, but

was using AZT).

He authorized

medical tests, including

on November

8, 1991,

a test

the insurance

company issued a policy to Sullivan without having ordered an

HIV

test.

The policy

included an optional provision which,

-3-3-

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

around this time

benefits

progressed to AIDS.

and applied in October

from another

insurance

apply to Protective Life

premiums

He

on account

stopped working

1992 for disability

company.

But he

for a waiver of his

of disability

did not

life insurance

until about

November 8,

1993, exactly two years after the policy was issued.

In

October 1993,

Representatives,

agreements

Inc.,

under which

policy for an immediate

Sullivan

an

broker

contacted

of

National

Viator

viatical settlements,

insured sells

a life

insurance

payment approximating the discounted

face value

of the

policy.

The broker

informed Protective

Life that Sullivan wished to assign ownership of

Sullivan

agreed

to assign

engaged

in making

his

viatical

policy to

his policy.

Dignity,

settlements.

a firm

On December

1993,

Dignity submitted

the assignment forms

Life.

Protective Life

approved the assignment

14,

to Protective

on December

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

Massachusetts

include a

contestable

law requires

provision stating

life insurance

that

after it has been

the policy

in effect for

policies to

shall not

be

two years from

its date of issue,

except for

non-payment of premiums or

conditions of

the policy relating to

-4-

violation of the
military or naval

-4-

service in time
elects, for

of war

and except, if

the purpose of contesting

the company

so

claims for total

and permanent disability benefits or additional benefits

specifically granted in case of death by accident.

Mass.

Gen. L. ch. 175,

contained

the

132.

following

Sullivan's insurance policy

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."

________________________

added).

Protective

containing

of

Life

had submitted

this provision to

the

(emphasis

policy

form

the Massachusetts Commissioner

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

the

policy

fraudulent

filed suit on April 15, 1994 to rescind

because

Sullivan

misrepresentations.

Sullivan knew he

was HIV

had

It

obtained

is

positive when he

it

through

undisputed

that

applied for

the

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

seeing a

questions

physician for

treatment of this

calling for this

condition despite

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

was

for fraud more than two years

inconsistent with Mass.

Gen. L.

-5-5-

from its date of issue

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.

from

After a two-day bench trial,

the bench

entered

that state law

judgment for

November 17, 1995.

with AIDS on

did not

Protective

Life

the court ruled

bar the

against

action and

Dignity

on

Sullivan died of complications associated

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

policies.

The

interpretation of

period

court

for contesting

held

the statute,

that

the

life

insurance

Commissioner's

implicit in the

approval of

the

policy form,

statute

was entitled

to deference.

Finding

the

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

and

could challenge the policy.

convincing evidence

The court

that Sullivan

found by clear

committed

fraud and

rescinded the policy.

On appeal, Dignity argues that section 132 should not be

read to include a fraud exception.

Dignity further

that the Commissioner's

approval of the policy

entitled

because

to

deference

meaningful interpretation of

it

did

the statute.

not

contends

form was not

constitute

Protective Life,

-6-6-

in response, asserts

of

section

that the Commissioner's

132 is

reasonable

Protective

Life also

argues

affirmance

that

tolled

through

because

and

as an

the incontestability

Sullivan

concealed

his delay in applying

interpretation

entitled to

deference.

alternative ground

period

his

for

was equitably

misrepresentations

for a waiver

of premiums for

disability.

There

section

is

plausible

plain-language

argument

that

132 should not be read to include a fraud exception.

The statute expressly enumerates three exceptions to the two-

year

limitations period, and fraud

statute

states

governing health

insurance

that the validity of

fraudulent

misstatements

provision that

insured or

Section

"is

the

132

also

stated in

than are

acceptable; Dignity argues that

this that

states

that

the

ch.175,

policy

favorable to

herein

set forth"

a negative inference

a provision less

The

contrast,

beyond

Mass. Gen. L.

terms more

them.

be challenged for

application

period.

his beneficiary

be drawn from

policies, in

a policy may

in

ordinary incontestability

108(3)(a)(2).

is not among

the

is

should

favorable to

the

insured

inclusion

violates

of

the

the

statute--and that

fraud

exception

in

Protective

its

Life's

contestability

provision makes the policy less favorable.

The

however,

interpretation

by

its

of

section

relationship

-7-7-

to

132

another

is

complicated,

provision

of

Massachusetts insurance law,

Section

124 provides

insurance

Mass Gen.

that in

policy issued

claims

without

L. ch.

175,

124.

arising under

a life

a medical

examination

or

without knowledge and consent of the insured,

the statements

made in the

physical condition
shall
but

be held to be

and

application as to

family history

the age,

of the

valid and binding

insured

on the company;

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

policies

(those

knowledge

and

difficult to

issued without

consent)

during

rescind

an

that

certain types

examination

time.

of

or without

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.

___

Life

argues to

express

ordinary

time

the contrary

limitation and

two-year

examination

Gen. L.

or

time limit

consent,

ch. 175,

186.

that section

creates

for

allowing

an

Protective

124 contains

exception to

policies

no

the

issued without

insurance

companies

to

contest such policies for fraud at any time.

This

case presents

Massachusetts.

In Bonitz
______

254 (Mass. 1978),

designed to require

a question

of first

impression in

v. Travelers Ins. Co., 372

__________________

the court

observed that

section 132

the insurer to investigate and

reasonable promptness if

it wishes to deny

N.E.2d

"is

act with

liability on the

-8-8-

ground of

Id.
___

false representation or warranty

at 256 (quoting Metropolitan Life Ins. Co. v. De Nicola,

__________________________
_________

58 N.E.2d 841, 842 (Mass. 1944)).

the

by the insured."

validity of

control

here.

an

But Bonitz did not concern

______

exception for

Decisions

in other

fraud

and so

does

jurisdictions on

not

fraud

exceptions

compare
_______

App.

to

incontestability

Amex Life Ins. Co.

__________________

4th 1588, 1605-07

statutes have

been

v. Slome Capital Corp., 43 Cal.

____________________

(Cal. App.

1996), with
____

Massachusetts General Life Ins. Co., 53 F.3d

_____________________________________

(11th

Cir.

(construing

1995),

cert. denied,
_____________

New Jersey

interaction between

mixed,

law), and

116 S.

none

Fioretti v.
________

1228, 1236-37

Ct.

708

has dealt

(1996)

with the

two provisions analogous to sections 124

and 132.

Protective Life

the specific

help

in

offers the

controls the general,

this case

because

specific in different ways.

there

canon of

both

construction that

but that

rule does

not

statutory provisions

are

Section 132

states clearly that

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

life insurance policies.

that

particular types

Section 124 says, equally clearly,

of policies--those

issued without

medical examination or knowledge and consent of the insured--

may be contested for fraud, without specifying a time

As a

124

matter of policy,

Protective Life claims

was enacted to encourage the

policies

limit.

that section

issuance of life insurance

cheaply and quickly, without a medical examination.

-9-9-

Dignity asserts to the

such

policies

contrary that the provision disfavors

_________

by making

it

more

difficult for

companies to contest them during the two-year

period.

Neither

party has presented

insurance

contestability

persuasive legislative

history on the point.

The subsidiary question of the weight to be

the Commissioner's

appears

to

be

action in

open

to

clearing the policy

dispute.

The

accorded to

form also

Commissioner's

interpretation of Massachusetts insurance law may be entitled

to deference

by

even when the interpretation

approval of

a policy

form.

See Colby

is evidenced only

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

limit should

further argues

be equitably

committed fraud

in his

that the

two-year time

tolled because Sullivan

application, but also

not only

concealed the

fraud

by deliberately

waiver of

his

waiting to

premium

until

the

apply for

the disability

incontestability

period

-10-10-

expired.

This argument

Massachusetts

question

law.

also raises a difficult

There

is

no

clear

question of

precedent on

the

whether the time limit in section 132 is subject to

equitable tolling.

Even

if in some cases

the time limit

the facts in this case present a

could be tolled,

further question:

the only

act of concealment asserted as a ground for equitable tolling

is Sullivan's

The

delay in

district court

applying for his

found

that this

ongoing course of fraudulent

fraud

in

delayed his

inaction, even

delay

amounted to

an

conduct designed to conceal the

the application.

deliberately

disability waiver.

Dignity

denies that

application and

if deliberate,

denies

could give rise

Sullivan

that such

to equitable

tolling.

On our

Court

of

questions

own motion, we

Massachusetts,

set

forth in

certify to the

pursuant

the

to its

attached

Supreme Judicial

Rule

1:03,

certificate, and

the

we

retain

jurisdiction

over

this

determination.

It is so ordered.
________________

-11-11-

case

pending

their

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 certi

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

1:03, the following questions:

1.

Does Mass. Gen. L. ch. 175,

132, taken together with

12

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

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 t

disability waiver to which he was entitled until two years afte

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

Massachusetts law material to the case.

The Clerk of this court wi

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 Supre

Judicial Court of Massachusetts.

United States Court of Appea

for the First Circuit

By:_______________________
Bruce M. Selya
Circuit Judge