Court: Sun Life provided ample time for premium-waiver challenge

A Minnesota appellate court has affirmed a trial court's summary dismissal of a plaintiff's lawsuit seeking death benefits under a life insurance policy issued to his spouse, finding that the suit was untimely under the terms of the policy.

The case

Jane Butler worked as a teacher for a Minnesota school district until June 4, 2004, when she ceased active employment due to the effects of a brain tumor. Under the school district's life insurance policy, premiums were waived for employees who were "totally disabled." On Aug. 23, 2004, Butler filed a premium-waiver claim with Sun Life Assurance Company of Canada asserting that she was totally disabled. On Dec. 17 of that year, Sun Life denied her claim because she failed to timely submit evidence supporting her premium-waiver request.

Butler appealed, and Sun Life upheld the denial based on its determination that the evidence did not support a finding that she was "totally disabled." Sun Life informed Butler that she had the right to file a lawsuit, but she did not pursue legal action against Sun Life.

After Butler's death on July 28, 2010, her husband, Malcolm Butler, filed a claim for death benefits with Sun Life. The school district informed Sun Life that Butler was retired at the time of her death, and Sun Life therefore paid Mr. Butler the retiree life insurance benefit of $25,000 instead of the $50,000 life insurance benefit for active employees.

Butler then sued Sun Life for the additional $25,000 under a breach of contract theory, alleging that Sun Life had breached the policy by denying Ms. Butler's premium-waiver claim and alleging that had Sun Life not improperly denied her claim, he would be entitled to the higher life insurance benefit of $50,000.

Sun Life moved for summary judgment. The trial court granted Sun Life's motion. Butler appealed.

The policy

The policy provided that:

[n]o legal action may start … until 60 days after Proof of Claim has been given; nor … more than 3 years after the time Proof of Claim is required.

It further stated that:

proof of claim must be given to Sun Life no later than 15 months after the Employee ceases to be Actively at Work.
….
If it is not possible to give proof within these time limits, it must be given as soon as reasonably possible. Proof of claim may not be given later than one year after the time proof is otherwise required unless the individual is legally incompetent.
Proof of claim must consist of … a description of the loss or disability; the date the loss or disability occurred; and the cause of the loss or disability.

The appellate court's decision

The appellate court affirmed, rejecting Butler's argument that the three-year policy limit on legal actions was unreasonable because it did not allow enough time to prove the existence of a disability as defined under the policy.

The appellate court explained that, under the policy, the usual deadline for providing proof of a premium-waiver claim, which had to include a description of the disability, the date the disability occurred, and the cause of the disability, was 15 months. However, it continued, the policy stated that "[i]f it is not possible to give proof" within that time, "it must be given as soon as reasonably possible" and no later than "one year after the time proof is otherwise required unless the individual is legally incompetent."

As a result, the appellate court continued, proof of claim may not be required for as long as 27 months after the employee ceased to be actively at work. Then, the employee had an additional 36 months to start a legal action based on the claim. In effect, the appellate court declared, the time period during which legal action must be initiated under the policy was as long as 63 months.

Because the policy allowed reasonable extensions of the deadline for submission of proof of claim, which in turn extended the deadline for initiation of legal action, the policy did not unreasonably constrain the time necessary to prove the existence of a disability, the appellate court held.

Moreover, the appellate court ruled, the record did not suggest that the policy limitation period unreasonably precluded Ms. Butler from initiating a timely legal action before she "knew or reasonably should have known" that she was harmed by Sun Life's claim denial.

Finally, the appellate court observed that Ms. Butler had not initiated a lawsuit to challenge Sun Life's denial of her premium-waiver claim even though she had obtained a favorable disability determination from the Social Security Administration prior to expiration of the policy deadline for starting a legal action.

The appellate court concluded that Ms. Butler's failure to take legal action based on the favorable disability determination by the Social Security Administration undermined Mr. Butler's argument that it should hold the policy time limit unreasonable because it did not allow enough time to obtain the information necessary to prove Ms. Butler's disability.

The case is Butler v. Sun Life Financial (U.S.) Services Co., Inc., No. A13–0494 (Minn. Ct. App. Aug. 26, 2013). Attorneys involved include: Jeffrey R. Hannig, Hannig Law Office, P.A., Fargo, North Dakota for appellant; Hal A. Shillingstad, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Minneapolis, MN; and Tina M. Bengs, (pro hac vice), Valparaiso, IN, for respondent.

Originally published on FC&S Legal: The Insurance Coverage Law Information Center. FC&S Legal is theindustry's ONLY single-source, comprehensive portal developed specifically for insurance coverage law professionals.To find out more, visit www.fcandslegal.com. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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