Court reverses decision in NBA ref disability case

They sued MCIC in the U.S. District Court for the District of Connecticut, alleging breach of contract and/or seeking reformation with respect to each policy. MCIC moved for summary judgment, asserting that their claims were barred by Connecticut's six year statute of limitations, and that the insurance policies contained unambiguous language limiting Messrs. Nunn and Vaden to 60 months of supplemental disability insurance payments if they were able to perform any gainful occupation thereafter. After concluding that the law of the contract state, Pennsylvania, governed the substance of the policy, the district court granted MCIC's motion for summary judgment. Messrs. Nunn and Vaden appealed.

The Second Circuit's Decision

The Second Circuit reversed.

In its decision, the circuit court explained that applicable Pennsylvania law was somewhat unique in that it employed the "reasonable expectations of the insured" in some situations to govern contract interpretation. Thus, the circuit court continued, even a clear and unambiguous policy would not bind the insured "where the insurer or its agent [gave] the insured a reasonable expectation that coverage [was] different than that stated in the written policy."

In other words, the Second Circuit stated, under Pennsylvania law, when an insurer's agent made a representation with regard to coverage that was inconsistent with the later delivered policy, that inconsistency created an ambiguity in that regard notwithstanding the clarity of the policy's provisions and entitled the insured to rely on the agent's representation.

The Second Circuit then stated that Pennsylvania's reasonable expectations cases fell into two camps. In one, where an insured applied for a specific type of coverage and the insurer unilaterally limited that coverage, resulting in a policy quite different from what the insured requested, the insured's expectations were "reasonable" and therefore governed the contract. In the other, where the insured received precisely the coverage that the insured requested but failed to read the policy to discover clauses that were the usual incident of the coverage applied for, any other expectations were unreasonable.

In this case, the circuit court continued, Mr. Lucas' alleged representations to Messrs. Nunn and Vaden with regard to specific provisions of the policy he subsequently sold to them established the reasonable expectations of the parties. The circuit court noted that the insureds never read their policies, instead assuming that each reiterated the terms Mr. Lucas had previously described to them. It added that when they were subsequently injured and unable to work as NBA referees, they anticipated that, as Mr. Lucas had promised, they would receive payments until age 65.

Moreover, the circuit court continued, the failure of the insureds to read their policies did "not defeat their reasonable expectations." The Second Circuit held that, under the circumstances of this case, "it [was not] unreasonable [for Messrs. Nunn and Vaden] not to read [their policies]," and that, therefore, they were entitled to reformation of their policies in line with their reasonable expectations.

In conclusion, the circuit court said that nothing in Pennsylvania precedent suggested that Messrs. Vaden and Nunn had to allege fraud or misrepresentation before the reasonable expectations of the insured could be applied.

The case is Nunn v. Massachusetts Cas. Ins. Co., No. 12–3712–cv (2d Cir. Feb. 24, 2014). Attorneys involved include: David M. Bernard, Koskoff Koskoff & Bieder, P.C., Bridgeport, CT, for Plaintiffs–Appellants; Patrick M. Fahey, (Mark K. Ostrowski, on the brief), Shipman & Goodwin LLP, Hartford, CT, for Defendant–Appellee.

FC&S Legal Comment

The Connecticut lawsuit by Messrs. Nunn and Vaden may have been filed too late for purposes of Connecticut's statute of limitations, but the Second Circuit refused to affirm the district court's decision on that ground. Rather, the appellate court explained, although Connecticut law decided the length of the statute of limitations, "in this unusual confluence of competing and contrary policies, it would eviscerate the very heart of Pennsylvania's reasonable expectations doctrine to give force to Connecticut law as to when the claim accrued." In the circuit court's opinion, it "would be a hollow victory indeed" for Messrs. Nunn and Vaden to succeed on their claim that the contract as written was not the contract to which they agreed "only to be told that the contract as written should have triggered their breach of contract claims when the law of the contract state absolved them from knowing that fact."

See also:

• The importance of high-limit disability insurance
• 12 points that will make or break your disability sale