By Katherine Simone
A federal judge has reversed a decision by the United States District Court for the District of Connecticut granting an insurance company’s motion for summary judgment after being sued by two former NBA referees for breach of contract.
Background
Two former National Basketball Association (NBA) referees, Ronald Nunn and Donald Vaden, attended a union meeting hosted by the National Basketball Referees Association (NBRA) in September of 1996. At the meeting, Steven Lucas, a sales representative for Sun Life of Canada, (designated as administrator for disability income products by Defendant, Massachusetts Casualty Insurance Company (MCIC)[1]), gave a presentation to the union about supplemental disability insurance offered by MCIC. Lucas presented as a “disability expert” with 17 years of experience in the industry. He also had permission to solicit applications for the insurance policies.
Lucas represented to the union members that signing the disability insurance policy would provide them with coverage until the age of 65, should they sustain a career-ending injury. He represented that “career”, in this case, meant employment specifically as an NBA official, regardless of whether the insured could find other gainful employment. A referee was considered “totally disabled” merely by being unable to perform his “own occupation”: here, the duties of refereeing in the NBA. This potentially allowed the insured to receive longer coverage than that offered by their current policies. Lucas constantly reiterated that the insured would receive monthly payments until the age of 65.[2] In reality, the terms represented by Lucas were inconsistent with the actual language in the policy, which stated that after 60 months, “[total disability] shall then mean the Insured’s substantial inability to perform the material duties of any gainful occupation for which he/she is suited.” (Nunn and Vaden Dis. Inc. Policy at 3) (emphasis added).
With Lucas’ assistance, Plaintiffs signed the insurance policy. However, neither plaintiff read the contract before signing it, leaving both unaware of the discrepancy between Lucas’ representations at the union meeting and the language in the contract.
In 2002 and 2003, respectively, Nunn and Vaden suffered injuries that ended their careers as NBA referees but both found employment in different capacities within the NBA. Nunn and Vaden immediately began receiving the monthly payments guaranteed by their insurance policies. After 60 months — when Nunn was 58 and Vaden 55 — the payments stopped pursuant to the actual language of their contracts.
In August 2010, Plaintiffs filed suit in the United States District Court for the District of Connecticut, alleging breach of contract and/or, under the Reasonable Expectations Doctrine, seeking reformation of each respective policy to align with Lucas’ representations given at the union meeting. MCIC moved for summary judgment on the grounds that the claims were barred by Connecticut’s six-year statute of limitations and, additionally, that each policy clearly and unambiguously limited the insured’s to 60 months of disability insurance payments if he or she could perform gainful employment thereafter. The Court granted MCIC’s motion for summary judgment.
The District Court turned to the law of the contract state, Pennsylvania, to address the substantive issue of the Reasonable Expectations Doctrine. According to the judge, Pennsylvania courts generally give effect to the plain language of a contract, but if “the insurer [ ] either unreasonably obscure[d] the terms or outright deceive[d] the insured,” Pennsylvania law requires courts to interpret contracts based on the “reasonable expectations” of the insured. Nunn v. Massachusetts Cas. Ins. Co., 3:10CV1350 JBA, 2012 WL 3985162, at *8 (D.Conn. Sept. 10, 2012) (internal quotation marks omitted). The court mandated claims of fraud or misrepresentation as prerequisites for a cause of action under the reasonable expectations doctrine and, since Plaintiffs failed to make either allegation, the court only analyzed the case under the plain meaning of the insurance policy, with no weight given to Plaintiffs’ reasonable expectations.
The District Court next turned to the forum state, Connecticut, to address the statute of limitations defense. MCIC asserted that Plaintiffs’ breach of contract claims were time-barred by Connecticut’s six-year statute of limitations. According to the court, the statute of limitations began in 1996, when the policies were signed rather than in 2008 or 2009, when MCIC stopped making payments under the policies and Plaintiffs became aware of the discrepancy.
The Plaintiffs appealed.
Decision
The Court of Appeals determined that Pennsylvania law allows consideration of the reasonable expectations of the insured when interpreting a contract. Pennsylvania is unique in that it also allows the court to examine “the totality of the insurance transaction involved to ascertain the reasonable expectations of the consumer.” Dibble v. Sec. of Am. Life Ins. Co., 404 Pa.Super. 205, 210 (1991).
Indeed, during his deposition, Lucas admitted that his representation of the policy was inconsistent with its actual language and that he did not communicate that discrepancy to the NBRA members. Thus, the Court took the representations made by Lucas at the union meeting into account. The Court stated that those representations created an ambiguity by being inconsistent with the language within the four corners of the contract, regardless of how clear and concise the contract language was. Those representations ultimately established Plaintiffs’ reasonable expectations of the insurance policy.
The Court also noted that Plaintiffs’ failure to read the terms of the policy did not defeat an analysis of their reasonable expectations. The Court pointed to Tonkovic v. State Farm Mutual Auto Insurance Company, a 1987 Pennsylvania case, that stated that when an insurer produces a contract that is different than that the insured agreed to and paid for, the burden is not on the insured to read through the entirety of the contract to look for any disparities. (Tonkovic v. State Farm Mut. Auto. Ins. Co., 513 Pa. 445 (1987). Nunn and Vaden relied upon Lucas’ status as an “expert” and his long-term experience in the industry and were not unreasonable in their reliance on his verbal representations. On this ground, the Court granted Plaintiffs reformation of their policies.
The Court addressed the District Court’s decision that fraud and/or misrepresentation allegations must be present before an analysis under the Reasonable Expectations Doctrine may commence. The Court swiftly rejected this finding by, again, turning to Tonkovic, where the Supreme Court of Pennsylvania applied the reasonable expectations doctrine and found for the insured even though the insured “did not set forth a separate cause of action for negligent misrepresentation.” 513 Pa. at 460 (Zappala, J., dissenting).
Conclusion
Pennsylvania law controls every substantive aspect of the contracts in this case: it determines Plaintiffs’ reasonable expectations, it excuses them from reading the entirety of the contract, it allows for and dictates reformation of the contract, and it allows the contract to be interpreted (or recast) from the date the carrier acts in a manner inconsistent with the insured’s reasonable expectations of coverage. To apply the Connecticut statute of limitations, which triggers the statute of limitations upon delivery of the contract, would tear down the whole of Plaintiffs’ case after they had already succeeded on their breach of contract claim under Pennsylvania reasonable expectations analysis. Thus, the Court took Pennsylvania law to be the “last word” in this case and reversed the District Court’s holding for the Defendant.
Nunn v. Massachusetts Casualty Insurance Company; Ct.App.Conn., 2nd Dist.; No. 12-3712-cv, 2014 U.S. App. WL 1924465; 4/15/14
Attorneys of Record – 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.
Katherine Simone is a lawyer licensed in the state of Ohio. She earned her J.D. from the Northern Kentucky University Chase College of law. katasimone@gmail.com
[1] Now known as Centre Life Insurance Company
[2] Lucas counseled the gathered referees that “[t]hey are all still going to collect the [monthly payments] through the age of 65[;]” the “fact that it is issued to age 65 it guarantees you that the supplement is truly that because it is tax free [;]” “[t]he program covers you to 65 as I mentioned before[;]” and “[t]he policy is guaranteed to you to age 65.” (Transcript of Fall NBRA Presentation at 11, 12, and 14, Sept. 29, 1996.)
