Howard Verlo v. The Equitable Life Assurance Society of the United States, a New York Corporation

562 F.2d 1034

• Court: Court of Appeals for the Eighth Circuit
• Decided: October 20, 1977
• Docket: 76-1415
• Status: Published

Opinions

WEBSTER, Circuit Judge.

This case calls to mind the dictum of Justice Holmes that “hard cases make bad law.”¹ Depending upon the legal effect of an extension clause in appellant Equitable Life Insurance Company’s group life insurance contract, the decedent’s beneficiary is either entitled to recover a death benefit or is excluded from coverage by one day. The District Court found the clause to be ambiguous and construed it to find coverage; we hold that the clause is unambiguous and that coverage is excluded. We therefore reverse.

The group policy involved in this case covered certain employees of Computer Sciences Corporation (CSC). Robert Verio, the decedent, was a covered employee. He was employed by CSC on January 22,1973. His last day of work was Friday, June 22, 1973. On June 25, 1973, CSC mailed Verio a notice that his employment was “hereby” terminated.² These dates are important because Verio died on July 24, 1973. Under the conversion privilege clause of the group policy, an employee had thirty-one days following termination of employment in which to elect to convert his interest to an individual policy, and the policy further provided that the terminated employee would be considered covered under the individual policy if he died within the thirty-one day extension period.³ Thus if Verio’s employment terminated for purposes of the policy on Friday, June 22,1973 (his last day of work), his death occurred thirty-two days after such termination and there would be no coverage. On the other hand, if his termination was effective on Monday, June 24, the date he was next scheduled for work, or on some subsequent date, then Verio would be covered and appellant would be liable under its policy.

Appellant denied coverage and Verio’s executor brought an action in the United States District Court for the District of Minnesota to recover under the policy. Before the District Court, appellant contended that the policy properly defined termination of employment as “cessation of active work” and that, since Verio had last actively worked for CSC on June 22, 1973, the thirty-one day extension of coverage period must be computed from that date. The District Court found that “cessation of active work” was a reasonable definition of termination of employment under the policy, but held the phrase to be ambiguous, requiring construction by the court, It reasoned that any interruption of normally scheduled work, however temporary, would technically be a “cessation,” a result clearly not intended. It concluded instead that “the plain and ordinary meaning of the term ‘cessation of active work’ is that cessation occurs when an employee stops coming to work, not every time an employee puts down his tools.” The District Court therefore found that termination occurred on Monday, June 24, 1973, the first day of regularly scheduled work on which Verio failed to appear, and entered judgment in favor of Verio’s beneficiary.I **⁴

I

Our analysis must be guided by two principles of contract interpretation that are applicable here. First, doubtful language in the policy must be construed most strongly against the insurer as the author of the policy. See Simmons Refining Co. v. Royal-Globe Ins. Co., 543 F.2d 1195, 1197 (7th Cir. 1976); Howard v. Federal Crop Ins. Corp., 540 F.2d 695, 697 (4th Cir. 1976); Walter v. Marine Office of America, 537 F.2d 89, 95 (5th Cir. 1976); Caledonia Community Hospital v. St. Paul Fire & Marine Ins. Co., 239 N.W.2d 768, 770 (Minn.1976); Northwest Airlines, Inc. v. Globe Indemnity Co., 225 N.W.2d 831, 837 (Minn.1975). See also 1 Couch, Cyclopedia of Insurance Law § 15.73 (2d ed. 1959). Second, we will not read an ambiguity into an otherwise unambiguous document in order to be able to alter or vary its terms. See Simmons Refining Co. v. Royal-Globe Ins. Co., supra, 543 F.2d at 1197; Security Mutual Casualty Co. v. Century Casualty Co., 531 F.2d 974, 976 (10th Cir.), cert. denied, 429 U.S. 860, 97 S.Ct. 161, 50 L.Ed.2d 137 (1976); Otten v. Stonewall Ins. Co., 511 F.2d 143, 147 (8th Cir. 1975). Finally, clauses in insurance policies must be read in context. See Burton v. State Farm Fire & Casualty Co., 533 F.2d 177, 179 (5th Cir. 1976); Slay Warehousing Co. v. Reliance Ins. Co., 471 F.2d 1364, 1368 (8th Cir. 1973) See generally 3 Corbin on Contracts § 549 (1960).

The extension clause in the instant contract contained no unusual features material to this case. It is a commonly used technique, sometimes mandated by state statute, to afford a terminated employee a reasonable period in which to elect to convert his certificate of interest in a group policy into an individual policy. While Verio was insured only under the noncontributory part of the group policy, the premiums on conversion to an individual policy would necessarily become the obligation of the insured. The extension clause was clearly intended to provide a period of thirty-one days following termination in which to elect or reject the conversion privilege of the policy, during which time the insured remained covered. If he died within that period, his beneficiary would be entitled to the proceeds as if the employee had converted to an individual policy. So much, at least, does not appear to be in dispute. Further, as the District Court recognized, it was entirely proper to define termination of employment as “cessation of active work” to avoid “imposing unforeseen and perhaps unmeasurable liability on insurers in cases involving employees, such as decedent here, who simply stop coming to work, whose whereabouts may be unknown, and who accordingly may not be available for receipt of notice of termination.”

The dispute, rather, focuses upon when an employee is deemed to have ceased active work. The District Court hypothesized a number of situations — overnight intervals, rest breaks, etc. — which, if literally interpreted, would be “cessation of active work.”⁵ While it may be necessary to make the factual determination in retrospect because the cessation of active work may not be immediately apparent, the term has been repeatedly held to have a consistent and unambiguous meaning: “when the actual work ceases, and not some later date.” Calio v. Equitable Life Assurance Society of United States, 169 So.2d 502, 505 (Fla.App.1964). The cases which have held employment to have terminated on the last day of actual work are legion. See, e. g., Calio v. Equitable Life Assurance Society of United States, supra, 169 So.2d at 505; Wyatt v. Security Benefit Life Ins. Co., 178 Kan. 91, 283 P.2d 243, 247 (1955) (employee’s death thus occurred two days after expiration of thirty-one day conversion period); Ardery v. Union Underwear Co., 293 Ky. 439, 169 S.W.2d 45, 46 (1943); Trucken v. Metropolitan Life Ins. Co., 303 Mass. 501, 22 N.E.2d 120, 122 (1939); Beecey v. Travelers’ Ins. Co., 267 Mass. 135, 166 N.E. 571, 573 (1929); Costelle v. Metropolitan Life Ins. Co., 164 S.W.2d 75, 76 (Mo.App.1942); Palmer v. Capitol Life Ins. Co., 157 Neb. 760, 61 N.W.2d 396, 398-400 (1953); McGinnis v. Bankers Life Co., 39 A.D.2d 393, 334 N.Y.S.2d 270, 273 (1972). See generally An-not., 68 A.L.R.2d 8 (1959).⁶

We are not concerned with whether or not Verio received proper notice of his termination or whether the form of notice may have affected the liability of CSC to grant compensation for some greater period of time.⁷ The issue here is the liability of the insurer under a group policy as defined by its terms. Since June 22, 1973, was the last day of active work, it follows that Verio’s death did not occur within the thirty-one day extension period and there is thus no coverage under the policy.

The judgment of the District Court is reversed.

1 . Northern Securities Co. v. United States, 193 U.S. 197, 400, 24 S.Ct. 436, 48 L.Ed. 679 (1904) (Holmes, J., dissenting).

2 . The letter was mailed from San Francisco and addressed to Verio in Saigon, Viet Nam. The basis of discharge was stated to be his “frequent, lengthy, unauthorized and unexplained absences from [his] office.”

3 . The extended death benefit clause of the policy provided:

During Conversion Period Following Termination of Employment. Upon receipt of due proof that an employee whose insurance hereunder terminated due to termination of employment in the class or classes of employees insured hereunder, died within thirty-one days after such termination of employment, the Society will pay to the employee’s beneficiary an amount of insurance equal to that for which such employee would have been entitled to have an individual policy issued to him in accordance with paragraph A of the provision hereof entitled “Conversion Privilege.”

4 . The initial complaint named the decedent’s father, Howard Verio, “Acting as Executor of the Estate of Robert H. Verio, Deceased,” as plaintiff. Appellant’s business records demon-strafed that Howard Verio, in his individual capacity, was named beneficiary of his son’s life insurance policy. The District Court ordered the language “Acting as Executor of the Estate of Robert H. Verio, Deceased” stricken from the caption of the amended complaint.

5 . The contract clearly excluded from this definition periods of illness and authorized absences.

6 . A few cases have avoided the rule, and held employment to have terminated on a date other than the last day the employee worked. See Norwood v. Connecticut General Life Ins. Co., 2 Mich.App. 535, 140 N.W.2d 774 (1966); Walker v. Occidental Life Ins. Co., 67 Cal.2d 518, 63 Cal.Rptr. 45, 432 P.2d 741 (1967); Mutual Life Ins. Co. v. Presbyterian Hospital, 503 S.W.2d 870 (Tex.Ct.App. 1973). In Norwood and Mutual Life Ins. Co., recovery was nonetheless denied. And in Walker, the result may have been based in part on sympathy for the insured’s family. We are not inclined to bend so well-settled a definition to achieve a happy result. A loftier public policy may be found in providing certainty to commonly used clauses in group insurance programs.

7 . The absence of actual notice is not conclusive. See Cheek v. Vulcan Life & Accident Ins. Co., 52 Ala.App. 192, 290 So.2d 654, 657 (1973), writ denied, 290 So.2d 658 (1974); Massachusetts Mutual Life Ins. Co. v. De Salvo, 174 Colo. 115, 482 P.2d 380, 384-85 (1971); Bell v. New York Life Ins. Co., 134 Ind.App. 614, 190 N.E.2d 432, 435 (1963); Norwood v. Connecticut General Life Ins. Co., 2 Mich.App. 535, 140 N.W.2d 774, 776-77 (1966). Verio had a copy of the policy and had been fully informed that cessation of active work would result in extinguishing his interest in the policy, subject to his conversion privilege within the thirty-one day extension period.