Kavanagh v. New York Life Ins

• Court: Court of Appeals for the First Circuit
• Decided: March 25, 1999
• Docket: 98-1407
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 98-1407



                     JAMES F. KAVANAGH, JR.,



                      Plaintiff, Appellant,



                                v.



                 NEW YORK LIFE INSURANCE COMPANY,



                       Defendant, Appellee.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



        [Hon. George A. O'Toole, Jr., U.S. District Judge]


Before



                     Boudin, Circuit Judge,

                                

                 Gibson,* Senior Circuit Judge,

                                

                   and Lipez, Circuit Judge.


Robert P. Joyce, Jr., with whom Gabriel O. Dumont, Jr.,was on brief, for appellant.

  A. Hugh Scott, with whom William S. Hewitt, Jr., was on

brief, for appellee.


March 24, 1999


________________

  *Of the Eighth Circuit, sitting by designation.  LIPEZ, Circuit Judge.  This insurance case concerns the

effect of Mass. Gen. Laws ch. 175,  187C on defendant-appellee New

York Life Insurance Company's ("New York Life") refusal to pay

disability insurance benefits to James Kavanagh, Jr.  The district

court ruled that New York Life did not have to comply with the

provisions of section 187C, which sets forth notification

procedures an insurer must follow to effect a "cancellation" of an

insurance policy, following Kavanagh's failure to pay the premiums

due on a policy issued to him by New York Life.  Accordingly, the

court concluded that the policy was not in force at the time of

Kavanagh's disability and that he was not entitled to receive

disability benefits.  We affirm.   

                               I.

  The following facts are not disputed. In November 1992

New York Life issued to James Kavanagh, Jr. a Premier Disability

Income Policy ("the policy") which provided for the payment of a

monthly disability income benefit if he became totally disabled. 

Coverage under the policy was expressly conditioned upon the timely

payment of premiums, which were due quarterly.  Page eleven of the

policy, entitled "Right to Renew Policy," provided in pertinent

part:

     Non-Cancellable and Guaranteed Renewable to Age 65   

     While this policy is in force and if the Insured has not

     reached age 65, we cannot take any of the actions listed

     below, without your consent.  



          (a)  Refuse to let you renew the policy. 



Kavanagh made timely premiums payments as required by the policy

from the time it was issued through December 1995.  

     On February 14, 1996, New York Life sent Kavanagh a

premium notice for the quarterly payment due on March 6, 1996, by

first class mail to Kavanagh's address shown in New York Life's

records.  Kavanagh alleges that he never received the notice. 

After he failed to pay the premium due March 6, New York Life sent

Kavanagh a lapse notice dated April 4, 1996, by first class mail to

the same record address.  The notice stated that as of April 4

Kavanagh's policy had lapsed, and that the policy would be

reinstated if payment was received by May 4.  Kavanagh alleges that

he did not receive the lapse notice.  New York Life did not receive

the premium payment by May 4.  

     In August 1996 Kavanagh's physician determined that

Kavanagh was totally disabled due to a Grade III astocytoma of the

left frontal brain.  In September 1996 Kavanagh filed with New York

Life an application for disability benefits, which was denied on

the basis that the policy had lapsed on April 4, 1996, for

nonpayment of the premiums due from March 6, 1996, and was not in

force when his total disability began.  Kavanagh thereafter filed

an action seeking declaratory and monetary relief, alleging interalia that he was entitled to disability benefits under the policy

because New York Life failed to properly effect its cancellation

pursuant to Mass. Gen. Laws ch. 175,  187C.  After the parties

filed cross-motions for summary judgment, the district court

determined that section 187C was inapplicable and granted summary

judgment in favor of New York Life.  This appeal followed.       

                              II.

      The question presented is narrow   namely, whether Mass. Gen.

Laws ch. 175,  187C, which sets forth notification requirements

that an insurer must follow to effect a cancellation of any

insurance policy "which is subject to cancellation" by the insurer,

is applicable to the lapse of a guaranteed-renewable policy for

nonpayment of premiums.  Section 187C provides in pertinent part: 

     

     A company issuing any policy of insurance

     which is subject to cancellation by the

     company shall effect cancellation by serving

     the notice thereof provided by the policy and

     by paying or tendering, [subject to certain

     exceptions not relevant here], the full return

     premium due thereunder in accordance with its

     terms . . . .  Such notice and return premium,

     if any, shall be delivered in hand to the

     named insured, or be left at his last address

     as shown by the company's records or, if its

     records contain no such address, at his last

     business, residence or other address known to

     the company, or be forwarded to said address

     by first class mail, postage prepaid, and a

     notice left or forwarded, as aforesaid, shall

     be deemed a sufficient notice.  No written

     notice of cancellation shall be deemed

     effective when mailed by the company unless

     the company obtains a certificate of mailing

     receipt from the United States Postal Service

     . . . .  



Mass. Gen. Laws ch. 175,  187C (emphasis added).  Kavanagh urges

an expansive reading of section 187C's reference to policies which

are "subject to cancellation," arguing that this phrase

contemplates any policy which can be discontinued, including

policies which can be discontinued because of nonpayment of

premiums.  Based on his premise that section 187C is applicable in

such circumstances, Kavanagh argues the policy was still in effect

at the time he became totally disabled because New York Life did

not notify him by certified mail of its intention to "cancel" the

policy due to nonpayment of premiums.  

     New York Life argues, however, that section 187C's

reference to policies which are "subject to cancellation"

contemplates policies that are subject to unilateral termination by

insurers pursuant to a provision in the policies granting them that

right, which was not the case with Kavanagh's policy. Rather, 

Kavanagh's policy expressly stated that it was "guaranteed

renewable" provided he paid the required premiums.  According to

New York Life, section 187C's reference to policies which are

"subject to cancellation" was not intended to encompass policies

which simply lapse on their own accord due to nonpayment of

premiums, as here. Reviewing the court's interpretation of

Massachusetts law de novo, see Medical Prof'l Mut. Ins. Co. v.

Breon Lab. Inc., 141 F.3d 372, 374 (1st Cir. 1998)(citing Salve

Regina College v. Russell, 499 U.S. 225, 231 (1991)), we conclude

that the court properly ruled that section 187C does not apply in

these circumstances. 

     Our analysis begins, as it must, with the statutory

language.  See Stowell v. Secretary of Health & Human Servs., 3

F.3d 539, 542 (1st Cir. 1993) (citing Estate of Cowart v. Nicklos

Drilling Co., 505 U.S. 469, 475 (1992)); Laracuente v. Chase

Manhattan Bank, 891 F.2d 17, 22 (1st Cir. 1989).  Examining section

187C's language in isolation and attributing to that language its

"ordinary meaning," see Greenwood Trust Co. v. Massachusetts, 971

F.2d 818, 824 (1st Cir. 1992), we conclude that the statutory

reference to policies which are "subject to cancellation by the

[insurer]" is, arguably, susceptible to either of the competing

interpretations advanced by the parties.  Although we are inclined

to think that the term "cancellation" would not normally refer to

the lapse of an insurance policy for non-payment of premiums, see2 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d  30.1

(1997) (stating that "[t]he right to cancel is the right to

terminate a policy prior to its expiration, as distinguished from

a policy's lapse, or expiration by its own terms"); id.  30.2

(collecting cases distinguishing between cancellation and lapse in

the context of insurance contracts), it could perhaps be argued

that the term encompasses policies subject to discontinuation or

annulment for any reason including non-payment of premiums. 

However, even assuming arguendo that the statute is ambiguous, the

narrower meaning advanced by New York Life is borne out by inquiry

beyond the language of section 187C.

     Although the precise issue of state law before us has not

been addressed directly by the Massachusetts Supreme Judicial

Court, state decisions   through a process of negative inference  

offer guidance on the applicability of section 187C in this

context.  Despite the fact that section 187C was added to the

general laws in 1923, the Massachusetts Supreme Judicial Court did

not refer to it in a 1931 decision concerning an insurer's refusal

to pay benefits to a plaintiff when the decedent's life insurance

policy had lapsed due to nonpayment of premiums.  See Kukuruza v.

John Hancock Mut. Life Ins. Co., 176 N.E. 788 (Mass. 1931).  To the

contrary, the Kukuruza Court recited traditional common law

principles governing an insurer's obligations in the event of

nonpayment of premiums:

     The continuance of the [insurer's] obligation

     under the policy, [except in circumstances not

     relevant here], was conditional upon the

     payment of premiums as provided therein, and

     no affirmative action by the [insurer] was

     necessary to terminate the corresponding

     rights of the insured under the policy upon

     default in the payment of an instalment

     premium.



Kukuruza, 176 N.E. at 790 (citations omitted)(emphasis added); seealso Pierce v. Massachusetts Acc. Co., 22 N.E.2d 78 (Mass. 1939)

(applying equitable principles to allow reinstatement of disability

insurance policy after insured failed to pay premium when due, and

making no reference to section 187C); Woodman v. John Hancock Mut.

Life Ins. Co., 15 N.E.2d 812 (Mass. 1938) (concluding that policy

had lapsed due to nonpayment of premiums, and making no reference

to section 187C).  The Massachusetts court's disregard of section

187C in the context of challenges to insurers' refusals to pay

benefits under policies that have lapsed due to nonpayment of

premiums   even though section 187C was on the books at the time of

such decisions   strongly suggests that a "guaranteed-renewable"

policy which lapses due to nonpayment of premiums is not governed

by section 187C's "cancellation" notification requirements.   

     Moreover, the statutory scheme governing accident and

health insurance policies, Mass. Gen. Laws ch. 175,  108-111, 

lends support to the conclusion that section 187C does not apply to

policies which cannot be terminated by the insurer provided the

insured pays the required premiums.  See United States v. Ramirez-

Ferrer, 82 F.3d 1131, 1137-38 (1st Cir. 1996)(en banc)(observing

that "[t]he key to the 'whole act' approach is that all provisions

and other features of the enactment must be given force").  Section

110B addresses directly notice requirements in the case of a

termination or lapse of coverage of a noncancellable accident and

health insurance policy due to nonpayment of premiums:

     No policy of insurance referred to in section

     one hundred and eight [concerning accident and

     health insurance] . . ., except a policy which

     by its terms is cancellable by the company or

     is renewable or continuable with its consent,

     . . . , shall terminate or lapse for

     nonpayment of any premium until the expiration

     of three months from the due date of such

     premium, unless [the insurer complies with the

     notification procedures herein described].  



Mass. Gen. Laws ch. 175,  110B (emphasis added); see also supranote 4.  Thus, section 110B demonstrates that the legislature

contemplated two types of accident and health insurance policies:

those that are subject to cancellation and those that are not.

Kavanagh's expansive reading of the statutory phrase "subject to

cancellation," however, virtually eviscerates this distinction. 

Because every insurance policy is conditioned on the payment of

premiums, Kavanagh's position that discontinued coverage following

nonpayment of premiums constitutes a "cancellation" would mean that

virtually all accident and health insurance policies are "subject

to cancellation," leaving section 110B nearly meaningless.  See,

e.g., United States v. Ven-Fuel, Inc., 758 F.2d 741, 752-53 (1st

Cir. 1985).    

     This statutory scheme, imposing heightened notification

procedures on policies that are subject to unilateral termination

by insurers pursuant to a provision in the policies granting them

that right, and excluding from those requirements policies which

may remain in force at the discretion of the insured provided he or

she pays the required premiums, makes practical sense.  In the case

of a policy which is guaranteed-renewable, the insured is

guaranteed continued coverage by the very terms of the policy

provided he or she pays the required premiums, and there is no need

for heightened notification procedures to prevent the insured from

being caught by surprise by the insurer's unilateral decision to

terminate coverage.

     Finally, we consider briefly Kavanagh's related

contention that New York Life's decision not to exercise its right

to reinstate the policy after it had lapsed for nonpayment of

premiums constituted a "cancellation" of the policy, within the

meaning of section 187C.  As a matter of logic, this argument must

fail.  Once the policy lapsed for nonpayment of premiums, all

coverage terminated by the very terms of the policy.  Accordingly,

although New York Life had the power to reinstate the policy if it

desired, no policy existed for New York Life to "cancel" and New

York Life's decision not to reinstate the policy simply cannot be

characterized as a "cancellation" of any obligation owed by it to

Kavanagh. For these reasons, we find no error in the court's

conclusion that section 187C does not apply in these circumstances

and that New York Life was entitled to judgment as a matter of law.

     Affirmed.