Third Circuit Insists on Applying Clear and Unambiguous Language of Insurance Policy

Life insurance policies are different from other insurance policies because they put a two year limit on certain exclusions. In Nicholas Lomma; J. L., a Minor, by Anthony Lomma, Guardian v. Ohio National Life Assurance Corporation; Ohio National Life Insurance Company, No. 18-2675, United States Court of Appeals for the Third Circuit (October 8, 2019) the policy in question excluded death by suicide if it occurs during the first two years of the policy.

Ohio National Life Assurance Corporation and Ohio National Life Insurance Company (Ohio) appealed a summary judgment for breach of contract based on Ohio’s denial of death benefits pursuant to a suicide exclusion in a life insurance policy for which they are beneficiaries.

FACTS

In 1986, Pennsylvania National Life Insurance Company issued Lora Marie Lomma a universal life insurance policy for $25,000 in coverage (“Universal Policy”). In 2007, Ms. Lomma applied to Ohio National Life Assurance for a renewable term life insurance policy for $100,000 in coverage (“Term Policy”). On the application, Ms. Lomma indicated that the Term Policy would replace her existing Universal Policy and that the replacement date would be upon “issu[ance] of this policy.”

Thereafter, Ohio sent Ms. Lomma a Notice Regarding Replacement of Life Insurance and Annuities (“Notice”) explaining the fact that the new policy would provide limitations not existing in the Universal Policy. The Notice provided in relevant part: “Under your existing policy, the period of time during which the issuing company could . . . deny coverage for death caused by suicide, may have expired or may expire earlier than it will under the proposed policy . . . .”

In August 2007, Ohio National Life Assurance issued the Term Policy, which states that a “[d]eath benefit is the amount payable upon death as of the end of the policy year. However, this amount may not be payable if death is due to an excluded cause such as suicide during the first two years.” The Term Policy contained a suicide exclusion that provided: “if the suicide or intentional self-destruction is within the first 2 contract years, we will pay as death proceeds the premiums you paid.”

In May 2009, Ms. Lomma committed suicide. Ohio denied the claim because Ms. Lomma’s suicide occurred within the first two contract years of the Term Policy, and the beneficiaries were only entitled to a refund of premiums paid.

The District Court granted summary judgment to Plaintiffs on the breach of contract claim. Lomma v. Ohio Nat’l Life Assurance Corp., 329 F. Supp. 3d 78, 94-95 (M.D. Pa. 2018). It held that (1) the Term Policy contains a latent ambiguity because Ms. Lomma could have interpreted the phrase “contract years” to mean the duration of her contractual relationship with Defendants, not simply the time period in the Term Policy; (2) the Notice and the Illustration of Benefits have qualifying language and do not show that the suicide exclusion period began in 2007, and (3) Plaintiffs established that Ms. Lomma could have reasonably believed that the suicide exclusion expired two years after she initially began paying premiums on a $100,000 life insurance policy.

ANALYSIS

When interpreting an insurance contract under the governing Pennsylvania law, the Third Circuit must ascertain and give effect to the parties’ intent as manifested in the terms of the policy. Where the language is clear and unambiguous, the court must follow it. Courts should not, however, “distort the meaning of the language or resort to a strained contrivance in order to find an ambiguity.”

Under the reasonable expectations analysis, an insured may not complain that her reasonable expectations were frustrated by policy limitations which are clear and unambiguous. All of the terms of an insurance policy must be read together and construed according to the plain meaning of the words involved.

The Term Policy provides that the “contract takes effect on the contract date shown on page 3,” that “[c]ontract months and years are marked from the contract date,” and that “[t]he first day of the contract year is the contract date and its anniversaries.” The Term Policy auto-renews each year on August 10th upon the timely payment of premiums. The final term date is August 9, 2067. The “contract date and its anniversaries” thus refer to, and the contract years are measured from, August 10, 2007.

Interpreting “contract years” in the context of the entire Term Policy therefore demonstrates that the phrase unambiguously refers to August 10th, the Policy Date.

When Ms. Lomma applied for the Term Policy, she indicated that the Term Policy would replace the Universal Policy. Thereafter, Ohio sent Ms. Lomma a Notice informing her of the changes. These communications clearly demonstrated an objective intent to cancel the Universal Policy and purchase the Term Policy.

Further, although both policies provide $100,000 in coverage, they are entirely different policies, were issued under different policy numbers, and contain different terms, with the first policy providing universal life insurance and the second policy providing term life insurance.

Finally, the Notice warned that by entering into a new policy, coverage under that policy may again be subject to certain limitations such as the suicide exclusion. Accordingly, the Third Circuit concluded that neither the communications surrounding Ms. Lomma’s purchase of the Term Policy nor the language of the Term Policy supports a reasonable expectation of coverage.

The order granting summary judgment was reversed.

ZALMA OPINION

Since Ms. Lomma intended to cancel the Universal Life policy that was more expensive than the term life policy with which she replaced the Universal Life policy. The existence and cancellation of the Universal Life policy was irrelevant to the issue of coverage for the Term policy. The trial court was reversed because the language of the exclusion was clear and if Ms. Lomma wanted her beneficiaries to receive the benefits of the insurance policy she could have waited a few months longer and killed herself on August 11, 2009 or any day after August 10, 2009. Suicide is often called a selfish act and this case proved how selfish suicide is.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Excellence in Claims Handling Courses From Experfy.com

The Excellence In Claims Handling program provides everything a person or entity presenting a claim needs to effectively present the claim and provides the insurance claims person with everything he or she needs to properly represent the insurer.

The insured, risk manager, or corporate counsel will be able to present a first party property claim – whether a fire, theft, or windstorm or some other insured against cause – with little difficulty and professionalism and present a sworn proof of loss acceptable to an insurer.

The insurance claims person completing the course will be able conduct a thorough investigation of the policy and claim. The insurance claims person will also be able to assist an insured to fulfill all of the promises made by the insured to the insurer and the insurer to provide the indemnity promised by the insurance policy.

The series of courses was designed so that the student can obtain the needed information easily while he or she sits down in the morning for a first cup of coffee or any other time in the day in short, easy to consume lessons. For instance “Insurance and Claims” is made up of three modules and 27 lectures while “Investigating the Property Claim” is made up of four modules and 65 lectures. You can review each course, each module and each lecture at the links below.

Each person completing the course will be able to claim that he or she is a professional first party property claims person ready to provide excellence in claims handling and be ready to resolve any claims problem that arises for the benefit of the insurer and the policy holder.

Insurance and Claims: https://www.experfy.com/training/courses/insurance-and-claims

Investigating the Property Claims: https://www.experfy.com/training/courses/investigating-the-property-claim

Insurance Law: https://www.experfy.com/training/courses/insurance-law

Solving Claims Problems: https://www.experfy.com/training/courses/solving-claims-problems