Mary G. Yang v. Farmers New World Life Ins.

Citation: 898 F.3d 825Docket: 17-1895

Court: Court of Appeals for the Eighth Circuit; August 3, 2018; Federal Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Mary G. Yang applied for a life insurance policy with Farmers New World Life Insurance Company in May 2003, claiming to be born on July 11, 1943, making her fifty-nine years old at the time and eligible for the policy. Farmers issued the policy with two key provisions: one barring contestation after two years except for nonpayment of premiums, and another regarding misstatement of age, which limited payouts based on the premiums that would have been paid at the correct age.

In 2014, after Yang's death, her beneficiary, Mary, filed a claim for the $150,000 death benefit, supported by a Laotian death certificate stating Yang was born in 1943. However, Farmers discovered that social security records indicated Yang's true birth date was May 27, 1933, making her ineligible for the policy at the time of application. Farmers invoked the misstatement-of-age clause, declined the claim, and refunded the premiums with interest.

Mary sued Farmers in state court, alleging breach of contract and asserting that Yang had disclosed her true birth date. Farmers removed the case to federal court, where both parties filed for summary judgment. Mary contended that the birth date of May 27, 1933, was a clerical error from her immigration records. Farmers maintained that all official identification documents supported the earlier birth date and questioned the authenticity of the Laotian documents.

The court also considered whether the incontestability provision barred Farmers from invoking the misstatement-of-age clause. The district court ruled in favor of Mary, asserting that allowing Farmers to adjust Yang’s age would effectively nullify the policy, which the incontestability provision prohibits. While the court did not specify the relief granted, it was assumed that Farmers was ordered to pay the $150,000 benefit.

Farmers has appealed a judgment and the court has partially reversed it. Farmers contends that the district court should have granted it summary judgment instead of Mary. The case, governed by Minnesota law regarding a breach of an insurance contract, is reviewed de novo. Minnesota law mandates that life insurance policies become incontestable after two years and outlines how benefits are adjusted when an insured's age is misstated. The Minnesota Supreme Court has not definitively addressed the interaction between these provisions.

Insurance policies are contracts interpreted according to general contract law principles, which require that all provisions be given effect. The district court incorrectly interpreted the incontestability and misstatement clauses in Yang's policy, allowing the former to negate the latter. Farmers agrees that the policy is incontestable but questions whether it contested the policy by applying the misstatement clause to adjust the death benefit to zero dollars. This adjustment, made under the terms of the policy, is seen as enforcing the policy rather than contesting it. The language of the misstatement clause is clear and applies regardless of whether the policy is contestable, meaning any reduction in benefits, even to zero, does not constitute a challenge to the policy's validity but rather an acknowledgment of its terms.

The district court's conclusion that the misstatement clause does not apply when it reduces benefits to zero is deemed erroneous. Mary argues that Farmers' decision to eliminate the benefits entirely constitutes a contest of the policy.

The district court granted summary judgment to Mary, reasoning that the age adjustment proposed by Farmers would take Yang outside the scope of her policy, effectively challenging it rather than applying it. This reasoning is criticized for being results-oriented; the key issue is whether the action seeks to cancel or enforce the policy, as established in Yang v. Western-Southern Life Assur. Co. The court primarily relied on Amica Life Insurance Co. v. Barbor, which indicated that an age adjustment becomes a contest if it voids the policy's benefits altogether. However, under Minnesota law, the misstatement-of-age provision does not distinguish based on the amount of benefits after adjustment. Even if age adjustments could contest the policy, Minnesota law mandates their enforcement as an exception to the incontestability provision. 

Mary argues that Yang's age representation is binding under Minn. Stat. 61A.11, which applies if the representation was not willfully false or misleading and if Farmers issued the policy without prior medical examination. Farmers claims it examined Yang, and a reasonable inference could suggest that her significant misstatement of age was intentional. Mary also contends that the entire misstatement provision should be void due to it covering both age and sex, contrary to Minnesota law, which requires coverage for age only. This claim is dismissed as misstatements of sex are not relevant here, and parties may mutually agree to such provisions. Even if a conflict with statutory requirements existed, Minnesota law would sever the offending part rather than void the entire clause. The court notes that the district court's limitation on the misstatement-of-age clause could lead to illogical outcomes, where progressively severe misstatements would initially reduce benefits but could eventually force the insurer to pay full benefits despite a total lack of eligibility.

Individuals attempting to defraud an insurer by misrepresenting the age of the insured could exploit a situation where an insured is directed to purchase a policy for which she is ineligible due to her age. The court clarifies that the incontestability provision of the policy does not prevent an age adjustment that may lead to the denial of benefits. This adjustment's potential outcome is uncertain and needs further examination by the district court, particularly regarding whether the misstatement-of-age clause limits the payable amount to benefits under the actual policy purchased. Farmers Insurance contested the district court's ruling, arguing that the evidence clearly indicated Yang was born in 1933. However, the evidence was not conclusive, as there were conflicting claims regarding her birth year, including evidence supporting a 1943 birth date. The district court's decision to deny Farmers' summary judgment based on these contradictions is upheld, while the summary judgment granted to Yang is reversed, leading to remand for additional proceedings.