Mark Hofkin v. Provident Life & Accident Insurance Company
Docket: 95-1608
Court: Court of Appeals for the Third Circuit; April 15, 1996; Federal Appellate Court
Mark Hofkin appealed to the United States Court of Appeals for the Third Circuit following a decision by the Eastern District of Pennsylvania regarding his claims against Provident Life, Accident Insurance Company. Hofkin argued that his insurance policy's "Proofs of Loss" and "Legal Actions" clauses required only a single proof of loss submission within ninety days after the end of a continuous disability period. In contrast, Provident contended that Hofkin needed to submit monthly proofs of loss throughout his disability to qualify for benefits. The district court dismissed Hofkin's claims on statute of limitations grounds, deviating from the majority interpretation of similar policy language that would allow for a single submission post-disability.
The appellate court noted that the policy language mirrored a Pennsylvania statute and predicted that the Pennsylvania Supreme Court would align with the majority view, validating Hofkin's interpretation. The court identified an unresolved factual issue regarding Hofkin's total disability status, leading to the reversal of the district court's dismissal and remand for further proceedings. However, the appellate court upheld the district court's rejection of Hofkin's bad faith claims and affirmed the denial of his request to amend his complaint.
Hofkin was insured under Provident since July 1980 and reported total disability from injuries sustained in a March 1986 accident. After submitting a claim in September 1986, Provident paid him for the initial period of total disability and provided a claim form for residual disability benefits.
On January 19, 1987, Hofkin applied for residual disability benefits, claiming he could not work full time since June 1986 due to a March 1986 accident. He did not provide sufficient income loss details necessary for his claim. A Provident claims representative requested additional information in a letter dated January 23, 1987. In March 1987, Hofkin submitted several documents including a claim and an accountant's report, but again omitted critical financial information. After further requests from Provident for complete documentation, Hofkin submitted a revised claim form in April 1987 that stated "None" for his current income. Following a three-year communication gap, Hofkin's counsel sought additional claims forms from Provident in March 1990, but Hofkin did not complete them until litigation began. Hofkin provided supplementary proofs of loss between 1993 and 1994.
In January 1993, Hofkin's attorney filed a writ of summons in the Court of Common Pleas, which was later removed to the District Court for the Eastern District of Pennsylvania. Hofkin's claims included entitlement to total disability benefits from June 1986 and, alternatively, residual disability benefits, alleging Provident acted in bad faith by not paying claims and failing to inform him of eligibility for total disability benefits sooner. His motion to amend the complaint was denied. After a four-day jury trial, the district court granted Provident's motion for judgment as a matter of law based on a policy clause. Hofkin's subsequent motions to vacate the judgment, for a new trial, and to amend the complaint were denied. The district court had jurisdiction under 28 U.S.C. § 1332, and appellate jurisdiction was established under 28 U.S.C. § 1291. The standard for granting a Rule 50 motion for judgment as a matter of law requires insufficient evidence for a jury to find liability, while it must be denied if there is evidence reasonably supporting the plaintiff's claims.
This case is governed by Pennsylvania law, with the district court's interpretation and application of state law subject to plenary review. The court must discern the intent of the Pennsylvania General Assembly regarding policy language mandated by statute, rather than the intent of the contracting parties. Thus, the interpretation of the "Legal Actions" clause is also subject to plenary review. Statutory construction rules apply, and the typical rule favoring the insured does not pertain to statutorily required provisions.
The standard for reviewing the district court's denial of Hofkin's motion to amend the complaint is for abuse of discretion, defined by a clearly erroneous fact finding, incorrect legal conclusion, or improper law application. Under Pennsylvania law, a claim of insurer bad faith must be demonstrated by clear and convincing evidence. The dismissal of Hofkin's bad faith claim is also reviewed plenarily.
Key to the case is the interpretation of the "Legal Actions" and "Proofs of Loss" clauses in the Provident policy, which reflect the statutory language. The statutory provisions mandate that written proof of loss must be submitted to the insurer within specified timeframes, with allowances for delays not caused by the claimant. The "Legal Actions" clause stipulates that no legal action can be initiated until sixty days after written proof of loss is provided and must be initiated within three years of such proof being required. The language in the Provident policy mirrors the statutory requirements, with only minor wording differences.
The district court deemed Hofkin's interpretation of the Proofs of Loss and Legal Actions clauses as "unreasonable," arguing that it would allow an indefinite period for filing claims until the policyholder reached age fifty-five, thereby contradicting the purpose of suit limitation clauses designed to expedite litigation and prevent stale claims. The court referenced Pennsylvania's policy favoring statutes of limitation as essential for societal welfare, promoting stability and security. Although the appellate court acknowledged the importance of policy considerations, it emphasized that these should be considered only after establishing the "plain meaning" of the contractual language. Under Pennsylvania law, the interpretation of ambiguous terms requires a thorough examination of the entire policy, and ambiguity exists only if reasonable individuals could ascribe differing meanings to the terms. The court concluded that the language of the relevant clauses was not ambiguous, permitting a straightforward interpretation. Both parties agreed there was no ambiguity; Hofkin contended that the Proofs of Loss clause implies a potential jury question regarding continuous total disability.
Provident emphasizes the terms "periodic payment," "period," and "monthly" in the insurance policy, arguing that the Proofs of Loss clause requires written proof of loss to be submitted within 90 days after the termination of the period for which the insurer is liable. They interpret the "periodic payment" interval as defining the "period for which the Company is liable," suggesting that the three-year limitation period in the Legal Actions clause starts after the 90-day period following the first month of benefits. However, most state and federal courts have rejected this interpretation, asserting that the phrase "period for which the Company is liable" should encompass the entire duration of an ongoing disability. In Oglesby v. Penn Mutual Life Insurance Co., the court aligned with this prevailing view, interpreting similar language under Delaware law as requiring proof of loss to be submitted after the entire liability period ends. The Pennsylvania diversity case, Liberto v. Mutual Benefit Health, also supported this broader interpretation, concluding that the three-year period would not begin until the claimant's death, reflecting an ongoing liability until then. Additionally, in Wall v. Pennsylvania Life Insurance Co., the North Dakota Supreme Court confirmed that "period for which the insurer is liable" refers to the total liability period in cases of continuous disability, rather than a monthly payment period. Thus, the statutory language requires proof of loss to be submitted only after the insurer's liability has concluded.
The supreme court upheld the lower court's ruling that Wall's claim against Penn. Life was based on ongoing disability, concluding that the period of disability had not ended, thus delaying the requirement for proof of loss and the start of the Statute of Limitations. Similarly, the Eighth Circuit Court of Appeals interpreted Arkansas law to indicate that proof of loss is not a condition precedent to liability, as the policy allows for submission after the disability period. The Minnesota Supreme Court, in Laidlaw v. Commercial Insurance Co., determined that "period for which the Company is liable" encompasses the entire duration of continuous disability, regardless of individual time frames. The New York trial court in Turner v. Mutual Benefit Health found that the plaintiff's detailed affidavit raised genuine issues of material fact regarding continuous disability, making summary judgment inappropriate. Additionally, the Kentucky court in Continental Casualty Co. v. Freeman interpreted similar policy language to mean that proof of loss can apply to a continuous disability period, favoring the insured's interpretation. In contrast, the Ninth Circuit in Nikaido v. Centennial Life Insurance Co. supported a more segmented interpretation, suggesting the liability period may refer to each month of disability.
In Goff v. Aetna Life and Casualty Co., the court interpreted "period for which the insurer is liable" to mean that each month for which a payment is due constitutes a liability period. However, this reasoning was rejected in favor of the North Dakota Supreme Court's interpretation, which stated that policy language does not change the requirement that proof of loss must be filed only after the insurer's liability terminates. The court criticized Provident's interpretation of the statute as complicated and lacking clarity, asserting that adopting such a view would require an unjustified reinterpretation of the statute. The court noted that if the Proofs of Loss clause had explicitly included "monthly," Provident's interpretation could be valid, but such a change would require approval from the Commissioner of Insurance, which is unlikely.
The district court found Hofkin's claim time-barred, noting that even if Hofkin's interpretation of the statute were accepted, he had provided timely notice of the accident and submitted a claim that constituted sufficient proofs of loss. Consequently, the three-year time limit for filing suit was triggered upon submission of the claim. Hofkin admitted to providing the required proofs of loss but failed to file suit within the mandated three years, resulting in the barring of his case.
The interpretation of the Legal Actions clause, specifically 753(A)(11), indicates that actions must be initiated within three years after the required proof of loss is submitted. The court concluded that Hofkin should not be penalized for attempting to provide proof of loss earlier than mandated, leaving a factual issue regarding the duration of Hofkin's disability to assess his eligibility for total or residual disability benefits.
Two additional issues raised by Hofkin were addressed. His bad faith claim against Provident was rejected because, despite claiming that Provident acted in bad faith by not informing him of potential total disability benefits, the relevant statute (42 PA. CONS.STAT.ANN. 8371) was not in effect prior to July 1, 1990. Furthermore, Hofkin failed to provide sufficient evidence of bad faith conduct after this date, and the record showed no improper practices by Provident.
Hofkin's motion to amend his complaint to include a claim for a refund of premium was also denied. The court found that the late request would impose undue prejudice on Provident, as it would require new defenses.
The court ruled that the Pennsylvania Supreme Court would likely interpret the "period for which the Company is liable" in the Proofs of Loss clause as referencing a continuous period of disability, suggesting the suit limitation provision may not yet be triggered. The district court's judgment favoring Provident was reversed, and the case was remanded for factual determination, while the denial of Hofkin's bad faith claim and amendment request was affirmed, with costs taxed against the appellee.
The Provident policy defines "total disability" as the inability to perform substantial and material duties of one's occupation, applicable until age 55 or five years of paid indemnity for total disability, whichever is later. "Residual disability" is defined as the inability to perform important daily business duties or usual daily duties for the necessary duration. Pennsylvania's contra proferentem rule may apply, indicating that ambiguous modifications made by the insurer should be interpreted in favor of the insured. In this case, the relevant language is mandated by statute. Additionally, although Provident argued that "period for which the Company is liable" referred to monthly intervals, it distanced itself from the implications of this interpretation when challenged. The statutory language requires words to be construed according to grammar rules and common usage, while technical terms should follow their specific definitions. The General Assembly's intent can be discerned through various factors, including the statute's purpose and legislative history. The policy stipulates that indemnities for non-periodic losses are payable upon receipt of proof, while periodic payments must occur at least monthly, which Provident has chosen. Lastly, under Section 8371, if a court finds that an insurer has acted in bad faith, it can award interest on claims, punitive damages, and court costs or attorney fees.
