Denney v. The Guardian Life Insurance Company of America
MEMORANDUM OPINION - For the foregoing reasons, plaintiff's breach of contract and bad faith claims fail as a matter of law. A separate order will be entered in accordance with this memorandum opinion. Ordered by Senior Judge Lyle E. Strom. (LAC)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
MELANIE F. DENNEY,
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA,
This matter is before the Court on cross-motions for
summary judgment (Filing No. 20 and Filing No. 23).
7, 2016, Melanie F. Denney (“plaintiff”) filed a motion for
summary judgment (Filing No. 23).
On the same day, The Guardian
Life Insurance Company of America (“Guardian”) also filed a
motion for summary judgment (Filing No. 20).
On February 7,
2017, the parties filed a joint motion to vacate the final
progression order under the belief that no genuine dispute as to
any material fact exists, and this case may be disposed of as a
matter of law.
See Filing No. 35.
On the same date, Magistrate
Judge Zwart issued an order setting aside case progression
deadlines and cancelling trial and pretrial conference settings
(Filing No. 36).
Upon review of the record and relevant law, the
Court finds as follows.
Beginning in 2007, the Northwest High School, District
82 (“School District”) began self-administering a group insurance
policy provided by Guardian which included life insurance (Filing
No. 21 at 6-7).
“[T]he School District generated its own monthly
billing statements to Guardian and paid the premiums, submitted
enrollment forms to Guardian, and prepared and transmitted
censuses to Guardian listing the members of the plan.”
On August 1, 2003, plaintiff’s husband, Doyle E. Denney
(“Decedent”), was hired by the School District as an
administrator (Filing No. 1-1 at 1).
On August 20, 2003,
Decedent requested coverage under a life insurance policy
(“Policy”) with Guardian as the insurer (Filing No. 22-3 at 6).
Decedent elected the maximum amount of insurance valued at
On June 30, 2010, after nearly seven years,
Decedent retired from the District (Id. at 8).
indicated that he wished to continue his life insurance policy
with Guardian following retirement (Filing No. 25 at 5).
School District “mistakenly told Mr. Denney that he was a
‘qualified retiree’ under the Plan.”
(Filing No. 21 at 8).
After retirement, Decedent continued to pay his insurance premium
annually (Filing No. 25 at 5).
The 2010/11 census submitted by
the School District to Guardian listed the Decedent as a retiree
with a life insurance amount of $150,000 (Filing No. 22-3 at 12).
On August 24, 2015, Decedent died and a claim on the life
insurance policy was submitted to Guardian (Id. at 8).
By letter dated November 9, 2015, Guardian informed
plaintiff that the claimed benefit was not payable (Filing No.
22-5 at 1).
Guardian asserted that the claim was denied because
Decedent’s “coverage terminated June 30, 2010 when he no longer
met the definition of a full time employee and did not qualify as
a retiree under the terms of this plan.”
(Id. at 2).
to be covered under the insurance plan, the individual must fall
within one of three classifications: (1) administrators; (2) all
other eligible employees; or (3) retirees who are at least age
55, with at least 10 years of service (Filing No. 24-1 at 5).
Guardian denied the claim because Decedent did not meet the 10year service requirement and did not “convert his group life
insurance policy to an individual life insurance policy.”
(Filing No. 22-5 at 2).
On March 16, 2016, plaintiff filed a complaint in the
District Court of Lancaster County, Nebraska, asserting breach of
contract and bad faith (Filing No. 1-1 at 3).
On April 15, 2016,
Guardian removed the case to this Court pursuant to 28 U.S.C.
§ 1441 (Filing No. 1).
On November 7, 2016, both parties moved
for summary judgment (Filing No. 20; Filing No. 25).
STANDARD OF REVIEW
Summary judgment is proper if the movant shows that
there is no genuine dispute as to any material fact and that the
movant is entitled to a judgment as a matter of law.
Civ. P. 56(a).
See Fed. R.
Both parties assert that no genuine dispute as to
any material fact exists precluding the case from being disposed
of on summary judgment (Filing 35).
the Court agrees.
After review of the record,
Plaintiff’s claims hinge on the interpretation
and application of an insurance policy to the undisputed
circumstances surrounding Decedent’s employment, enrollment in
life insurance, and retirement.
“An insurance policy is a
contract and its terms provide the scope of the policy’s
Sweem v. American Fidelity Life Assur. Co., 739
N.W.2d 442, 447 (Neb. 2007).
“The interpretation of a contract
and whether the contract is ambiguous are questions of law.”
Timberlake v. Douglas County, 865 N.W.2d 788, 793 (Neb. 2015).
Accordingly, this case will be disposed of as a matter of law.
Plaintiff brings two causes of action against Guardian:
(1) breach of contract and (2) bad faith (Filing No. 1-1 at 3;
see also Filing No. 8 at 3).
The general issue before the Court
is whether or not Guardian is liable under the terms of the
More specifically, plaintiff argues that the
incontestability clauses in the Policy preclude “Guardian from
asserting . . . that Denney was never entitled to receive life
(Filing No. 25 at 19).
I. Breach of Contract Claim
Under Nebraska law, a court interpreting an insurance
policy must first determine if the policy is ambiguous.
Hillabrand v. American Family Mut. Ins. Co., 713 N.W.2d 494, 498
When interpreting the meaning of a contract, “[a]
court must consider a contract as a whole and, if possible, give
effect to every part of the contract.”
N.W.2d 17, 28 (Neb. 2016).
Brozek v. Brozek, 874
Provisions of an insurance policy
that terminate the policy at the termination of employment are
Palmer v. Capitol Life Ins. Co. of Denver Colo., 61
N.W.2d 396, 400 (Neb. 1953).
Upon review of the Policy and the terms contained
within it, the Court finds that no ambiguity exists and will
construe the Policy in accordance with its plain and ordinary
See Hillabrand, 713 N.W.2d at 494.
Among others, the
Policy contains provisions regarding eligibility, termination,
See Filing No. 24-1.1
In order to be
eligible for life insurance, an employee must be a member of an
“eligible class” (Id. at 28).
The “eligible classes” are: (1)
administrators; (2) all other eligible employees; and (3)
retirees who are at least age 55, with at least 10 years of
service (Id. at 5).
With regard to termination the Policy provides that:
An Employee’s insurance on behalf
of himself under this Policy shall
(1) If his employment
(2) If he ceases to be a member
of the classes of employees
eligible for the insurance.
(3) If this Policy terminates.
(4) If this Policy is
discontinued with respect to the
Employees of his Participating
Termination of Employment shall be
deemed to occur when the Employee
ceases active service on a fulltime basis with his Participating
Employer, except to the extent this
requirement is modified in the
Employee Rider pertaining to each
(Id. at 12).
An employee’s coverage ends “the last day of the
month in which an employee’s active full-time service ends due to
This citation refers to the “Plan of Insurance” attached to
plaintiff’s index of evidence. The same document can also be found in
defendant’s index of evidence under Filing 22-2.
disability, retirement (except for qualified retirees), layoff,
leave of absence or end of employment.”
(Id. at 29).
The Policy contains three incontestability clauses.
The portions of the clauses applicable to the individual insured
are as follows.
First, “A covered person’s insurance under this
plan shall be incontestable after two years from his or her
effective date, except for violation by the covered person of the
conditions, if any, of this plan relative to military or naval
(Id. at 4).
Second, “[w]ith respect to the insurance
on an Employee and/or his eligible dependents, their insurance
shall be incontestable after two years from his effective date,
except for violation by the Employee of the conditions, if any,
of this Policy relative to military or naval service.”
No statement in any application,
except a fraudulent statement, made
by a person insured under this
Policy shall be used in contesting
the validity of his insurance or in
denying a claim for a loss
incurred, or for a disability which
starts, after such insurance has
been in force for two years during
(Id. at 17).
In August 2003, Decedent obtained the life insurance
plan while employed as an administrator for the School District.
At this time he was a member of the “Administrators” class for
On June 30, 2010, after nearly seven years,
Decedent retired from the School District.
At the time of
Decedent’s retirement, his employment was terminated, and he
ceased to be a member of a class of employees eligible for the
See Filing No. 24-1 at 12.
By application of the
terms of the Policy, Decedent’s life insurance automatically
terminated upon his retirement.
The Court now turns to plaintiff’s argument that the
incontestability clauses in the Policy preclude Guardian from
asserting the termination of Decedent’s life insurance as a
Jurisdictions are split with regard to whether an
incontestability clause precludes the insurer from asserting a
defense on the basis of eligibility.
See Groll v. Safeco Life
Ins. Co., 566 A.2d 269, 271 (Pa. Super. Ct. 1989) (describing
“two irreconcilable lines of cases” with regard to the
application of incontestability clauses to eligibility).
line of cases, led by Simpson v. Phoenix Mutual Life Ins. Co.,
247 N.E.2d 655 (Ct. App. N.Y. 1969), “holds that eligibility is
a condition of insurance and cannot be contested.”
A.2d at 271.
“The other line of cases, led by Crawford v.
Equitable Life Assurance Society, 56 Ill.2d 41, 305 N.E.2d 144
(1973), holds that the defense of ineligibility is not barred by
an incontestability clause.”
Plaintiff relies on the Simpson line of cases to
support her position that Guardian is precluded from asserting
eligibility as a defense and denying her claim.
25 at 19; Filing No. 31 at 7.
See Filing No.
Guardian argues that this case is
distinguished from both lines of cases discussed in Groll,
because, unlike the insured parties in the cited cases,
Decedent’s ineligibility did not exist at the inception of the
See Filing No. 30 at 13; Filing No. 34 at 2-3.
addition, Guardian asserts that Neb. Rev. Stat. § 44-1607
supports the position that Guardian is not precluded from
asserting the defense that Decedent’s coverage was terminated
upon his retirement in June 2010 (Filing No. 21 at 10; Filing No.
30 at 8-12; 34 at 6).
The parties have not cited, and the Court has been
unable to locate any Nebraska cases dealing with the precise
issue before the Court.
However, the Fourth Circuit addressed
the particular issue dealing with a change in eligibility status
after the incontestability term had run in Corbett v. Fortis
Benefits Ins. Co., No. 95-1795, 1996 WL 145232 (4th Cir. April 1,
In Corbett, the insurer sought to assert the defense that
the insured was no longer a member of the covered group at the
time of his death.
1996 WL 145232, at *3.
The insurance policy
at issue contained an incontestability clause that the insured
asserted precluded the insurer from arguing such a defense.
The Fourth Circuit noted that
[a]n incontestability clause is not
a mandate as to coverage, a
definition of the hazards to be
borne by the insurer. It means
only this, that within the limits
of the coverage, the policy shall
stand, unaffected by any defense
that it was invalid in its
inception, or thereafter became
invalid by reason of a condition
Id. (internal quotation and citation omitted).
The court in
Corbett further noted that “[a]n incontestability clause does not
bar an insurer from invoking specific provisions to argue that
the coverage of a previously-covered insured had terminated
before the time of the insured’s death.”
Id. (citing Rasmussen
v. Nebraska Nat’l Life Ins. Co., 170 N.W.2d 370, 376 (Iowa 1969);
18 Couch on Insurance §72:59 (2d ed. rev. vol. 1983) (“The fact
that a policy has become incontestable does not affect the rule
that the insurer’s liability is measured by the terms and
provisions of the policy itself.”)).
The Court agrees with the rationale in Corbett.
this case, Guardian does not dispute that Decedent obtained life
insurance from Guardian and remained insured from August 1, 2003,
to June 30, 2010 (Filing No. 34 at 2).
Guardian’s argument does
not attack the eligibility or validity of Decedent’s insurance
policy at its inception, but rather asserts that by the terms of
the Policy, Decedent’s coverage was automatically terminated on
June 30, 2010 (Id. at 5).
The Court finds the provisions of the
Policy with regard to ongoing eligibility are unaffected by the
Guardian is not precluded from
asserting the defense that Decedent’s life insurance terminated
upon his retirement.
Even if the Court were to find that the
incontestability clauses precluded defendant from asserting an
eligibility defense, plaintiff’s reliance on Simpson is
In 2008, the Nebraska Unicameral added a sentence to
the statute dealing with incontestability clauses stating,
“[t]his provision shall not preclude the assertion at any time of
defenses based upon provisions in the policy that relate to
eligibility for coverage.”
Neb. Rev. Stat. § 44-1607(2).
addition of this sentence clarifies that Nebraska law aligns with
the line of cases led by Crawford.
Where Decedent was no longer
covered under the Policy and the incontestability clauses are
inapplicable, Guardian is not liable under contract to pay
II. Bad Faith Claim
“In order to establish a claim for bad faith, a
plaintiff must show an absence of a reasonable basis for denying
the benefits of the insurance policy and the insurer’s knowledge
or reckless disregard of the lack of a reasonable basis for
denying the claim.”
LaRette v. American Med. Sec., Inc., 705
N.W.2d 41, 47-48 (Neb. 2005).
In Nebraska and other
jurisdictions, “if a lawful basis for denial [of a claim] exists,
the insurer, as a matter of law, cannot be held liable in an
action based on the tort of bad faith.”
Radecki v. Mutual of
Omaha Ins. Co., 583 N.W.2d 320, 325-26 (Neb. 1998) (collecting
To determine whether or not Guardian may be held liable
under the tort of bad faith, the Court must determine if Guardian
had an arguable basis for denying plaintiff’s claim.
583 N.W.2d at 326.
As discussed above, Guardian is not precluded from
asserting the defense that Decedent was not covered by the Policy
notwithstanding the incontestability clauses.
Decedent was not a
member of an “eligible class” following his June 30, 2010,
retirement, and his coverage under the Policy was automatically
Therefore, Guardian had a lawful basis for denying
plaintiff’s claim; therefore, as a matter of law, Guardian cannot
be held liable for plaintiff’s bad faith claim.
For the foregoing reasons, plaintiff’s breach of
contract and bad faith claims fail as a matter of law.
separate order will be entered in accordance with this memorandum
DATED this 27th day of March, 2017.
BY THE COURT:
/s/ Lyle E. Strom
LYLE E. STROM, Senior Judge
United States District Court
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