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Yang v. Farmers New World Life Insurance Company

United States Court of Appeals, Eighth Circuit

August 3, 2018

Mary G. Yang Plaintiff- Appellee
Farmers New World Life Insurance Company Defendant-Appellant

          Submitted: June 14, 2018

          Appeal from United States District Court for the District of Minnesota - Minneapolis

          Before WOLLMAN, ARNOLD, and KELLY, Circuit Judges.

          ARNOLD, Circuit Judge.

         In May, 2003, Minnesota resident May Yang applied to Farmers New World Life Insurance Company for a life-insurance policy it sold only to people under age sixty. In her application, Yang said she was born on July 11, 1943, and was thus fifty-nine years old, providing a Laotian birth certificate as proof. Farmers issued her the policy later that month under a contract containing the two provisions at issue in this appeal. One provision states that Farmers "will not contest this policy after it has been in force for two years . . . except for nonpayment of premiums." The other provides that "[i]f the insured's age or sex was misstated, the amount payable will be that which the premiums paid would have purchased at the correct age or sex."

         In 2014, Mary Yang ("Mary," to avoid confusion with the insured) filed a claim with Farmers for the policy's $150, 000 death benefit, asserting that she was Yang's beneficiary and submitting as proof of Yang's demise a Laotian death certificate that, like the birth certificate, stated that Yang was born in July, 1943. But when Farmers verified Yang's social-security number, it learned the Social Security Administration had a much earlier birth date for her (May 27, 1933), which would have made her almost seventy years old when she applied for the policy and thus ineligible for it. Invoking the policy's misstatement-of-age clause, Farmers refused to award Mary the death benefit, but instead refunded Yang's premiums with interest.

         Mary sued Farmers in Minnesota state court, claiming that Farmers violated its contract with Yang when it declined to award Mary the death benefit. She alleged that Yang gave Farmers her real birth date in applying for the policy and, if she did not, Farmers could not "rescind" the policy due to her misstatement of age. After Farmers removed the case to federal district court, both parties moved for summary judgment. In her motion, Mary argued that Yang was erroneously assigned May 27, 1933, as her birth date when she immigrated to the United States and that her birth date was actually July 11, 1943. In its cross-motion, Farmers argued Yang's birth date was May 27, 1933, since that date appears not only on all of her federal and state identification documents (including her passport, certificate of naturalization, and Minnesota ID), but also on her application to a different life-insurance company for a different policy. Farmers also questioned the authenticity and reliability of the Laotian documents that stated that Yang was born in 1943: When the beneficiary of her other policy applied for its benefit, she submitted a different Laotian death certificate that reported that Yang was eighty-one years old in 2014, placing the year of her birth in or around 1933. The parties also disputed whether the incontestability provision in Yang's policy precluded Farmers from even invoking the misstatement-of-age clause.

         Acknowledging that neither party had "focused" its arguments on the policy's incontestability provision, the district court granted summary judgment to Mary and denied it to Farmers on the ground that that provision barred Farmers from enforcing the misstatement-of-age clause. The district court reasoned that if Farmers could adjust Yang's age upwards by ten years under the misstatement clause, the policy's death benefit would be reduced to zero since she would be ineligible for it; and so, by invoking the misstatement clause, the district court held, "Farmers is effectively challenging the validity of the Policy due to a misstatement in the application[, ] . . . a type of challenge the incontestability provision is designed to prohibit." The district court did not identify the relief it was granting Mary, but we assume that its judgment required Farmers to award her the policy's $150, 000 benefit. Farmers appeals from that judgment, and we reverse in part.

         Farmers asserts that the district court should have granted it summary judgment rather than Mary. The parties agree that Minnesota law applies to this diversity action for breach of an insurance contract. We review the district court's summary-judgment decision, including its interpretation of the contract and state law, de novo. See Welspun Pipes, Inc. v. Liberty Mut. Fire Ins. Co., 891 F.3d 351, 353 (8th Cir. 2018); HIP, Inc. v. Hormel Foods Corp., 888 F.3d 334, 338 (8th Cir. 2018).

         Although Minnesota law requires every life-insurance policy issued in the state to provide that it will be incontestable after two years, see Minn. Stat. § 61A.03(1)(c), and that the "amount payable" under it "will be the amount the premium would have purchased at the [insured's] correct age" if her age has been "understated," see id. § 61A.03(1)(e), it appears that the Minnesota Supreme Court has not yet decided how those provisions interact. We are not, however, without guidance from that court on the matter. Because insurance policies are contracts, they are interpreted using general principles of contract law. Linn v. BCBSM, Inc., 905 N.W.2d 497, 504 (Minn. 2018). It is a "basic rule" of contract law "that courts must interpret a contract so as to give effect to all of its provisions." Metro. Airports Comm'n v. Noble, 763 N.W.2d 639, 645 (Minn. 2009). A policy will therefore not be construed in a manner that "entirely neutralizes one provision . . . if the contract is susceptible of another construction which gives effect to all its provisions and is consistent with the general intent" as reflected in the policy as a whole. Eng'g & Constr. Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695, 705 (Minn. 2013). We conclude that the district court erred when it interpreted the incontestability and misstatement clauses in Yang's policy in a way that resulted in the former wholly neutralizing the latter.

         Since Farmers does not dispute the district court's ruling that Yang's policy was incontestable, we assume that Farmers could no longer contest it. The question then is whether Farmers contested the policy when it applied the policy's misstatement-of-age clause to adjust the death benefit to zero dollars. But to state the question is to answer it: Since the adjustment based on Yang's alleged misstatement of age occurred under a term of her policy setting what "the amount payable will be," the adjustment did not contest the policy, it enforced it. Nothing in the policy indicates that the clause applies only where the policy is contestable or its adjustment reduces but does not eliminate the benefit. The language of the clause is unambiguous about its scope. It applies, without apparent exception, whenever the insured's age was misstated.

         Because the plain language of the misstatement-of-age clause admits of no exception, we may not "rewrite, modify, or limit its effect by a strained construction." Storms, Inc. v. Mathy Constr. Co., 883 N.W.2d 772, 776 (Minn. 2016). It is irrelevant that adjusting the policy's benefits under the clause may result in their complete elimination. So long as the elimination occurs pursuant to the policy's terms, it "is not a contest of the validity of the insurance contract but instead is a recognition of its terms." 29-178 Appleman on Insurance Law & Practice § 178.03[C][4] (2d ed. 2011). The district court erred in holding that the misstatement clause does not apply where, as here, it might (or would) reduce the benefits of an incontestable policy to zero.

         Mary observes nonetheless that when Farmers decided that Yang was ineligible for her policy, it did not simply adjust the benefits under her policy's misstatement-of-age clause, it eliminated them. "If that is not a 'contest' of a policy," she asserts, "nothing is." It appears that the district court, in granting summary judgment to Mary, accepted a version of this argument, reasoning that since the age adjustment Farmers advocated would take Yang "outside the scope of [her] policy altogether," the adjustment was "effectively challenging" the policy instead of applying it. The difficulty with that reasoning is that it is results-oriented. The test of whether an act contests a policy is not the outcome it produces, but whether it reaches that outcome by seeking to cancel the policy or to enforce it. See Yang v. Western-Southern Life Assur. Co., 713 F.3d 429, 435 (8th Cir. 2013).

         The district court relied primarily on Amica Life Insurance Co. v. Barbor, 488 F.Supp.2d 750 (N.D. Ill. 2007), for its holding. In Amica, the court, applying Illinois law, did not dispute that normally "the application of an age adjustment provision is not a contest of the policy within an incontestability provision." Id. at 759. The Amica court ruled, however, that an age adjustment becomes a contest when it would not merely diminish the policy's benefits, but "void them altogether." Id. Whatever the merits of that ruling may be as a matter of Illinois law, it is wrong under Minnesota law since the misstatement-of-age provision here-like the one in Amica, see id. at 753 n.2-admits of no distinctions based on the amount of benefits payable, if any, following the age adjustment. See Storms, Inc., 883 N.W.2d at 776. If it so happened that an age adjustment could count as a contest of the policy, Minnesota law would still ...

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