Officer, Dean v. Chase Insur Life ( 2008 )


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  •                                   In the
    
    United States Court of Appeals
                      For the Seventh Circuit
                                  ____________
    
    No. 07-2826
    
    D EAN O FFICER,
                                                           Plaintiff-Appellant,
                                          v.
    
    C HASE INSURANCE L IFE AND A NNUITY C OMPANY,
    
                                                          Defendant-Appellee.
                                  ____________
                   Appeal from the United States District Court
             for the Northern District of Indiana, Lafayette Division.
                       No. 06 C 127—Allen Sharp, Judge.
                                  ____________
     D A T E S U BM ITTED J A N U A R Y 24, 2008 Œ— D EC ID ED S EP TEM BER 3, 2008
                                  ____________
    
    
    
        Before P OSNER, R IPPLE, and T INDER, Circuit Judges.
     T INDER, Circuit Judge. This case questions the validity
    under Indiana law of a suicide exclusion clause in a life
    
    
    
    Œ
      Although oral argument was originally scheduled in this case,
    the parties filed a joint motion to waive oral argument. The
    court granted the motion, and this appeal is submitted on
    the briefs and records.
    2                                               No. 07-2826
    
    insurance policy. Dean Officer (“Officer”), as the benefi-
    ciary of his wife’s life insurance policy, brought this suit
    against Chase Insurance Life & Annuity Company
    (“Chase”) to recover the face amount of the policy. The
    district court entered judgment in favor of Chase. We
    affirm.
    
    
                          I. Background
      Chase issued a life insurance policy to Theresa Officer
    (“Theresa”) in the amount of one million dollars. Officer
    was named as the beneficiary, and the policy became
    effective on February 11, 2004. The policy contained a
    suicide provision limiting the benefits if the insured
    committed suicide within two years of the effective date
    of the policy. The Officers paid the premiums due in
    2004 and 2005, totaling $540. Sadly, Theresa died of an
    apparent self-inflicted gunshot wound on January 4, 2006.
      Officer sent a claim to Chase in April 2006 as the benefi-
    ciary of Theresa’s life insurance policy. Chase sent Officer
    $540, representing the amount the Officers had paid in
    premiums. Officer filed suit in August 2006 in Jasper
    County, Indiana, to recover the face value of the million
    dollar policy. Chase removed the case to the Northern
    District of Indiana. Officer filed a motion for summary
    judgment, contending that the suicide provision was
    ambiguous and constituted an unenforceable forfeiture.
    The district court denied Officer’s motion, finding that
    as a matter of law the insurance policy was unambiguous,
    valid, and enforceable. The parties then stipulated that
    Theresa’s death was a suicide and filed an agreed motion
    No. 07-2826                                                3
    
    for entry of final judgment in Chase’s favor, with Officer
    reserving the right to appeal the denial of his summary
    judgment motion. The court entered final judgment
    on the uncontested facts in favor of Chase on July 18,
    2007, and Officer now appeals.
    
    
                           II. Analysis
      Officer appeals the district court’s determination that
    the suicide exclusion clause was unambiguous, valid,
    and enforceable as a matter of law; the facts are uncon-
    tested since the parties stipulated that Theresa’s death
    was a suicide. We review pure questions of law de novo.
    Samuel C. Johnson 1988 Trust v. Bayfield County, Wis., 
    520 F.3d 822
    , 828 (7th Cir. 2008); Klein v. DePuy, Inc., 
    506 F.3d 553
    , 554 (7th Cir. 2007).
    
    
                A. Insurance Contract Ambiguity
      When sitting in diversity, we must apply the substan-
    tive law of the state as we believe the highest court of that
    state would apply it when faced with the same issue.
    Allstate Ins. Co. v. Keca, 
    368 F.3d 793
    , 796 (7th Cir. 2004).
    Both parties agree that Indiana law applies here. Officer
    does not argue that Indiana law prohibits the exclusion
    of suicide under life insurance policies; Indiana has
    long permitted exclusions of this type. See, e.g., Nw. Mut.
    Life Ins. Co. v. Hazelett, 
    4 N.E. 582
     (Ind. 1886) (discussing
    a suicide exclusion and noting that “[i]t is neither unlaw-
    ful, nor against public policy, for a contract of life insur-
    ance to stipulate that upon certain conditions or con-
    4                                                No. 07-2826
    
    tingencies the policy shall become void”); Kunse v. Knights
    of the Modern Maccabees, 
    90 N.E. 89
    , 91 (Ind. App. 1909)
    (enforcing a suicide exclusion). Instead, Officer argues
    that the provision is ambiguous and should be construed
    in his favor. To determine whether Officer is entitled to
    receive the face amount of the insurance policy, we refer
    to Indiana’s law of contract interpretation. Nat’l Athletic
    Sportswear, Inc. v. Westfield Ins. Co., 
    528 F.3d 508
    , 512 (7th
    Cir. 2008). An insurance contract is subject to the same
    rules of interpretation as other contracts under Indiana
    law. Morris v. Econ. Fire & Cas. Co., 
    848 N.E.2d 663
    , 666
    (Ind. 2006). “If the language in the insurance policy is
    clear and unambiguous, then it should be given its
    plain and ordinary meaning, but if the language is am-
    biguous, the insurance contract should be strictly con-
    strued against the insurance company.” Id. Indiana law
    is clear that an ambiguity does not arise merely because
    the two parties are able to create different interpretations
    of the policy language at issue. USA Life One Ins. Co. of Ind.
    v. Nuckolls, 
    682 N.E.2d 534
    , 538 (Ind. 1997). “Rather, the
    policy is ambiguous only if it is susceptible to more than
    one interpretation and reasonably intelligent persons
    would differ as to its meaning.” Id. (internal quotation
    omitted).
        Chase’s suicide provision states:
         We will limit the proceeds we pay under this
         policy if the insured commits suicide, while sane
         or insane:
               1. within 2 years from the Date of Issue;
             and
    No. 07-2826                                                5
    
              2. after 2 years from the Date of Issue,
            but within 2 years from the effective date
            of the last reinstatement of this policy.
        The limited amount will equal all premiums paid
        on this policy.
      Although courts in Indiana and other others states
    have frequently analyzed suicide clauses in insurance
    contracts, no court has construed the exact language at
    issue here. See, e.g., Commonwealth Life Ins. Co. v. Jackson,
    
    432 N.E.2d 1382
    , 1384 (Ind. Ct. App. 1982) (construing
    a suicide clause that stated: “the amount payable . . . shall
    be limited to the premium or premiums paid hereunder
    without interest”); Cont’l Assurance Co. v. Krueger, 
    66 N.E.2d 133
    , 134 (Ind. App. 1946) (construing a suicide
    clause that stated: “the liability of the company shall
    be limited to an amount equal to the premiums actually
    paid on this policy”); Aetna Life Ins. Co. v. Doerr, 
    115 N.E. 700
    , 701 (Ind. App. 1917) (construing a suicide clause
    that stated: “If the insured shall commit suicide within
    one year . . . this policy shall be null and void.”).
      Officer argues that the exclusion is susceptible to two
    meanings. First, the amount payable could equal the
    face value minus the premiums paid, or $999,460. Second,
    the amount payable could equal the amount of premiums
    paid, or $540. Obviously, Officer prefers the first inter-
    pretation and Chase prefers the second.
      The district court rejected Officer’s interpretation of
    the suicide provision and concluded that it was unam-
    biguous as written. The court noted that the plain and
    ordinary meaning of the words “proceeds” and “amount”
    6                                               No. 07-2826
    
    are “virtually interchangeable.” Officer v. Chase Ins. Life &
    Annuity Co., 
    478 F. Supp. 2d 1069
    , 1075 (N.D. Ind. 2007).
    Although we can imagine improved ways to write this
    exclusion, we, too, conclude that the policy is not am-
    biguous as written. The first clause of the insurance pro-
    vision sets out Chase’s exclusion by stating: “We will
    limit the proceeds we pay.” It then sets out the circum-
    stances under which it will limit the proceeds. The final
    sentence states: “The limited amount will equal all premi-
    ums paid on this policy.” None of these terms is defined,
    and so “the limited amount” most logically refers back
    to the first phrase. Combining those two phrases, the
    policy’s meaning is clear: “The limited amount [of pro-
    ceeds we pay] will equal all premiums paid on this policy.”
    Officer’s alternate interpretation—“We will limit the
    proceeds, and the amount by which they will be limited
    will equal the premiums paid”—is not a reasonable
    interpretation. If, as he suggests, the limited amount
    were equal to the face value minus the premiums paid,
    Chase would be required to pay more money where
    an insured committed suicide one day after buying the
    policy than it would have to pay one day before the
    suicide exclusion expired. Reasonably intelligent persons
    would not find that the provision was susceptible to
    Officer’s interpretation.
      Officer also argues that another portion of the policy uses
    clearer language: “The proceeds payable on the death of
    the insured are equal to . . . .” He asserts that because
    Chase knew how to clearly write “proceeds payable”
    elsewhere, the term “limited amount” can reasonably
    mean something else in the suicide provision. It is appro-
    No. 07-2826                                                  7
    
    priate to look at the insurance contract as a whole in
    determining ambiguity, and courts should attempt to
    harmonize provisions rather than placing them in con-
    flict. Dunn v. Meridian Mut. Ins. Co., 
    836 N.E.2d 249
    ,
    252 (Ind. 2005). These two provisions are not in conflict,
    though. Chase could have used the same language in
    both provisions, but the fact that it used different lang-
    uage to express the amount of proceeds payable does
    not compel the conclusion that two otherwise unambigu-
    ous statements have become ambiguous.
    
    
                  B. Disproportionate Forfeiture
      Officer argues that, if the exclusion is not ambiguous,
    then Indiana courts would find that it was a dispropor-
    tionate forfeiture or an illegal penalty. He asserts that there
    is no rational relationship between the harm Chase suf-
    fered by the breach of the suicide clause and the
    $999,460 loss he will suffer by being repaid only the
    premiums.
      Officer cites several cases in which liquidated damages
    clauses were included in the parties’ contracts. Liquidated
    damages refers to “a specific sum of money that has been
    expressly stipulated by the parties to a contract as the
    amount of damages to be recovered by one party for a
    breach of the agreement by the other, whether it exceeds
    or falls short of actual damages.” Time Warner Entm’t Co. v.
    Whiteman, 
    802 N.E.2d 886
    , 893 (Ind. 2004). While liquidated
    damages clauses are enforceable, they are treated as
    unenforceable penalties where they are “grossly dispropor-
    tionate to the loss that may result from a breach of con-
    8                                                No. 07-2826
    
    tract.” Id. at 894. To determine whether this clause results
    in an unenforceable penalty, Officer contends that we
    should “weigh the extent of the forfeiture by the obligee
    against the importance to the obligor of the risk from
    which he sought to be protected and the degree to which
    that protection will be lost if the non-occurrence of the
    condition is excused to the extent required to prevent
    forfeiture.” Restatement (Second) of Contracts § 229 cmt. b
    (1981). Officer asserts that the only purpose of the two-year
    suicide provision is to prevent fraud. Here, the fraud
    purpose had been 95% fulfilled, since Theresa died thirty-
    four days prior to the expiration of the exclusion; there-
    fore, he argues, a forfeiture of $999,460 is grossly dispro-
    portionate.
      The district court concluded that the exclusion was
    enforceable because Chase was seeking to perform the
    policy as written; it was not demanding a forfeiture. Officer
    is correct that insurance companies often include
    suicide provisions in life insurance policies to prevent
    fraud by the insured. See Commonwealth Life Ins. Co., 432
    N.E.2d at 1391. Preventing fraud is not the only purpose
    of such an exclusion, however. See, e.g., Kunse, 90 N.E. at 91
    (enforcing a suicide clause and noting that insurers may
    choose “not to assume a risk of a certain mode of death,
    and presumably the premiums are calculated on the
    elimination of that risk”).1 Regardless of the purpose of
    
    
    
    1
      Officer assets that Chase has waived any argument that the
    exclusion could serve a purpose other than fraud. Chase,
                                                   (continued...)
    No. 07-2826                                                 9
    
    Chase’s suicide limitation, forfeiture and liquidated
    damages are not appropriate concepts to apply to a suicide
    exclusion in an insurance contract. Officer cites cases
    dealing with lending arrangements, health services con-
    tracts, and land sale contracts—notably, he does not cite
    any cases dealing with insurance contracts.
      Exclusions are generally enforceable in insurance con-
    tracts because “[i]nsurance companies are free to limit
    their liability in a manner not inconsistent with public
    policy as reflected by case or statutory law.” Allstate Ins.
    Co. v. Boles, 
    481 N.E.2d 1096
    , 1098 (Ind. 1985). The Indiana
    Supreme Court has upheld (or, absent issues of fact,
    indicated that it would be likely to uphold) insurance
    exclusions where the insured injures a member of his
    own household, id. at 1101, exclusions for intentional acts,
    Allstate Ins. Co. v. Herman, 
    551 N.E.2d 844
    , 846 (Ind. 1990),
    and exclusions for business activities in a homeowner’s
    policy, Frankenmuth Mut. Ins. Co. v. Williams ex rel. Stevens,
    
    690 N.E.2d 675
    , 680 (Ind. 1997). The court has also approv-
    ingly discussed suicide exclusions on many occasions. See,
    e.g., Sovereign Camp of Woodmen of the World v. Porch, 
    110 N.E. 659
     (Ind. 1915) (the burden is on the insurer to prove
    suicide); Hazelett, 4 N.E. at 587 (suicide clause not applica-
    
    
    1
      (...continued)
    however, maintained in its summary judgment brief, summary
    judgment oral argument, and appellate brief that insurance
    companies define the risks that they insure and determine the
    premium rates by the exposure to those risks. Chase has not
    waived any argument with respect to the purpose of the
    suicide exclusion.
    10                                              No. 07-2826
    
    ble where death was caused by accident). “If a plainly
    expressed exception, exclusion or limitation in an insur-
    ance policy is not contrary to public policy, it is entitled
    to construction and enforcement as expressed.” Boles, 481
    N.E.2d at 1098 (emphasis added). Chase is not seeking
    to escape its obligations under the policy; it tendered a
    check to Officer for the amount it owed. The suicide
    exclusion is not an unenforceable penalty and is subject
    to enforcement as expressed.
    
    
                   C. Substantial Performance
      Officer also argues that the breach of the insurance
    contract was immaterial and the doctrine of substantial
    performance should prevent Chase from discharging its
    obligation to pay. He asserts that the suicide provision
    was 95% performed at the time of the breach and its
    purpose was effectuated because there was no evidence of
    fraud. Substantial performance applies “where perfor-
    mance of a nonessential condition is lacking, so that the
    benefits received by a party are far greater than the injury
    done to him by the breach of the other party.” Gibson v.
    Neu, 
    867 N.E.2d 188
    , 195 (Ind. Ct. App. 2007) (internal
    quotation omitted). Officer would like us to consider
    several factors to determine whether the breach was
    material enough to excuse Chase from paying the face
    amount of the policy. See, e.g., Collins v. McKinney, 
    871 N.E.2d 363
    , 375 (Ind. Ct. App. 2007) (applying Restatement
    (Second) of Contracts § 241 to determine the materiality
    of the breach); Frazier v. Mellowitz, 
    804 N.E.2d 796
    , 803
    (Ind. Ct. App. 2004) (same).
    No. 07-2826                                                11
    
      The district court concluded that the doctrine of sub-
    stantial performance was inapplicable to a suicide exclu-
    sion. Officer complains that the district court relied upon
    a single irrelevant case, Dove v. Rose Acre Farms, Inc., 
    434 N.E.2d 931
     (Ind. Ct. App. 1982). The district court, how-
    ever, only cited that case for the definition of substantial
    performance; instead, the court based its reasoning
    upon Officer’s inability to cite (and its own inability to
    find) any cases where the doctrine of substantial perfor-
    mance was applied in the way that Officer suggested. On
    appeal, Officer again primarily cites cases dealing with
    land sale contracts and services contracts, but this time
    he also cites one insurance case, which we will discuss.
      In Miller v. Dilts, 
    463 N.E.2d 257
    , 260 (Ind. 1984), the
    Indiana Supreme Court considered the issue of whether
    an insurance company must show actual prejudice to
    avoid coverage under a policy where an insured failed to
    give the company prompt notice of a claim. The court
    recognized that the duty to notify is a “condition[] prece-
    dent to the insurance company’s liability to its insured.” Id.
    at 260-61. The court held that prejudice can be presumed
    by an unreasonable delay in notifying the company about
    an accident or lawsuit, but the insured can rebut that
    presumption by showing evidence that the insurance
    company was not actually prejudiced. Id. at 265-66. Officer
    seizes upon the court’s discussion of how an insured
    could rebut the presumption, and he argues that it “fore-
    closes Chase’s simplistic argument that a two-year provi-
    sion is a two-year provision” because the court did not
    say the same thing about notice: “Notice was either timely
    or it was not.” This is illogical. The notice provision in
    12                                              No. 07-2826
    
    Miller did not contain a specific deadline; it required the
    insured “promptly notify” the insurer of the claim. Id. at
    260. Timeliness under that provision is measured by preju-
    dice—if the insurance company is prejudiced, the notice
    is not timely. Additionally, prompt notice serves
    an important purpose, in that it allows the insurance
    company to begin to investigate and defend a claim;
    using prejudice as the measure of timeliness serves that
    purpose. Here, the measure of time for the exclusion is
    the period assigned by the policy, two years. The im-
    portant purpose served (whether the provision was
    included to prevent fraud or for any other reason) is to
    exclude from coverage a specified risk for a specified
    amount of time. Allowing Officer to recover would thwart
    the purpose of the exclusion. In any event, the doctrine
    of substantial performance is simply inapplicable here;
    an insured is not “performing” a life insurance contract
    by not committing suicide. We reiterate that “[i]f a plainly
    expressed exception, exclusion or limitation in an insur-
    ance policy is not contrary to public policy, it is entitled
    to construction and enforcement as expressed.” Boles, 481
    N.E.2d at 1098 (emphasis added). Officer is entitled only
    to the amount of premiums paid.
    
    
                   D. Motion for Certification
      Officer moved that we certify two questions to the
    Indiana Supreme Court pursuant to our Circuit Rule 52:
    whether the doctrines of illegal forfeiture and sub-
    stantial performance apply to this insurance contract. “A
    case is appropriate for certification where it concerns a
    No. 07-2826                                                 13
    
    matter of vital public concern, where the issue will likely
    recur in other cases, where resolution of the question to
    be certified is outcome determinative of the case, and
    where the state supreme court has yet to have an op-
    portunity [to] illuminate a clear path on the issue.” Plastics
    Eng’g Co. v. Liberty Mut. Ins. Co., 
    514 F.3d 651
    , 659 (7th Cir.
    2008) (internal quotation omitted). The Indiana Supreme
    Court permits a federal court to certify a question when
    it appears that “a proceeding presents an issue of state
    law that is determinative of the case and on which there
    is no clear controlling Indiana precedent.” Ind. R. App. P.
    64(a). We believe that the Indiana Supreme Court has
    “illuminate[d] a clear path,” Plastics Eng’g Co., 514 F.3d at
    659, for us to confidently resolve Officer’s claim under
    Indiana law. As such, we decline to certify the questions.
    Compare McWaters v. Parker, 
    995 F.2d 1366
    , 1371 n.4
    (7th Cir. 1993) (denying a motion to certify a question,
    noting that “[u]nderlying the foregoing analysis is our
    belief that the Indiana Supreme Court’s position on
    mutual mistake in this type of case is discernable”) with
    Brownsburg Area Patrons Affecting Change v. Baldwin, 
    137 F.3d 503
    , 509-10 (7th Cir. 1998) (certifying a question to
    the Indiana Supreme Court on the Indiana Code’s defini-
    tion of Political Action Committee “due to the breadth of
    impact of the issue at bar and the important concerns
    of federalism apparent when a federal court is asked to
    interpret a state statute”).
    
    
                          III. Conclusion
      The district court properly concluded that the suicide
    limitation was valid and enforceable. We A FFIRM the
    14                                          No. 07-2826
    
    district court’s judgment and D ENY Officer’s motion for
    certification of questions to the Indiana Supreme Court.
    
    
    
    
                             9-3-08