CYR, Circuit Judge.
SMA Life Assurance Co. (SMA) seeks to set aside the summary judgment entered in favor of plaintiff appellee Julio Vélez Goméz, contending, inter alia, that the court below incorrectly ruled that the incontestability clause in the SMA disability-income insurance policy issued to Vélez is ambiguous. We vacate the district court judgment and remand for further proceedings.
The relevant facts are recited in the light most favorable to SMA. O'Connor v. Steeves, 994 F.2d 905, 907 (1st Cir.1993). Vélez was diagnosed with multiple sclerosis around 1983. Sometime in 1986, Vélez and his wife attended a dinner party at the home of their neighbor, Isidro Ortiz Pepin. Amongst a group of people at the party, Vélez's wife made comments about her husband's health. There is no evidence that Ortiz overheard or participated in the conversation, nor that Ortiz was aware Vélez had multiple sclerosis.
Shortly thereafter, Ortiz, who was neither an SMA employee nor authorized to sell its insurance, arranged for Vélez to meet with Luis R. Montes, an SMA agent. There was no discussion of Vélez's condition at their meeting and Montes was not made aware of Vélez's "achaques" or the multiple sclerosis diagnosis.
Vélez represented on the SMA insurance application that he had not been diagnosed with, or received treatment for, any nerve disorder (viz., multiple sclerosis) during the preceding ten years. On November 24, 1986, SMA issued a disability-income insurance policy designating Vélez, as the insured.
In June of 1989, Vélez, claiming total disability, applied for benefits under the SMA policy. Based on the alleged material misstatement by Vélez in the insurance application, SMA refused to pay on the policy and refunded all premiums, with interest. Whereupon, Vélez brought the present action.
Following discovery, the parties filed cross-motions for summary judgment. Vélez contended that the two-year bar period for contesting the policy had expired, and, further, that SMA was estopped from contesting the policy based on Vélez's preexisting medical condition because Ortiz, allegedly SMA's agent, had known at the time the policy was issued that Vélez was suffering from multiple sclerosis. According to SMA, on the other hand, the incontestability clause tolled the two-year period while Vélez was disabled, Vélez became disabled less than two years after the policy went into effect and, therefore, SMA was still entitled to contest the policy.
The district court found for Vélez on the incontestability clause issue and two other liability theories. See Vélez Goméz v. SMA Life Assur. Co., 793 F.Supp. 378 (D.P.R. 1992). SMA appealed.
We review a grant of summary judgment de novo, employing the same criteria incumbent upon the district court in the first instance.
The Incontestability Clause.
Incontestability clauses set temporal limits on an insurer's right to challenge its insurance policy based on alleged misstatements in the insurance application. The SMA incontestability clause, a simplified version of the model contained in the Puerto Rico Insurance Code, see P.R.Laws Ann. tit. 26, § 1606 (1977), provides:
(Emphasis added.) The quoted parenthetical governs this case.
The district court found the parenthetical ambiguous as to "whether ... disability is determined from the time of actual physical disability, or ... from the time of the insurer's notice of disability." Vélez Goméz, 793 F.Supp. at 381 (emphasis added). On appeal, SMA contends that the district court improvised ambiguity where there was none.
The insurance policy is to be interpreted in accordance with Puerto Rico law recently surveyed by this court:
Nieves v. Intercontinental Life Ins. Co., 964 F.2d 60, 63 (1st Cir.1992). As a general matter, ordinary rules of construction apply to incontestability clauses. 1A J. Appleman, Insurance Law and Practice, § 311 at 313 (1981) (hereinafter Appleman); 18 G. Couch, Couch on Insurance 2d § 72:9 (rev. ed. 1983) (hereinafter Couch).
The first interpretive waymark, of course, is the language of the parenthetical tolling provision itself: "excluding any period during which you are disabled," where we find no ambiguity whatever. Rather, the parenthetical straightforwardly tolls the running of the two-year period for the duration of any disability commencing within it. When "the wording of the contract is explicit and its language is clear, its terms and conditions
Related provisions within the four corners of the policy likewise counsel a commonsense reading of the plain language of the tolling provision. First, the term "disability" is defined in the policy as "injury or sickness [that] makes you unable to engage in your regular occupation." Thus, the date of disability is the relevant tolling event. There is nothing to suggest that post-disability notification of the insurer is germane to the tolling inquiry. Second, our interpretation of the parenthetical in paragraph (a) comports precisely with the language in companion paragraph (b):
(Emphasis added.) The hand-and-glove fit between these coordinate provisions is completely undone by Vélez's interpretation.
The parenthetical is adapted from a standardized incontestability clause mandated by statute in at least forty-five states, the District of Columbia, and the U.S. Virgin Islands, in addition to Puerto Rico. We consider it significant that every other court that has considered the matter to date has arrived at the interpretation urged by SMA, and no court has suggested a notification requirement. See, e.g., Wischmeyer v. Paul Revere Life Ins. Co., 725 F.Supp. 995, 998 (S.D.Ind. 1989) ("This clause of the contract is plain and unambiguous.") (emphasis added); Bronson v. Washington Nat'l Ins. Co., 59 Ill.App.2d 253, 207 N.E.2d 172, 176 (1965) (Holding contestability period tolled at onset of insured's disability); Taylor v. Metropolitan Life Ins. Co., 106 N.H. 455, 214 A.2d 109, 114-15 (1965) (same); Standard Security Life Ins. Co. v. Klamer, 27 A.D.2d 656, 276 N.Y.S.2d 645, 646 (1967) (same); Union Mut. Life Ins. Co. v. Kevie, 13 A.D.2d 755, 215 N.Y.S.2d 298 (1961) (same).
An understanding of the origins and function of incontestability clauses likewise confirms the construction urged by SMA. In mandating a contractual period of repose on insurer challenges to disability-income insurance policies predicated on alleged misrepresentations in the insurance application, legislatures accommodate the interests of both insurers and insureds, based on two competing policies: promoting insurance security and deterring insurance fraud. See Appleman, § 311 at 305-306; see also Couch, § 72:16. Thus, after the contestability period has run, the insurer cannot withdraw insurance protection even though the insurance application contained misstatements. On the other hand, to better forfend against the occasional insured who would perpetrate fraud at the expense of insurers and their fellow insurance consumers, the contractual limitations period is tolled for the duration of any disability arising within the relatively brief contestability period following issuance of the policy.
The Date of Disability.
As an alternate basis for summary judgment, the district court specifically found that Vélez did not become disabled until March 1, 1989, more than two years after the policy was issued on November 24, 1986. Thus, even under our reading of the incontestability clause, SMA would be barred from asserting the present challenge.
The district court based its disability-date finding exclusively on a letter from IBM, stating that Vélez was employed from August 9, 1971 until March 1, 1989, when he went on
The Duty to Investigate.
As its third ground for summary judgment, the district court held SMA estopped from contesting the policy because (1) Ortiz knew of Vélez's multiple sclerosis before the policy issued; (2) Ortiz was SMA's agent; (3) Ortiz's knowledge is imputable to SMA; (4) Vélez's health problems would have prompted a reasonably prudent insurer to investigate Vélez's preexisting condition; and (5) SMA failed to investigate during the contestability period. Even assuming that the many subsidiary factual and legal elements in its conclusion were properly resolved under our summary judgment jurisprudence, the district court's conclusion cannot stand. Its thesis that SMA failed to meet its duty to investigate "during the contestability period" collapses in view of our determination, see supra at pp. 875-76, that the two-year contestability period was tolled by Vélez's intervening disability.
Further, the district court ruling falters on its impermissible factual premise that SMA was on notice of "certain medical conditions" which would have prompted a prudent insurer to investigate. Our summary judgment jurisprudence precludes judicial resolution of genuine issues of material fact. Goldman, 985 F.2d at 1116. No doubt what Ortiz knew about Vélez's medical condition, see supra at p. 874, may be hotly contested at trial. At the summary judgment stage, however, there is "no room for credibility determinations, no room for the measured weighing of conflicting evidence such as the trial process entails, no room for the judge to superimpose his own ideas of probability and likelihood (no matter how reasonable those ideas may be)...." Greenburg v. Puerto Rico Maritime Shipping Auth., 835 F.2d 932, 936 (1st Cir.1987). Drawing all reasonable inferences favorable to SMA, as we must, see Goldman, 985 F.2d at 1116, it is inconceivable to us that Vélez's wife's dinner-party comment about her husband's "achaques" ("aches and pains") reasonably could be considered conclusive evidence sufficient to require a prudent insurer to act on any general duty to investigate during the contestability period.
Given the plain language in the incontestability clause and the inconclusive state of the summary judgment record, the legal and factual grounds for holding that SMA violated a duty to investigate during the contestability period were untenable.
For the foregoing reasons, the judgment of the district court must be vacated and the case must be remanded for further proceedings.
P.R.Laws Ann. tit. 26, § 1606 (1977). Deviations from the Insurance Code model (e.g., SMA's use of a two-year, rather than a three-year, contestability period) are permitted provided they benefit the insured. Id. §§ 1113(2), 1604 (1977).
Wischmeyer, 725 F.Supp. at 1001-02.
Under the "notification" theory adopted below, however, a dishonest insured could frustrate this legislative intent completely, simply by waiting out the contestability period before submitting a claim. Thus, in our view the parenthetical clause clearly reflects the legislature's rejection of the "notification" theory, based on policy grounds well within its exclusive domain. Id. at 1004.