The opinion of the court was delivered by: KAPLAN
LEWIS A. KAPLAN, District Judge.
Misstatements and omissions in insurance applications are a frequent source of controversy. Insurance carriers often and understandably seek to avoid liability on policies which they would not have underwritten, or for which they would have charged more, had the applications fully and accurately disclosed all of the material facts. But the equities in such cases do not invariably lie only with the insurance carriers. Inaccuracies and omissions often are the product of misunderstanding and faulty recollection rather than fraud. Whatever their source, the consequences of the loss of insurance coverage may be extremely serious and may be felt by blameless dependents and beneficiaries.
The State of New York has sought to strike a balance between the interests of carriers and policy holders in these circumstances. It requires insurance carriers to include in disability policies either (a) prescribed statutory language that permits use only of fraudulent misstatements to void a policy or deny benefits once the policy has been in effect for two years, or (b) language at least as favorable to the insured. Thus, the carrier may seek to avoid the contract on the ground of any misrepresentation within two years from its issuance but thereafter may do so only if it proves deliberate fraud.
The question presented by this motion is whether a policy that permits the carrier to seek to void the coverage at any time as long as it has notified the insured by letter that it "contest[s] . . . the validity of coverage . . ." within two years of the issuance of the policy complies with the statute. This Court holds that it does not.
Plaintiff moves to strike the insurer's first defense and dismiss its first counterclaim. The allegations of those pleadings therefore are accepted as true for purposes of the motion. In addition, the Court considers the full text of the insurance policy, plaintiff's policy application, and the insurer's letter, dated January 4, 1995, all of which are referred to and/or quoted extensively by the insurer in its answer.
Finally, the Court has considered defendant's evidence bearing on the approval of its policy form by the New York Superintendent of Insurance. The motion therefore is treated as one for partial summary judgment.
On November 19, 1993, plaintiff Elizabeth Burke signed a written application to defendant First UNUM Life Insurance Co. ("UNUM") for disability insurance. Shortly thereafter, UNUM issued the policy. (Ans. P 2) The policy contained the following provision relevant here:
" Time Limit on Certain Defenses. Except for fraudulent misstatements, we will not contest those statements made by you in the application for coverage provided under the policy after that coverage has been in effect for two years during your lifetime.
"'Contest' means that we question the validity of coverage under this policy by letter to you. This contest is effective on the date we mail the letter and refund the premium to you." (Ans. P 21)
The policy further provided:
" Conformity with State Statutes. If any provision of this policy conflicts with the statutes of the state where you reside on the effective date of that provision, it is amended to conform with the minimum requirements of those statutes." (Scherzer Aff. Ex. D, at 11)
The plaintiff allegedly became totally disabled within the meaning of the policy on or about December 14, 1993. (Cpt P 9) She thereafter filed a claim for benefits. (Id. P 10) On January 4, 1995, however, UNUM took the position, in a letter to plaintiff, that certain statements in her application concerning her medical history were false and that the undisclosed information was material to its issuance of the policy. It tendered a check purportedly representing a full refund of all premiums paid from inception, plus interest. It further stated:
"We hereby contest the validity of your policy and have decided to rescind it. The effect of a rescission is to restore both parties to the status quo before the policy was issued. You would be entitled to a refund of premiums paid from November 18, 1993. First UNUM would be entitled to the return of policy number LND265451 and it would become null and void from its inception. We have enclosed a check ...