Royal was insured under a disability policy issued by New York Life Insurance Company to his business, Royal Commercial Refrigeration, the owner of the policy. Paul Revere Life Insurance Company later assumed the insurer's rights and obligations under the policy.
In February 2004, Royal submitted a claim for benefits alleging he had become totally disabled in June 2002, and he had returned to work part time in January 2003. Based on the proof of loss submitted, Paul Revere paid total disability and residual disability benefits from June 2002 through March 2006.
In May 2006, Paul Revere received a tip on its insurance fraud hotline from RCR's office manager. Based on surveillance of Royal and an audit of his company's business records, Paul Revere concluded that Royal had not been eligible for benefits under the policy. Paul Revere closed the claim in October 2006.
More than four years later, in November 2010, Royal filed suit to recover additional residual disability benefits under the policy, beginning April 1, 2006, and to recover a penalty and attorney's fees under Georgia's bad faith statute. Paul Revere filed a counterclaim for fraud, seeking to recover benefits previously paid to Royal.
The case was stayed pending the completion of a related criminal action against Royal for insurance fraud. The case was reopened in August 2013, after a jury acquitted Royal. During the interim, Royal attained age 65 in March 2012, and the policy's maximum benefit term ended.
In February 2014, during discovery, Royal for the first time provided proof of loss pertaining to the period for which he sought additional benefits, i.e., April 2006, through March 2012.
Defendants moved for summary judgment on several grounds. The federal district court granted summary judgment, concluding that Royal's claims for disability benefits from April 2006 through July 2007 were barred by the policy's three-year legal action provision, and that the rest of his claims were barred by the 90-day proof of loss provision.
The court's ruling centered on three policy provisions. The Proof of Disability or Loss provision provided that "[w]ritten proof must be given within 90 days after a period of disability ends or within 90 days after a loss occurs." The Legal Actions provision barred legal actions brought "after 3 years from the date proof [was] required to be given." And the Time of Payment of Claim provision stated that, "[s]ubject to proof of loss, payment for a covered disability will be made not later than every 30 days during the period of disability."
Although "proof of disability" was not defined in the policy, the court concluded the proof of loss provision, when read in conjunction with the payment provision, was unambiguous. "The only reasonable construction of the Proof of Disability or Loss provision that gives effect to the periodic payments provision is that proof was due within 90 days after any claimed 30-day loss period," the court said. "[B]ecause each 30-day period claimed represents a claimed loss, ... proof of loss for periodic benefits was due within 90 days of the end of any 30-day period for which Royal sought periodic payment under the Policy."
Based on its construction of the proof of loss provision, the court construed the legal actions provision to bar "suit upon any claim for which proof of loss was due more than three years before November 2, 2010, the day before Royal filed this lawsuit." Because "[p]roof of loss for a period ending on August 5, 2007, would have been due on November 3, 2007," i.e., three years and 90days before suit was filed, the court determined as a matter of law that Royal's claims from April 2006 through July 2007 were barred by the legal actions provision of the policy.
In construing the proof of loss provision, the court further held that the policy "unambiguously conditions payment of claims on the receipt of proof of loss." Without mentioning the proof of loss provided by Royal during discovery, the court stated: "The evidence clearly shows that Royal has not submitted proof of loss to Paul Revere since September 2006… Therefore, Defendants are entitled to summary judgment regarding all claims for benefits from September 2006 through March 2012."
Finally, the court denied Royal's motion for summary judgment on Paul Revere's counterclaim for fraud, finding a fact issue as to whether the four-year statute of limitations generally applicable to fraud was tolled under O.C.G.A. § 9-3-96, Georgia's tolling provision for fraudulent concealment of claims, and O.C.G.A. § 9-3-99, Georgia's tolling provision for torts arising from a crime.
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