Certification From the United States District Court for Western District of Washington v. Mitchell

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CERTIFICATION FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON IN NEW YORK LIFE INSURANCE COMPANY, Plaintiff, v. SIMON R. MITCHELL, Defendant.

No. 100314-5

Supreme Court of Washington, En Banc

May 11, 2023

STEPHENS, J.

Washington law requires group life insurance policies to have an incontestability clause providing that "the validity of the policy shall not be contested, except for nonpayment of premiums, after it has been in force for two years from its date of issue." RCW 48.24.120. The certified question in this case asks us whether an insurer may seek to invalidate a life insurance policy after this two-year period on the basis that the policies were void ab initio-meaning they were never "in force." Id.

New York Life Insurance (NY Life) issued two life insurance policies to Lorenzo Mitchell, and those policies named his nephew, Simon Mitchell, as the sole beneficiary. Lorenzo died more than two years after the policies were issued, and Simon sought to collect on the policies.^[1] NY Life became aware that Lorenzo had Down syndrome and lived with significant intellectual disabilities. These facts raised questions about the circumstances under which the policies were issued. NY Life sued Simon in the United States District Court for the Western District of Washington, seeking declaratory relief that the policies were void ab initio under three possible theories: imposter fraud, incapacity, and lack of an insurable interest. Simon countered that the incontestability provision barred such a challenge to the policies. Finding no controlling Washington authority, the federal district court certified the following question to this court:

Washington requires group life-insurance policies to include a clause that the policy may not be contested, except for nonpayment of premiums, after it has been in force for two years. Wash. Rev. Code § 48.24.120. If a policy contains such an incontestability clause and those two years have passed, can an insurer nevertheless obtain a declaratory judgment that the policy is void because (1) it was obtained by fraud by an imposter of the insured; (2) the insured lacked capacity to enter into a contract at the time it was purportedly made; or (3) the named beneficiary lacks an insurable interest in the life of the insured?

Ord. Certifying Question, No. C21-141-MJP at 1-2 (W.D. Wash. Oct. 20, 2021).

We answer the first and third parts of the certified question in the affirmative and conclude the incontestability provision does not bar those claims. However, we answer the second part of the certified question in the negative. Claims rooted in contract formation principles implicate Washington's statutory requirements for entering into life insurance contracts, and those requirements must be read alongside the incontestability statute. NY Life's first and third claims, if proved, would show that the policies were void ab initio and that no insurance contract was ever formed with Lorenzo. Because the incontestability provision cannot be read as creating an enforceable contract that did not otherwise exist, we hold that NY Life's first and third claims are not barred by that provision. In contrast lack of capacity does not, on its own, render an insurance contract void; it renders it at most voidable. Because a voidable contract is not void ab initio, we hold the incontestability provision bars NY Life's second claim.

FACTS AND PROCEDURAL HISTORY

In May 2015, in response to an offer for group life insurance to American Association of Retired Persons members, NY Life received two applications purportedly signed by Lorenzo, each requesting $100,000 of coverage. Both applications listed Simon as the sole beneficiary of the policies. Lorenzo also apparently signed a request for a rider on the second life insurance policy.

NY Life issued both policies the next month with the requested $100,000 coverage, showing Simon as the sole beneficiary. Both policies included the following incontestability clause as required by RCW 48.24.120:

Except for nonpayment of PREMIUMS, WE cannot contest the validity of the insurance or reinstated insurance after it has been in force for two years during the INSURED's lifetime from: (1) the INSURANCE DATE, and (2) the date the insurance is reinstated, if applicable. To contest, WE will only rely upon statements signed by the OWNER in applying for such insurance. A copy of all statements must be furnished to the OWNER or to the beneficiary. Such statements are representations, not warranties.

Fed. Dist. Ct. Doc. (Doc.) 20-1, at 3, 7 (similar language). Both policies defined the "insurance date" as "the date that insurance under the POLICY takes effect subject to the PREMIUM being paid." Id. at 4, 8 (similar language). NY Life also issued the requested rider of $12,500 in September 2017. Simon was a joint signatory on Lorenzo's bank account and had made the premium payments for the policy from Lorenzo's account.

Lorenzo died on January 2, 2019. His death certificate lists his cause of death as arrhythmia and Down syndrome. Simon submitted a claim to NY Life to collect on the benefits. Because Lorenzo died within two years of the issuance of the rider, NY Life opened an investigation into the claims and asked Simon if there had been a power of attorney or a guardian for Lorenzo. Simon told NY Life that his grandmother signed the life insurance policies for Lorenzo and that she had a medical power of attorney. But NY Life never received any power of attorney documents, and it is now undisputed that none of Lorenzo's family members ever became his guardian or had power of attorney. Simon later told NY Life that Lorenzo could care for himself. Lorenzo's sister, Eunice Mitchell, submitted a declaration stating that she witnessed Lorenzo sign the insurance applications: "Lorenzo Mitchell did not require assistance, a Power of Attorney was not necessary." Doc. 26-13, at 4.

Simon also signed a release allowing NY Life to obtain Lorenzo's medical records. The records show that Lorenzo was diagnosed with Down syndrome when he was a child. Notes from Lorenzo's health exams describe him as "essentially non-communicative," Doc. 26-4, at 7, although he could "communicate some basic needs." Doc. 26-6, at 4. Lorenzo could answer "yes and no to questions [,] but it does not appear that he knows what is being asked." Doc. 26-7, at 3; see also Doc. 26-3, at 2 ("He is not very verbal but is communicative by pointing, using minimal words, and understands conversation to a limited exten[t] (knows when questioned about food and drink, but not his age and location, for example)."). Records also show that Lorenzo's family communicated his medical, social, and family history for him during exams.

Based on information about Lorenzo's condition, NY Life denied Simon's claim for payment on the policies. NY Life concluded that Lorenzo "would not have been able to complete the application for life insurance coverage independently or that he would [not] have had the mental capacity to enter a binding contract." Doc. 22-1, at 47. It also claimed that the policies appeared to be "fraudulently purchased" and that "the information indicates that individuals contacted New York Life and obtained information fraudulently by identifying themselves as the Insured." Id. at 46, 47. After refusing to pay on the policies, NY Life refunded all premiums; however, Simon has not cashed those refund checks.

Following NY Life's denial of payment, Simon obtained legal representation, and his attorney asked NY Life for files related to the policies. After reviewing the information NY Life sent, Simon's attorney signed a declaration stating, "I saw no notes, letters, or any other indication showing that NY Life conducted any investigation before Lorenzo Mitchell's death, whether into his health history, his relationship with Simon R. Mitchell, or the circumstances surrounding the policy applications." Doc. 20, at 2.

In February 2021, NY Life sued Simon in the United States District Court for the Western District of Washington, requesting declaratory relief that the policies were unenforceable and void under three theories: (1) Simon lacked an insurable interest in Lorenzo's life, (2) the life insurance policies were obtained by fraud through someone posing as Lorenzo, and (3) Lorenzo lacked the capacity to enter into a life insurance contract. Simon moved for summary judgment dismissal of NY Life's claims based on the incontestability statute. NY Life opposed that motion but noted that whether the incontestability provision applies to bar claims that the life insurance contracts are void ab initio presents an issue of "first impression in Washington." Doc. 25, at 2. Simon moved to certify the question of whether the incontestability provision bars NY Life's claims to this court, and the federal district court granted Simon's motion.

ANALYSIS

We review certified questions de novo. Allen v Dameron, 187 Wn.2d 692, 701, 389 P.3d 487 (2017). This case asks us to interpret the incontestability provision required in group life insurance contracts, RCW 48.24.120, as well as related insurance statutes regarding the prerequisites for forming a life insurance contract, RCW 48.18.030(1), .060. These issues of statutory interpretation are also subject to de novo review. Jametsky v. Olsen, 179 Wn.2d 756, 761, 317 P.3d 1003 (2014).

The goal of statutory interpretation is to carry out the legislature's intent, and we begin with the plain language of the statute. Id. at 762. "This plain meaning is derived from the context of the entire act as well as any 'related statutes which disclose legislative intent about the provision in question.'" Id. (quoting Dep't of Ecology v. Campbell &...