Opinion
No. 04-CV-412 (ILG).
February 13, 2006
Kristen Michele Heine, Drinker, Biddle, Reath LLP, New York, NY, Counsel for the Plaintiff.
Peter Christoper Lomtevas Ozone Park, NY, Counsel for the Defendant.
MEMORANDUM AND ORDER
INTRODUCTION
Continental Assurance Co. ("Continental" or "plaintiff") seeks a declaratory judgment in this action against Lachmine Sanasee ("Ms. Sanasee"), Parandai Alli, and Vidhyarthi Dat. Continental issued a life insurance policy in Ms. Sanasee's name and seeks a declaration of the parties' respective rights and obligations under the contract. Specifically, plaintiff seeks an order declaring that the life insurance policy has lapsed and it has no obligation to refund premiums paid. Before the Court is plaintiff's motion for summary judgment.
JURISDICTION AND VENUE
Jurisdiction is properly asserted based upon28 U.S.C. § 1332. This controversy is between citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest in costs. Venue is proper pursuant to18 U.S.C. § 1391(a) because defendants all reside within the Eastern District of New York, and a substantial part of the events giving rise to the claim took place within this District.
Additionally, "[a] party seeking a declaratory judgment bears the burden of proving that the district court has jurisdiction. Jurisdiction exists only if there is an actual controversy, which has been defined as one that is real and substantial admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts." E.R. Squibb Sons, Inc. v. Lloyd's Companies, 241 F.3d 154, 177 (2d Cir. 2001) (internal citations omitted). Plaintiff has met this requirement. The parties dispute whether defendants' failure to pay premiums under the policy caused the Policy to lapse, and whether Continental has any obligation to refund the premiums previously paid under the policy.
FACTS
Plaintiff has presented the following facts as undisputed. On August 26, 1997, an application was completed for a $200,000 life insurance policy on the life of Lachmine Sanasee, requiring $1,000 monthly premiums. (56.1, ¶ 1, Pl. Ex. A). Lachmine Sanasee signed the application, attesting to and acknowledging the following:
In motion papers, defendants did not properly controvert any of the stated facts in plaintiff's 56.1 statement. As a result, those proposed facts are deemed admitted. Nonetheless, the Court has reviewed the record in its entirety to determine whether disputed facts remain that should prevent the granting of summary judgment. See Monahan v. New York City Dept. of Corrections, 214 F.3d 275, 292. (2d Cir. 2000) (noting that the trial court has "discretion to conduct an assiduous review of the record in an effort to weigh the propriety of granting a summary judgment motion.").
The proposed Insured(s) and the Applicant, if other than the Proposed Insured(s), agree that: (1) all statements and answers in this application are complete, true and correctly recorded to the best of my (our) knowledge and belief.
(56.1, ¶ 2). On October 12, 1997, Continental issued a life insurance policy with a face value of $600,000 on Ms. Sanasee's life, and planned periodic payments of $3,891.00 monthly. (56.1, ¶ 3). No application for the policy has been provided. 45 premium payments were made in the amount of $3,981 from August 1997 until February 2002 totaling approximately $150,000. Premiums due in February, March, and April 2002 were not paid, and Continental did not receive any premium payments after April 2002. (56.1, ¶ 4). On April 22, 2002, Continental sent Parandai Alli, the owner of the Policy, an insufficient fund notice at the last known post office address in Continental's files for Parandai Alli. (56.1, ¶ 5). On April 24, 2002, Continental sent Parandai Alli a pending lapse notice at the last known post office address in Continental's file for Parandai Alli, which conspicuously stated, * * * NOTICE OF PENDING LAPSE OF POLICY — IMMEDIATE ATTENTION REQUIRED * * *. (56.1, ¶ 6). On May 28, 2002, Continental sent Parandai Alli notice that the policy had lapsed. (56.1, ¶ 7). None of the aforementioned letters were returned to Continental by the post office as undeliverable. (56.1, ¶ 8).
The prospective named beneficiaries on the $200,000 policy application were Ms. Sanasee's daughters, Shanta Sanassie Dat and Parandai Sanassie Allie. (Id.). Approximately four months after the $600,000 policy issued, change of ownership and beneficiary forms were filed with Continental, reflecting Parnadai Alli as the new owner and Vidhyarthi Dat as the new primary beneficiary. (Pl. Ex. C). There is no reference on these documents to the value of the policy the ownership of which was transferred.
The Court also notes that shortly after oral argument on this motion, defendants filed an affidavit from Ms. Sanasee addressing plaintiff's proposed statements of fact, in which she asserted that she has been terribly ill for several months and, as a result, unable to return the phone calls of her attorney. (See Sanasse Aff. at 3). While the Court did not consider the additional statements and facts attested to in this affidavit in reaching its conclusion, it should be noted that in this affidavit Ms. Sanasee states that she never had any knowledge of the $600,000 policy, that her signature was forged on certain documents, that she was deceived by the agent who filled out the application on her behalf, that she believes that she has paid in full for a $200,000 policy, and that she never received any communications whatsoever, including the lapse notices, from Continental. (Id. at 1-2). These statements directly contradict plaintiff's characterization of the facts.
DISCUSSION
I. Standards
A. Declaratory Judgment Standards
The Declaratory Judgment Act, 28 U.S.C. § 2201, allows prospective defendants to sue to establish their nonliability.See Beacon Theatres v. Westover, 359 U.S. 500, 504 (1958). The decision to grant declaratory relief rests in the sound discretion of the district court. Paulsen v. Lehman, 839 F. Supp. 147, 157 (E.D.N.Y. 1993) (citing Christopher P. v. Marcus, 915 F.2d 794, 802 (2d Cir. 1990), cert. denied, 498 U.S. 1123 (1991)). A declaratory judgment is appropriate when it will serve a useful purpose in clarifying and settling the legal relations in issue. See Aetna Casualty Surety Co. v. Quarles, 92 F.2d 321 (4th Cir. 1937).
Continental seeks judgment as a potential defendant to establish that it has no legal obligation to return premiums paid on the Policy. This is not a coverage dispute, in which the burden of proof would be on the insured to establish that she was covered by the policy. See, e.g., Barker v. Goldberg, 705 F.Supp. 102 (E.D.N.Y.,1989) (citing Preferred Accident Ins. Co. v. Grasso, 186 F.2d 987 (2d Cir. 1951)). Rather, the burden of proof rests upon the plaintiff, as it generally would in a declaratory judgment action, to establish its entitlement to judgment as a matter of law. See, e.g., Thompson v. County of Franklin, 314 F.3d 79, 80 (2d Cir. 2002). A declaratory judgment would serve a useful purpose in settling the legal rights and obligations of the parties.
B. Summary Judgment Standards
Federal Rule of Civil Procedure 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "Summary judgment only is appropriate when the moving party has met its burden of production under Fed.R.Civ.P. 56(c) to show initially the absence of a genuine issue concerning any material fact. If the evidence adduced in support of the summary judgment motion does not meet this burden, summary judgment must be denied even if no opposing evidentiary matter is presented." Amaker v. Foley, 274 F.3d 677, 681 (2d Cir. 2001) (citing Adickes v. S.H. Kress Co., 398 U.S. 144 (1970)).
II. Applicable Law
In the absence of any alternate suggestion from the parties, New York State law applies to this dispute. See, e.g., Tri-State Employment Services, Inc. v. Mountbatten Sur. Co., Inc., 295 F.3d 256, 261 (2d Cir. 2002) (applying a "center of gravity" or "grouping of the contacts" approach to choice-of-law issues in contract cases.).
By statute, New York requires that the insured of a life insurance policy expressly approve in writing of any policy taken out on her life. New York Insurance Law § 3205(c) provides that "[n]o contract of insurance upon the person . . . shall be made or effectuated unless at or before the making of such contract the person insured, being of lawful age or competent to contract therefor, applies for or consents in writing to the making of the contract." NY Ins. L. § 3205(c). The failure to comply with Insurance Law § 3205(c) precludes a valid contract of insurance from ever coming into existence. See Choczner v. William Penn Life Ins. Co. of New York, 212 A.D.2d 750, 752 (N.Y.A.D. 1995) (forged signature renders contract void); See also McHugh v. Guardian Life Ins. Co. of America, 277 A.D.2d 1016 (N.Y.App.Div. 2000) (policy never came into existence where the application attached to the policy was not the application plaintiff signed).
In addition to the statutory writings requirement, the common law of contracts requires evidence of mutual assent before finding an enforceable agreement. To that end, "[t]he general rule is that an insurance application constitutes nothing more than an offer to the insurer, which it may accept or reject after determining whether an applicant is a desirable risk." Blumberg v. Paul Revere Life Ins. Co., 177 Misc.2d 680, 682 (N.Y.Sup. 1998) (citing Prudential Ins. Co. of Am. v. Snyder, 254 N.Y.S. 732, 739-740, aff'd 229 App. Div. 852, mot. for leave to appeal den. 23 App. Div. 812 (1930)). Where an insurance company issues an inconsistent Policy in response to the insured's offer, the issuance of the new Policy is treated as a counteroffer, requiring independent acceptance before it becomes an enforceable agreement. See Prudential, 254 N.Y.S. 732 at 739.
At common law, some contracts which would otherwise be unenforceable may nonetheless be enforced under a theory of either ratification or partial performance. The essence of ratification is the principal's subsequent acceptance of the unauthorized acts of a third party:
Ratification is the express or implied adoption of the acts of another by one for whom the other assumes to be acting, but without authority . . . The act of ratification, whether express or implied, must be performed with full knowledge of the material facts relating to the transaction, and the assent must be clearly established and may not be inferred from doubtful or equivocal acts or language.Holm v. C.M.P. Sheet Metal, Inc. 89 A.D.2d 229, 233, 455 N.Y.S.2d 429, 432 (N.Y.App.Div. 1982). Partial performance is an equitable doctrine that allows for the enforcement of a contract, despite the parties' failure to satisfy a statute of frauds, where one party has allowed the other party to perform in reliance upon the agreement. See Messner Vetere Berger McNamee Schmetterer Euro RSCG Inc. v. Aegis Group PLC, 93 N.Y.2d 229, 235 (N.Y. 1999). Under New York jurisprudence, "it is the conduct of the entity seeking to enforce the oral agreement, and its detrimental reliance on the agreement, that makes proper the invocation of equitable principles." Id. at 236.
By statute, New York allows "courts of equity to compel the specific performance of [real estate] agreements in cases of part performance." McKinney's Gen. Obligations Law § 5-703. See also Messner, 93 N.Y.2d at 235. It has been observed that Messner "held that the doctrine of part performance is only applicable to conveyances and contracts for real property . . . [but] lower courts have still continued to discuss the application of the doctrine of part performance to these other contracts." 61 N.Y. Jur. 2d, Frauds, Statute of § 257 (2005). The Court considers the doctrine only because it was raised by plaintiff, and finding it inapplicable, takes no position on the continued vitality of the part performance doctrine to contracts other than contracts for real estate.
III. Whether Plaintiff is Entitled to Summary Judgment
Continental has provided no evidence of either a signed written application or signed written consent from Ms. Sanasee for the $600,000 life insurance policy. This documentary absence precludes the Court, under NY Ins. L. § 3205(c),from finding an enforceable contract for a $600,000 policy. There is a strange absence of any evidence upon which the subsequent issuance of a $600,000 face value policy was issued, nor is there any evidence upon which even an inference could be drawn that Ms. Sanasee was aware that the $600,000 policy was issued. Possible explanations would be purely speculative. Among them are that the payment of premiums due on a $600,000 policy might have been made by others than Ms. Sanasee herself, and without her knowledge. There might have been misconduct on the part of the insurance agent who sold Ms. Sanasee the $200,000 policy for which she properly applied, and from whom there is nothing in the record on the issue of the discrepancy. There may have been a clerical or administrative error on the part of the plaintiff.
In the absence of a signed written application or consent, the Court cannot declare that the $600,000 policy contract was ratified by the subsequent premium payments, even though those payments were consistent with a $600,000 policy. To substantiate its claim of ratification, plaintiff directs the Court's attention to two matrimonial cases, Osbourne v. Osbourne, 144 A.D.2d 350 (N.Y.A.D. 1988) and Scheindlin v. Scheindlin, 88 A.D.2d 930 (N.Y.A.D. 1982), which collectively stand for the principle that in a divorce action, a party may ratify a signed written separation agreement, either unreasonable or entered into out of duress, by acquiescing to its terms for a period of years. Those cases are inapposite. Among the many distinctions in this case, there is no evidence of a pre-existing written application for a $600,000 insurance policy.
For ratification to have occurred in this case, there must have been an application for the $600,000 policy, signed by a third-party ostensibly with Ms. Sanasee's authority. Continental has provided no such document. Even assuming, arguendo, that the Policy or ownership and beneficiary transfer documents could somehow satisfy that requirement, Continental would then need to provide evidence that Ms. Sanasee knew the $600,000 policy was ultimately issued. The fact that premium payments were made totaling approximately $150,000 does not establish that Ms. Sanasee actually knew about the increased Policy value. There is no evidence that she personally made those payments, as opposed to either of the other defendants, who as owners and beneficiaries would have had equal or greater motivation to make the payments, though no legal right to enter into the contract. Even if it were established that Ms. Sanasee personally made the payments, it would not necessarily follow that those payments were made in contemplation of the changed Policy value, rather than, for example, a desire to accelerate payments on a $200,000 policy or because she believed, for whatever reason, that she was obligated to make them. Ms. Sanasee's knowledge of the Policy value is a material issue of fact unascertainable from the record, and far too obscure to meet the "clearly established" standard for ratification.
The Policy is not signed by Ms. Sanasee, and the transfer documents do not indicate the value of the Policy. Thus, the extent to which those documents evidence her intent to enter into a contract for a $600,000 policy is nil.
Neither does the doctrine of partial performance provide the Court with a basis for estopping Ms. Sanasee from denying the contract's existence. First, the doctrine of partial performance assumes that there was an agreement, albeit unenforceable, between the parties. This simply begs the question of whether the parties in this case ever agreed to a contract. Second, Continental suggests that the previously made premium payments provide the basis for its assertion of estoppel against Ms. Sanasee. This is not in accordance with New York jurisprudence which requires a party to identify its own actions as the basis for finding partial performance. And finally, in response to the anticipated argument that Continental made partial performance in the form of inchoate coverage on the life of Ms. Sanasee while the premiums were paid, a distinguishing element of partial performance is the detrimental reliance of the party who seeks estoppel. Continental has not alleged, nor could it, that its position has been worsened by collecting nearly $150,000 of premium payments which it seeks to keep on a questionable policy it alleges is now lapsed. The equitable doctrine simply does not apply here.
In the end, Continental rests its legal argument for judgment as a matter of law solely on evidence that it took the formally appropriate notification procedures in lapsing the policy. The Court, however, may not even reach the question of whether those actions were appropriate. Because Continental has not provided any evidence that Ms. Sanasee either applied for or consented in writing to the contract at issue, NY Ins. L. § 3205(c) clearly prohibits this Court from giving effect to the Policy.
It should be noted that New York Insurance Law § 3205 (c) has an important policy purpose. Whether or not they are present in this case, fraud and chicanery are role players in the theater of life insurance. See, e.g., Hechter v. New York Life Ins. Co., 46 N.Y.2d 34 (1978) (attorney forged widow's signature on life insurance checks and deposited them in his own account);New York Life Ins. Co. v. Manning, 156 App. Div 818, aff'd without op. 213 N.Y. 665 (1913) (agent fraudulently obtained signatures on an application, and improperly obtained a written assignment of a policy from the insured). The attempt to prevent malfeasance by requiring an insured's written acknowledgment, before her death produces a financial benefit to a third party, is best served by strict enforcement of the statutory requirements. And the insurer is the party best positioned to ensure the statutory requirements are met. Material issues of fact abound and the plaintiff's motion must therefore be denied.
SO ORDERED.