The opinion of the court was delivered by: EUGENE F. LYNCH
This case raises the issue of whether an insurance policy may be effectively rescinded if the insurer takes the requisite steps under Cal. Civ. Code section 1691, governing the requirements for effecting rescission of a contract, where the insurance policy contains an "incontestability clause." However, because the parties failed to stipulate whether the contested rescission took place during the contestability period or after its expiration, and it is not clear whether that fact is disputed, the Court may only decide certain of the issues.
The parties do not dispute that on October 14, 1988, Connecticut Mutual Life Insurance Company ("Connecticut Mutual"), the defendant, issued a disability policy to Robert Harrison, the plaintiff. The policy contains a provision, colloquially known as an "incontestability clause," that provides, in pertinent part:
Contesting Your Policy. We [Connecticut Mutual] may not contest this policy after it has been in force for 2 years during your lifetime. This excludes any period of disability related to a misrepresentation in your application.
If no time was excluded for "any period of disability related to a misrepresentation," the policy would have become incontestable on October 14, 1990.
The parties also do not dispute that plaintiff became totally disabled with Acquired Immune Deficiency Syndrome on September 1, 1990. Plaintiff asserts that he filed a claim for disability benefits under the policy on or about November 8, 1990, but defendant claims that it was not received by the insurer until early December of 1990. On March 14, 1991, defendant sent a letter of rescission and tendered a check for all premiums paid to the plaintiff.
Plaintiff seeks summary adjudication of a cause of action for breach of contract due to defendant's alleged failure to pay disability benefits under the contract after plaintiff's benefit claims were filed. Plaintiff's basis is that "the insurance policy at issue is and has been incontestable as a matter of law." (Emphasis added.) Plaintiff's argument that the policy is incontestable appears to have three bases: (1) the disputed rescission of March, 1991 was not a "contest" within the meaning of the incontestability clause, and therefore was ineffective; (2) California Insurance Code section 650 precludes defendant from attempting to rescind now that plaintiff has commenced an action on the insurance policy; and (3) while defendant plead rescission as a defense to the action, it did not plead fraud or misrepresentation, and thus defendant is barred from pleading any of those defenses and cannot defeat the breach of contract claims.
One threshold issue which was submerged beneath the issue of rescission was whether the contestability period expired in October 1990, before the attempted rescission, or whether it was tolled by a disability related to misrepresentations in the application, in September 1990, and therefore has not yet expired.
It would appear clear that if the attempted rescission took place after the expiration of the contestability period, it was ineffective. "The word 'incontestable,' as used in policies providing that they shall become incontestable, means indisputable, and amounts to a guaranty that no objection shall be taken to defeat the policy . . . ." Couch, Couch on Insurance 2d (Rev. ed., 1983) § 72:1. Once a policy becomes incontestable, an insurer cannot contest the validity of a policy even by bringing suit in a court of law. It is the Court's view that, a fortiori, the insurer would be barred from unilateral rescission of the insurance contract pursuant to California Civil Code section 1691.
Alternatively, it seems clear that if the attempted rescission occurred prior to the expiration of the contestability period, i.e., if the contestability period has not expired because plaintiff's disability as of September 1, 1990 relates to misrepresentation in the his application, then the attempted rescission of the policy was effective pursuant to the pertinent case law and Cal. Civ. Code section 1691. Even assuming a letter of rescission and tender of premiums is ...