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Leach v. Northwestern Mutual Insurance Co.

December 22, 2005


The opinion of the court was delivered by: Cohill, D.J.


Plaintiff Mark J. Leach has filed this action against Northwestern Mutual Insurance Company ("Northwestern" or the "insurer"), seeking payments under a disability insurance policy (the "Policy") issued by the defendant. Leach alleges breach of contract, bad faith under 42 Pa.C.S. § 8371, and deceptive business practices in violation of 73 Pa.C.S.A. § 201-1 et seq.

Northwestern has filed a counterclaim for damages for breach of contract, unjust enrichment, misrepresentation, and fraud.

We have jurisdiction under 28 U.S.C. § 1332, the federal diversity statute. Plaintiff is a resident of the Commonwealth of Pennsylvania, and Northwestern has its principal place of business in Milwaukee, Wisconsin and is incorporated in that state. The amount in controversy exceeds $75,000.00. In exercising diversity jurisdiction, this Court must apply the substantive law of the state in which it sits. Bensalem Township v. Int'l Surplus Lines Ins. Co., 38 F.3d 1303, 1308 (3d Cir.1994). Neither party disputes that Pennsylvania law applies.

Before the Court are motions for summary judgment filed by both parties (Doc. 17 and Doc. 19), seeking a determination of liability, with accompanying briefs, briefs in opposition, replies, and appendices. Having now considered the parties' arguments and the applicable law, for the reasons set forth below we will deny plaintiff's motion in its entirety, and grant defendant's motion in part and deny it in part. Plaintiff's breach of contract claim and all five counts of defendant's counterclaim may proceed to trial by jury.

I. Background

Plaintiff Mark Leach purchased disability insurance policy No. D 558 603 from defendant Northwestern on October 2, 1987. (Def.'s Ex. 1). At that time, Leach was the principal owner and CEO of M&K Electrical Company, which performed commercial electrical work and had approximately 100 employees. When asked about his duties as company president of M & K Electrical on his policy application, plaintiff stated that he spent 100% of his time "Running & Planning & Analysis. Operations Proposals of Bus. Operations." (Def.'s Ex. 3).

The Policy provides for benefits when the insured is totally or partially disabled. Total disability is defined as follows:

Until the end of the Initial Period, the Insured is totally disabled when he is unable to perform the principal duties of his occupation. After the Initial Period, the Insured is totally disabled when he is unable to perform the principal duties of his occupation and is not gainfully employed in any occupation. (Def.'s Ex 2 (the "Policy"), Section 1.2).

The Policy provides for a proportionate benefit for partial disability. An insured is partially disabled when:

a. he is unable: to perform one or more of the principal duties of his occupation; or to spend as much time at his occupation as he did before the disability started; and,

b. he has at least a 20% Loss of Earned Income. (Policy, Section 1.3).

The plaintiff does not claim partial disability. (Pl.'s Dep. at 321).

The Policy provides that Northwestern may have the insured examined by a physician of its choice as often as reasonably necessary in connection with a claim. (Policy, Section 4.2).

Leach suffered a heart attack in May 1991, and began receiving disability payments under the Policy that September.

Written proof of disability must be given within 90 days of the end of each monthly period for which benefits are claimed. (Policy, Section 4.3). Plaintiff signed and submitted a Request for Continuance of Disability Benefits each month, which included the following verification: "I declare that all of the above answers are complete and true to the best of my knowledge and belief. I understand that the company reserves the right to require further proof." (Request for Continuance forms Def.'s Ex. 8-20).

The forms stated that Leach was prevented from working due to various medical or psychological conditions: fatigue, exhaustion, continuous pain, advice of his physicians, inability to concentrate, and a muscle condition. The forms further stated that the plaintiff had not performed any work of any kind at his prior occupation or at any other occupation. Leanne Pomponio was a secretary for M & K Electrical and M & K Construction Group. Between 1995 and 1997, Pomponio typed up the Request for Continuance forms using information Leach provided. (Pomponio Dep. Def.'s Ex. 7 at 62-70). Pomponio testified that these statements were not accurate, since Leach was doing some work at his former occupation. (Pomponio Dep. Def.'s Ex. 7 at 62-70).

Northwestern paid the plaintiff disability benefits under the Policy for nearly ten years.

In mid-1998, Northwestern began a review of the plaintiff's claim. Diane Pautz was the claim administrator. During the investigation into Leach's claim, the insurer analyzed the information provided on Leach's Request for Continuance of Disability Benefits forms; his medical records, including reports from various physicians and independent medical examinations; updated limitations and restrictions on his activities; his financial records; and confirmation of his daily activities. ( Compl. Ex. A). Northwestern reviewed medical records from Leach's own treating physicians, including Frederick W. Crock, M.D., his cardiologist; Dr. Pellegrini; Thomas L. Ulciny, M.D., Ronald G. Cercone, M.D.; Omar I. Bhutta, M.D., his psychiatrist; Neil A. Busis, M.D., his neurologist; L. Alan Wright, M.D., his psychiatrist; Barbara A. Shapiro, M.D.; Mary Ann Miknevich, M.D.; James J. McCague, M.D.; Theodore R. Gelet, M.D.; and, Catherine D. Ravella, R.N., his therapist. Plaintiff was examined or his medical records were reviewed by the following consulting physicians and independent medical examiners: Michael J. Logan, M.D.; Jill F. Mocarski, M.D.; Gerald Goldstein, Ph.D., a neuropsychologist who tested Leach but did not physically examine him; Stuart L. Silverman, M.D., who performed an independent neurological examination; Robert M. Wettstein, M.D, who performed an independent psychiatric examination; Theodore Million, Ph.D.; and Sara Swanson, Ph.D.

As part of its investigation into Leach's disability claim, Northwestern retained Tracy L. Coenen, S.C., a certified public accountant, to determine the plaintiff's business ownership and involvement. (Def.'s Ex. 4). Among other business interests, in 1998 Leach became an owner and partner in the Monterey Marina, Restaurant & Lounge in Monongahela, Pennsylvania ("the Marina"). At the same time, he became the third shareholder in two separate corporations: Jay-Will Corporation and Kasko Enterprises, Inc. He also formed a corporation called Global Marine to construct new boat docks at the Marina. (Kasko Dep. at 21, 88, 46, 48).

Leach himself testified that he was a paid consultant for M & K Electric after leaving the company. (Leach Dep. at 300-303). Thereafter, he consulted on electrical contracts for M & K Construction, including reviewing bids, contract documents, and design blueprints. (Leach Dep. at 323-327). Some of the Request for Disability forms he submitted in 2000 and 2001 state that he was consulting at M & K Construction, and being paid $1,000.00 a month. (See, e.g. Def.'s Ex. 17, Request form 1-2-01, consulted for 1-2 hours, financial statement shows payment of $1,000.00; Ex. 19, Request form 11-2-00, consulted once a week, financial statement shows payment of $1,000.00; similar pattern shown in Ex. 20 for July and August of 2000). He also developed a mortgage purchasing business which was ultimately unsuccessful. (Leach Dep. at 298-299). Plaintiff's therapist, Dr. Ravella, testified that he stated in June of 1993 that he was working twenty hours a week in the mortgage business, and Leach does not dispute this statement. (Leach Dep. at 311-313).

Northwestern also had surveillance conducted regarding Leach's daily activities as part of its investigation. (Def.'s Ex. 61-63).

Additionally, Northwestern interviewed the plaintiff and some of his former co-workers on several occasions. Those interviewed included Denise McHugh, a Monterey Marina employee, who told investigators that Leach was at the Marina seven days a week; he would arrive by eight or nine a.m. and stay until late at night or early the next morning. McHugh stated that he was "very active" in the hiring and firing of employees, and had total control of the business' books. (Def.'s Ex. 63). John Kasko, a co-owner of the Monterey Marina, told Northwestern's investigators that Leach made changes in the staff and created plans for expanding the restaurant and marina. He also stated that Leach was at the Marina from morning till night, and that he continued to run M & K Electric; his secretaries would bring papers to sign to him at the Marina, and he met with M & K employees on a regular basis. (Def.'s Ex. 64; Kasko Dep. at 31, 60-61).

Following this investigation, the insurer stopped paying disability benefits in April 2001. Moreover, Northwestern demanded that it be reimbursed in the amount of $219,271.60 for benefits paid since September of 1998, including monthly disability benefits and premiums that had been waived on other policies. (Compl. ¶¶ 9, 10). Diane Pautz used records showing Leach's involvement in the expansion of the Marina to determine the date from and after which Northwestern concluded that the plaintiff was not disabled.

Plaintiff filed this action to recover benefits under the Policy. Leach alleges breach of contract, bad faith under 42 Pa.C.S. § 8371, and deceptive business practices in violation of 73 Pa.C.S.A. § 201-1 et seq.

Northwestern has filed a counterclaim for damages for breach of contract, unjust enrichment, misrepresentation, and fraud. It further seeks a judgment that two other policies issued to the plaintiff lapsed as of May 2, 2001, and that Leach was not disabled under those policies from September 1998. These are the Additional Purchase Benefit Rider, Policy No. D837021, which issued on August 21, 1991 (Def.'s Ex. 74), and a Disability Insurance Policy No. D558603 (Def.'s Ex. 75). Northwestern waived the premiums on these policies while paying disability under Policy No. D 558 603. On April 2, 2001, Dianne Pautz notified the plaintiff that he must reimburse the insurer for the amount of the waived premiums, and that the policies would lapse if the amount was not paid. Plaintiff did not make any payment. (Counterclaim at ¶¶53, 54).

Both parties have filed motions for summary judgment as to all claims.

II. Summary Judgment Standard

Summary judgment is proper where there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Childers v. Joseph, 842 F.2d 689 (3d Cir. 1989). "Rule 56 mandates the entry of summary judgment, after adequate time for discovery and upon motion, against the party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). An issue is "genuine" only if there is sufficient evidentiary basis on which a reasonable jury could find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). A factual dispute is "material" only if it might affect the outcome of the suit under governing law. Id. at 248.

A court considering summary judgment must examine the entire record in the light most favorable to the nonmoving party, and draw all reasonable inferences in its favor. Anderson, 477 U.S. at 248. The court must not engage in credibility determinations at the summary judgment stage. Simpson v. Kay Jewelers, Div. of Sterling, Inc., 142 F.3d 639, 643 n. 3 (3d Cir. 1998) (quoting Fuentes v. Perskie, 32 F.3d 759, 762 n. 1 (3d Cir. 1994)).

The moving party bears the initial responsibility for demonstrating the absence of a genuine issue of material fact. Celotex, 477 U.S. at 325. This burden may be met by showing that there is an absence of evidence in the record to support the non-moving party's case. Id. at 325. However, once the moving party has properly supported its motion, the opponent must provide some evidence that a question of material fact remains for trial. Matushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). To meet this burden, the non-moving party may not rest upon mere allegations, general denials, or vague statements. Bixler v. Central Penn. Teamsters Health & Welfare Fund, 12 F.3d 1292 (3d Cir. 1993). The party opposing summary judgment must "do more than simply show that there is some metaphysical doubt as to the material facts." Matushita, 475 U.S. at 486. To defeat summary judgment, the non-moving party must respond with facts of record that contradict the facts identified by the movant. Celotex, 477 U.S. at 321 n. 3. The non-moving party must demonstrate the existence of evidence that would support a jury finding in its favor. Anderson, 477 U.S. at 248-49. In other words, the non-moving party must go beyond the pleadings and show, through its own affidavits or by the depositions, answers to interrogatories and admissions on file, the specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324.

III. Analysis

At the heart of this case is whether the plaintiff qualified for benefits because he was totally disabled as defined in the Policy. Therefore, before considering the specific arguments presented by the parties' respective motions for summary judgment we must determine the time frame for the Initial Period of the Policy, because the Policy definition of "total disability" changes after that period ends. Interpretation of an insurance contract is generally a question of law for the court to decide. Standard Venetian Blind Co. v. American Empire Ins., 469 A.2d 563, 566 (Pa. 1983).

The Policy provides that for the first 60 months, a claimant is considered "totally disabled when he is unable to perform the principal duties of his occupation." After this Initial Period has run, an insured will be considered totally disabled only if he is "unable to perform the principal duties of his occupation and is ...

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