Disability Policy Claim Denial

Dallas insurance lawyers who handle disability policy’s need to be aware of an opinion from the United States District Court, Houston Division. The style of the case is, Fernandez v. Mutual of Omaha Ins. Co. Here is the relevant information.
The cross-motions for summary judgment in this disability insurance dispute raise one legal issue: whether the statute of limitations bars the plaintiff’s causes of action. The answer depends on when the limitations periods began to run. If the defendant insurer’s July 27, 2009 letter to the plaintiff insured legally denied the claim, then, as the plaintiff concedes in his brief, all his causes of action are barred. If, as the plaintiff contends, the July 27, 2009 letter did not legally deny the claim, the causes of action alleged did not accrue until the policy terminated when he became 65, and the action is timely filed.
Based on the undisputed facts in the summary-judgment record, the July 27, 2009 letter repeating an earlier letter stating that the plaintiff’s benefits claim was “inactive,” legally denied the claim. The statutory and extracontractual claims had to be brought by July 27, 2011. The breach of contract claim, subject to a three-year contractual-limitations period, had to be brought by July 27, 2012. Fernandez filed this suit on September 30, 2013, well after all limitations periods had expired.
Aetna Life Insurance Company issued a “Non-Cancellable and Guaranteed Continuable Disability Income Policy” to Fernandez, effective on October 28, 1981. The policy was later assigned to Mutual of Omaha, the defendant in this suit.
Retinitis pigmentosa caused Fernandez to lose his eyesight. He became disabled in 1984 and submitted his claim for total disability on May 9, 1984. He received monthly long-term disability benefits under his insurance policy.
The policy required written proof of loss for payment of benefits. “For a monthly benefit, the proof must be given within 90 days after the period for which [the insurer] is liable.” “For any other benefit, the proof must be given to [the insurer] within 90 days after the loss occurs…. In any case, the proof must be given within 15 months after the loss occurs, unless there is a lack of legal capacity.” The policy specified a limitations period of “3 years after the date proof of loss was required.” The policy stated that if state law made the three-year limitations period too short, the period would be “the shortest limit allowed by law.”
Fernandez received $1,000monthly payments from1984 to 2007. He submitted his medical records on a “periodic” basis as proof of his loss. On June 8, 1992, Mutual of Omaha informed Fernandez that “beginning immediately, both you and your doctor will be required to complete a proof form only once a year. When a proof form is needed, we will notify you at least 30 days in advance and supply you with the necessary form at that time to be completed by you and your doctor.” The letter told Fernandez that he would automatically receive his monthly payments on approximately the same date each month as long as he qualified for the benefits.
Until March 23, 2006, Fernandez timely responded to Mutual of Omaha’s requests for proof of continuing disability by submitting “Continuance of Disability”–“COD”–forms when asked to do so. The CODs in the record indicated that a physician had last treated Fernandez for his eye condition in January 2003. Sometime after March 23, 2006, Fernandez authorized his sons and wife to discuss his policy with the insurance company. The March 2006 COD was the last one that Fernandez or his authorized representatives submitted.
On May 8, 2009, Mutual of Omaha sent Fernandez a letter telling him that it required an updated COD form. The letter stated:
To date we have not received the completed form. Please have the form completed and returned so this claim for benefits can continue to be processed.
If we do not receive the completed form within 30 days, this claim will be placed on inactive status until the completed form is received.
On June 23, 2009, after the policy was put on inactive status, Mutual of Omaha contacted Danny Fernandez to inform him that no additional benefits could be paid until Mario Fernandez and his doctor completed a COD form verifying Fernandez’s condition and stating that he was receiving treatment for his disability. No COD form was received.
On July 27, 2009, after communicating to Fernandez’s representative that no additional payments could be paid until it received a COD form, Mutual of Omaha sent Fernandez another letter stating that a COD form had to be submitted within 30 days and that “this claim will be placed on inactive status until the completed form is received.” Neither Fernandez nor anyone acting for him sent a COD form or any other communication. Mutual of Omaha terminated the monthly benefits effective June 15, 2009. That was the date of the last monthly disability-benefits check Mutual of Omaha sent to Fernandez. The next monthly check would have been sent on July 15, 2009; no check was sent in July or thereafter.
According to Mutual of Omaha, the latest date on which the causes of action accrued and limitations began to run was September 15, 2010, fifteen months after it issued the last disability check. Fernandez must have filed suit by September 15, 2013. Because he waited until September 30, 2013, his suit was untimely.
According to Fernandez, the causes of action did not accrue until the policy ended in September 2013 on its own terms. If so, Fernandez could have filed suit under the contractual limitations period until September 2016, and his suit is timely.
The Ruling:
The statutory two-year statute of limitations for the extracontractual claims and violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act expired no later than July 27, 2011, two years after Fernandez was on actual notice that Mutual of Omaha would not continue to cover his claim. Fernandez had actual knowledge that his claim was denied by the July 27, 2009 letter and the failure to receive the July 15 check, making July 27, 2012 the last date to file these causes of action under the contractual- limitations period. The July 27, 2009 letter, combined with the June 23 phone call and the missed July 15 check, clearly communicated that coverage had been denied.
Finally, Fernandez had three years to sue after he was required to submit proof of loss. On May 8, 2009, he received notice that proof of loss was required in 30 days. The policy gave him a maximum 15-month grace period to file the required proof of loss. The three-year contractual limitations period expired no later than September 15, 2013, more than 3 years after the 15-month deadline the contract imposed for filing the last proof of loss. This suit was not filed until September 30, 2013.
Mutual of Omaha’s motion for summary judgment was granted.