Insurance Commissioner v. Mutual Life Insurance Co. of New York

HARRELL, Judge. This appeal requires us to determine if we shall recognize an “exist/manifest” distinction when interpreting the phrase “existed prior to”, in a statutorily required incontestability clause contained in a disability insurance policy. The statute prohibits an insurer from turning down any claim for disability (as defined in the policy), starting after two years from the policy’s inception, on the grounds that a disease or physical condition existed prior to the policy’s inception. The provisions of the policy at issue here define “disability” in terms of the insured having a sickness or disease that first manifests itself while the policy is in force.

Appellee (cross-appellant), the Mutual Life Insurance Company of New York (“MONY”), filed a cross-appeal challenging the Circuit Court for Baltimore City’s affirmance of appellant’s (cross-appellee), the Insurance Commissioner of the State of Maryland (“the Commissioner”), interpretation of Md. Ann.Code art. 48A § 441 ¹⁵⁹ (1957, 1994 Repl.Yol.) 1 in a manner that refused to recognize an “exist/manifest” distinction. The Commissioner appeals from the portion of the circuit court’s judgment that, based in part upon its finding that MONY did not violate the insurance code in maintaining its erroneous interpretation of the statute, reversed the Commissioner’s order requiring MONY to pay its insured all benefits due under her disability insurance policy. As we shall explain, we conclude that the circuit court’s interpretation of § 441, which did not recognize an “exist/manifest” distinction, was legally correct. Therefore, we shall affirm this portion of the lower court’s judgment.

As to MONY’s obligation to pay benefits to its insured consonant with its statutory and contractual obligation, having interpreted § 441 against MONY’s position, we conclude that by virtue of a stipulation entered below by MONY and the Maryland Insurance Administration (“MIA”), MONY cannot now refuse the claim of its insured/Mary L. Holland, on the ground that her condition manifested itself before the issuance of her policy. Because that was the only apparent ground revealed by the record in this case upon which MONY denied the claim, it must now pay Ms. Holland’s claim in accordance with the terms of her policy. ISSUES MONY, as cross-appellant, raises the following issues, which have been rephrased: I. Assuming that MONY was in full compliance with Article 48A, did the circuit court err in choosing to decide the merits of the underlying contractual issue?

II

Did the circuit court err in disagreeing with MONY’s interpretation of the policy definitions at issue as they relate to the incontestability clause? The Commissioner raises the following questions for our consideration, which we have slightly rephrased: ¹⁶⁰ III. Did the Commissioner have the authority to order MONY to pay its insured’s disability claim, where MONY denied the claim based on an erroneous interpretation of § 441?

IV

Assuming it is finally determined that MONY’s interpretation and application of § 441 to its insured’s claim was contrary to Maryland law, is MONY obligated to pay this claim pursuant to the stipulation agreed upon by the parties? FACTS The facts before us are essentially undisputed and are for the most part contained in a stipulation that was agreed upon by the MIA and MONY before the Commissioner for the express purpose of attaining a formal interpretation of § 441. 2 On 27 November 1985, Ms. Holland (or “the insured”) executed an application for a disability income insurance policy to be issued by MONY. In this application, Ms. Holland denied, among other illnesses, any previous history of mental or nervous disorder during the past ten years. She did indicate that she had been treated for an ulcer.

Based on this application, MONY issued Ms. Holland a disability income insurance policy. MONY expressly agreed not to contest the accuracy of the answers provided in Ms. Holland’s application. Ms. Holland’s policy, by its terms, generally covered disabilities that “start[ed] while th[e] Policy ... [was] in force.” “Disability” was defined as “either a Total Disability or a Partial Disability, provided that in either case the Disability starts while this Policy is in force.” Both total and partial disability were defined in terms of the insured not being able to work “because of injury[ 3 ] or sickness.” “Sickness” was defined as a “sickness or disease which first manifests itself ¹⁶¹ while this Policy is in force.” In conformance with § 441, 4 the policy also contained the following provisions, under the heading “Incontestable”: After this policy has been in force for 2 years during your lifetime, we may not contest any statements in the application. (We will not count as part of the 2 years any period when you are disabled.)[ 5 ] * * * * * * We may not reduce or turn down any claim for loss incurred [or] Disability [as defined in the policy] starting after two years from the Policy Date on the grounds that a disease or ¹⁶² physical condition existed prior to the Policy Date, unless that disease or physical condition is excluded from coverage by name or specific condition.

The policy also included a rider that expressly excluded loss for gastro-intestinal disease. It is undisputed that the form and content of Ms. Holland’s policy were filed with the MIA, where the policy received approval prior to MONY’s use of it in Maryland. Almost four years after the issuance of this policy, on 6 June 1989, Ms. Holland filed a claim for disability resulting from a condition diagnosed as acute and chronic anxiety with panic attacks. 6 The parties have stipulated that “Ms. Holland’s claim for a loss incurred or disability commenced after two years” from the policy’s inception. The parties have agreed further that the policy did not contain a rider excluding this disease or physical condition from coverage by name or specific description.

On 1 October 1991, MONY denied Ms. Holland’s claim 7 on the ground that her condition first manifested itself prior to the effective date of her policy and thereby did not meet the policy’s definition of sickness. 8 The ¹⁶³ parties have stipulated that the sickness which caused Ms. Holland’s disability, in fact, manifested itself prior to the effective date of the policy. 9 In denying Ms. Holland’s claim, MONY relied in part upon Massachusetts Casualty Ins. Co. v. Forman, 516 F.2d 425 (5th Cir.1975), cert. denied, 424 U.S. 914 , 96 S.Ct. 1114 , 47 L.Ed.2d 319 (1976), in which a similarly worded incontestability clause and definition of sickness were at issue. There, an insurer filed suit in part for the return of benefits paid pursuant to a disability insurance policy, on the ground that the insured had a pre-manifested, but undisclosed, condition of diabetes. The Fifth Circuit, finding for the insurer, held: [Where] the condition for which [the insured] claimed benefits had ‘first manifested’ itself almost a year before the policy became effective ... [the] disability ... was never within the scope of coverage, and [the insured] cannot now [relying on the incontestability clause] claim ... disability benefits [because] ... the incontestability provisions of the policy [do not cause] ... this prior existing illness to be covered.

Id. at 428 . MONY’s reliance was based further on other cases that also interpreted incontestability clauses containing language similar to § 441 in a manner such that the clause did “not cut off defenses to coverage, and that a condition that actually manifests itself prior to the issuance of coverage falls outside of the policy’s coverage because of the policy’s definition of ‘sickness.’ ” Ms. Holland apparently filed a complaint with the MIA, where her claim was investigated. On 14 December 1993, the MIA issued a notice and order, stating: ¹⁶⁴ 1. MONY [is ordered to] refrain from denying Ms. Holland’s claim on the ground that the disease or physical condition of Acute and Chronic Anxiety with Panic Attacks may have manifested or did manifest itself prior to the effective date of the Policy; and 2.

MONY [is ordered to] pay the claim of Ms. Holland that is the subject of this Notice and Order. In support, the MIA reasoned that the plain meaning of § 441, which prohibited MONY from denying a disability claim commencing two years after the date of the issuance of the policy, on the ground that a disease or physical condition, not excluded from coverage by name or specific description, existed prior to the policy’s effective date, “inelude[d] both those [preexisting diseases and conditions] ... which have and have not manifested themselves.” Accordingly, the MIA reasoned that MONY’s denial of Ms. Holland’s claim on the ground that her condition first manifested itself prior to the effective date of the policy was in violation of § 441. The MIA found further that MONY’s denial of Ms. Holland’s claim was “in contravention of State law ... [and] prohibited by Md.Code Ann. Art. 48A, §§ 55(2)(i) and (iv),[ 10 ] and 230A(c)(2)[ 11 ]” MONY appealed the MIA’s order to the Maryland Insurance Commissioner where, in lieu of an evidentiary hearing, the parties agreed to a stipulation of facts for the purpose of the hearing before the Commissioner and any further “appeal ¹⁶⁵ by either Party arising therefrom.” In addition to stating the facts that we have set forth, 12 this stipulation indicated that the parties “desire[d] a statutory interpretation of MD. ANN.

CODE art. 48A, § 441.” 13 The stipulation provided further: [It] does not bind Mary L. Holland ... nor does it prejudice her right to pursue a claim in any court of competent jurisdiction or to file future complaints with the Maryland Insurance Administration. Should [Ms. Holland] proceed with a claim, MONY similarly is not bound by this Stipulation. The Maryland Insurance Administration, formerly the Insurance Division of the Department of Licensing and Regulation, has historically interpreted MD. ANN.

CODE, art. 48A, § 441 to prohibit an insurance company from denying or reducing a claim after two years from the effective date of the policy because the sickness causing the loss or claim manifested itself prior to the effective date of the policy. Written guidelines issued by the MIA, entitled ‘Underwriting of Health Insurance Policies’, which were effective as of ¹⁶⁶ August 1, 1970, (“Guidelines”) and are published in the National Insurance Law Service, are attached as Exhibit G. Additionally, stipulation no. 25 provided: In the event the Insurance Commissioner affirms the December 14, 1993, Notice and Order, MONY agrees not to deny payment for the claim at issue on the ground that the Insured’s condition- of Acute and Chronic Anxiety with Panic Attacks first manifested itself prior to the effective date of the Policy, and, the MIA agrees not to hold that MONY’s initial declination was a § 230A(c)(2) violation. This agreement, however, will in no way impede either Party’s right to an appeal nor MONY’s right to request a Stay from the court on the disability payments pending the outcome of the appeal. On 19 July 1994, the Commissioner issued a memorandum and order finding that, although MONY did include in its policy an incontestability clause in accordance with § 441, it “violated Art. 48A, §§ 55(2)(i) and 55(2)(iv) ... when it denied Mary Holland’s claim for disability benefits [based on a preexisting condition] in contravention of Art. 48A, § 441,” 14 and, accordingly, ordering MONY to “pay Ms. Holland all benefits due under her policy [as restitution pursuant to § 55A, 15 in lieu of revocation of suspension, for any violation of the Code].” In reaching its decision, the Commissioner initially rejected MONY’s attempt to refuse benefits based on the fact that Ms. Holland’s underlying disease manifested itself prior to the issuance of her policy.

In support, the Commissioner explained in part: ¹⁶⁷ The whole purpose of ... [§ 441] ... is to achieve certainty as to the coverage provided and to avoid litigation. The company is free to seek medical information before issuing the policy and can exclude specific illnesses. The company may also conduct a further investigation if it deems appropriate. However, under Art. 48A, § 441, once the policy has been issued, the [insurance] company may not, in the absence of fraud, go back and deny coverage for pre-existing conditions.

Otherwise, § 441 would be meaningless. MONY seeks to avoid this common sense result by defining disability as including only a sickness or disease which ‘manifests itself after the policy was issued. According to this argument, an insurer could define disability or illness to exclude any pre-existing condition of any type, irrespective of how long ago the condition started. I find this argument to be contrary to both the language and purpose of the statute, and, I therefore, reject this argument.

The language of the statute provides simply and directly that ‘No claim ... for disability commencing after two years from the date ... of this policy shall be denied on the ground that a disease or physical condition ... had existed prior to the ... date of this policy.’ Clearly, a disease or condition exists whether it manifests itself or not. The distinction MONY makes between pre-existing conditions which are not manifest and those which are, simply is not a distinction which is found in the statute. Moreover, MONY’s attempt to exclude an illness which ‘manifested itself prior to the policy date runs directly counter to the purpose of incontestability clauses. As to stipulation no. 25, the Commissioner noted in a footnote that MONY agreed to pay Ms. Holland’s claim if it was determined that the claim was legitimate....

In exchange for this agreement, the Maryland Insurance Administration agreed not to pursue the claim that MONY acted in an arbitrary and capricious fashion in violation of ... § 230A(c)(2). In light of these agreements, it is difficult to ¹⁶⁸ understand why MONY now argues that the denial of benefits was not arbitrary and capricious. Pursuant to the stipulation, I will not resolve this issue and will instead assume MONY will honor the claim as agreed in ¶ 25 of the stipulation. MONY appealed the Commissioner’s decision to the circuit court, where the Commissioner’s interpretation of § 441 was affirmed.

The circuit court also rejected MONY’s attempt to distinguish between pre-existing conditions that have and have not manifested themselves when determining the applicability of an incontestability clause, noting in its 27 June 1995 Memorandum Opinion and Order: It is apparent that the terms of the disability insurance policy, absent the incontestability clause, would eliminate coverage for a disease that manifests itself prior to the effective date of the policy. It is the inability to disregard the incontestability clause that clouds that result. As urged by MONY, a disease can exist whether or not it manifests itself. MONY wishes this court further to conclude that the term ‘existed prior,’ as used in the policy, refers only to those diseases or physical conditions that, although in existence, did not manifest themselves.

The MIA, in contrast, asserts that such an exist-manifest distinction would nullify the intent of the incontestability clause. After indicating that the cases from other jurisdictions addressing this question have resulted in “antithetical responses,” the circuit court considered some of these cases, the terms of § 441, the MIA’s historical interpretation of § 441, and ultimately concluded that MONY’s position, if adopted, would effectively expand the ability of the insurer to bar insureds from benefits well after the incontestability clause has taken effect. Well after the contestability period, insurers would be able to search any and all records regarding an insured’s appointments with physicians for some hint of a manifestation prior to the effective date of the policy. The time ¹⁶⁹ limitations of the incontestability clause would be rendered inoperative.

(Emphasis in original). The circuit court, however, reversed that portion of the Commissioner’s decision that ordered MONY to pay to Ms. Holland disability benefits, finding that because there were “no technical violations of the Insurance Code by MONY,” 16 the penalty provisions of § 55A were inapplicable. As to § 441, the circuit court concluded that there was no violation because “MONY merely sought a different interpretation of that statute ... [and] MONY’s policy was filed with the MIA and received approval as to the form from the MIA prior to MONY’s use of the policy in Maryland.” Turning to §§ 55(2)(i) and (iv) the circuit court found that these sections were also not violated, stating: MONY’s interpretation of Section 441 was not unreasonable considering the support its position has received in sister states. Thus, Section 55(2)(iv) has not been violated.

Further, since Sections 441 and 55(2)(iv) have not been contravened, there is no violation of Section 55(2)(i) as well. The circuit court then effectively determined that MONY did not have to pay Ms. Holland’s claim by virtue of stipulation no. 25, stating: This stipulation is an example of poor drafting. By its terms it states that MONY could not deny the insured her disability benefits based on an argument of the disability first manifesting itself prior to the effective date of the policy should the Commissioner affirm the decision of the Associate Commissioner. As is evident, the earlier decision was indeed affirmed by the Commissioner.

However, the stipulation further read that neither party’s right to an appeal nor MONYs right to request a Stay from the court on the disability payments pending the outcome of the appeal would be hindered. If the stipulation had ended with the first sentence, MONY would be required to pay on ¹⁷⁰ the claim due to the fact that its main point of contention would no longer be viable. However, the stipulation muddled that result. The second sentence of stipulation #25 ... allows either party the right to appeal the decision of the Commissioner to the court as well as MONY’s right to request a stay from the court on the disability payments pending the outcome of the appeal.

Furthermore, both parties are entitled through this stipulation to appeal this court’s decision. The circuit court reached its conclusion in spite of its earlier observation, in a footnote, that: by virtue of Stipulation # 25, it appears that, if MONY is ultimately unsuccessful in its appeal, the language of the stipulation would require it to pay the disability benefits to the insured. STANDARD OF REVIEW Before reaching the merits of this appeal, we note briefly the standard of review that we shall apply. On appeal from the Commissioner, a reviewing court may reverse or modify the agency’s decision under the following circumstances: [I]f the substantial rights of the petitioners may have been prejudiced because the administrative findings, inferences, conclusions, or decisions are: (i) In violation of constitutional provisions; or (ii) In excess of the statutory authority or jurisdiction of the Commissioner; or (iii) Made upon unlawful procedure; (iv) Affected by other error of law; (v) Unsupported by competent, material, and substantial evidence in view of the entire record as submitted; (vi) Arbitrary or capricious. § 40(4), (6).

Because the parties have stipulated to the facts, our review will be limited to matters of law. ¹⁷¹ DISCUSSION I. Logic dictates that our review begin with MONY’s threshold issue concerning our ability to decide the central issue in the case relating to the proper interpretation of § 441. MONY argues, without reference to any authority whatsoever, that because “the Insurance Commissioner had no jurisdiction to interpret MONY’s insurance policy, no court (including this one) on appeal from the Commissioner’s ruling has the jurisdiction to interpret the policy.” MONY states further that our review is “narrowly restricted to those issues that were properly before the administrative agency.” In light of the parties’ express agreement in their stipulation before the Commissioner, which by its terms was made binding on the parties in any petition for judicial review of the Commissioner’s decision, that they “desire[d] a statutory interpretation of ... § 441,” we do not see how MONY can now argue that the correct statutory interpretation of § 441 is not properly before this Court. 17 We therefore reject MONY’s attempt to question our ability to reach the merits of this appeal.

II

Next, we must conduct an analysis of the proper interpretation of § 441(2), which requires health insurance policies issued in this State, including disability policies, to contain the portion of the incontestability clause that prevents an insurer from denying a claim for disability, as defined in the policy, commencing two years after the policy’s effective date, on the ground that the disease or condition causing the disability existed prior to the issuance of the policy. Under the undisputed facts of this case, there is no doubt that, but for MONY’s inclusion of this mandatory part of the incontestability provision, it could have denied Ms. Holland’s claim based on the scope of the policy’s coverage, which was limited ¹⁷² to a sickness first manifesting itself while the policy was in force. The circuit court correctly noted, however, that the incontestability clause “clouds that result,” and it ultimately agreed with the Commissioner’s finding that § 441 prohibited MONY from denying a disability claim that commenced after the expiration of the contestability period based on a preexisting condition, regardless of whether the condition manifested itself prior to the effective date of the policy. MONY now strenuously argues, as it did below, that under the circumstances of this case, in which the policy coverage was expressly limited to covering disabilities that first manifested themselves while the policy was in force, we should adopt the position taken by a majority of other states and federal venues that recognizes an “exist/manifest” distinction when applying an incontestability clause so that it is allowed to limit coverage in a manner that excludes pre-manifested conditions.

MONY states: [Its] position was, and is, that the definition of ‘sickness,’ which requires that in order to be covered a condition must first manifest itself while the policy is in force, is a reasonable and appropriate definition relating to ‘disability,’ a definition that is consistent with Section 441(2), namely, that, after two years, a sickness that exists but did not manifest prior to the effective date of the policy is covered, but that a premanifest condition is not. In support of its position, MONY relies on the language of § 441 that permits it to define “disability” in terms of when a sickness first manifests itself, cases from other jurisdictions holding that incontestability clauses do not prevent an insurer from defending on the ground that the particular disability was not within policy coverage, as well as the MIA Guidelines. 18 As we shall explain, infra, particularly under the circumstances of this case, in which MONY has stipulated that the MIA has historically interpreted § 441 against MONY’s position, we decline MONY’s invitation to recognize such a distinction, and hold that MONY’s incontestability clause pre ¹⁷³ vented it, after the contestability period had expired, from denying Ms. Holland’s claim for her disability, which commenced after two years from the policy’s inception, on the ground that her condition first manifested itself prior to the issuance of her policy. We will begin our discussion by briefly exploring the history and purpose of incontestability clauses. 19 These clauses are typically composed of provisions that act to limit “the amount of time in which an insurer can contest the policy!,] ... [a]ct[ing] as a statute of limitations upon the grounds of contest to which it is applicable.” Annotation, Construction of Incontestable Clause Applicable to Disability Insurance, 13 A.L.R.3d 1383 , 1384 (1967). In Wischmeyer v. Paul Revere Life Ins.

Co., 725 F.Supp. 995 (S.D.Ind.1989), the United States District Court for the Southern District of Indiana undertook a thorough analysis concerning the purpose of incontestability clauses, explaining: These clauses are now required by statute in most states[ 20 ] because without them, insurers were apt to deny benefits on the grounds of a pre-existing condition years after a policy had been issued. This left beneficiaries ... in the untenable position of having to do battle with powerful insurance carriers. See 7 Williston on Contracts § 912.394 (3d ed.1963) (noting that these clauses came from the ‘early greed and ruthlessness of the insurers’ who ‘too often ... resisted liability stubbornly on the basis of some misstatement made by the insured at the time of applying for the policy’). * * SjS * * H! ¹⁷⁴ [S]ueh clauses are designed to ‘require the insurer to investigate and act with reasonable promptness if it wishes to deny liability on the ground of false representation or warranty by the insured.’ G. Couch, 18 Couch on Insurance § 72:2 at 283 (1983). ‘It prevents an insurer from lulling the insured, by inaction, into fancied security during the time when the facts could be best ascertained and proved, only to litigate them belatedly, possibly after the death of the insured.’ Id. at 283-84. 725 F.Supp. at 1000 . On a similar note, the New York intermediate appellate court has explained: The legislative intent behind this clause is to safeguard an insured from excessive litigation many years after a policy has already been in force and to assure him security in financial planning for his family, while providing an insurer a reasonable opportunity to investigate.

The statutory scheme gives the insurer two years to conduct an investigation of facts relevant to determining its risks; having failed to investigate, the insurer cannot be heard to complain now. After two years the insurer may not litigate what illnesses are or are not covered by the policy, because the purpose of the incontestability provision is to put an end to such litigation. White v. Massachusetts Cas. Ins.

Co., 96 A.D.2d 732 , 465 N.Y.S.2d 345, 346 (N.Y.App.Div.1983). The Seventh Circuit has recognized: The incontestability clause is ... ‘in the nature of a statute of limitation and repose,’ ... obliging the insurer to investigate the insured’s medical history promptly else it become bound by representations contained in the insured’s application. * * * * * sfc Incontestability clauses do not, of course, preclude insurers from expressly precluding coverage for losses arising from particular causes. Equitable Life Assurance Soc’y of the United States v. Bell, 27 F.3d 1274, 1278-79 (7th Cir.1994) (citations omitted). Our ¹⁷⁵ Court of Appeals has likewise recognized that “the purpose of incontestability provisions is ‘to put a checkmate upon litigation; to prevent, after the lapse of a certain period of time, an expensive resort to the courts—expensive both from the point of view of the litigants and that of the citizens of the state.’ ” Equitable Life Assurance Soc’y of the United States v. Jalowsky, 306 Md. 257, 262-63 , 508 A.2d 137 (1986) (citing 1A J. Appleman, Insurance Law and Practice § 311, at 311 (rev. 1981), and Suskind v. North American Life & Cas.

Co., 607 F.2d 76 (3d Cir.1979)). See also Beard v. American Agency Life Ins. Co., 314 Md. 235, 263 , 550 A.2d 677 (1988) (concluding that “the incontestability statute serves the substantial public interest in protecting claimants from the possibility of expensive litigation”). Apparently mindful of these considerations, the Maryland incontestability clause statute, entitled “Time limit on certain defenses; incontestability,” consists of two mandatory clauses.

The first part restricts an insurer’s ability to contest statements in an application for insurance two years after the policy has been issued. 21 § 441(1). Under the statute’s second provision, which is at issue in this case, an insurance company is prevented from denying a claim for disability, as defined in the policy, commencing two years after the policy’s effective date, on the ground that the disease or condition causing the disability existed prior to the issuance of the policy. 22 § 441(2). ¹⁷⁶ Although there are no reported Maryland cases addressing the merits of MONY’s attempt to exclude pre-manifesting diseases and conditions from coverage, courts from other jurisdictions have faced this issue, resolving it inconsistently. Because these foreign cases provide insight into the merits of MONY’s position, we will review some of them. On the one hand, we are mindful that many cases have, in essence, recognized an “exist/manifest” distinction when interpreting similarly worded incontestability clauses when the policy at issue defined disability in terms of when a sickness first manifests itself, thus allowing the insurer to exclude premanifesting conditions from coverage.

See, e.g., Button v. Connecticut General Life Ins. Co., 847 F.2d 584, 588-89 (9th Cir.), cert. denied, 488 U.S. 909 , 109 S.Ct. 261 , 102 L.Ed.2d 250 (1988) (Arizona law); Keaten v. Paul Revere Ins. Co., 648 F.2d 299, 301-03 (5th Cir. Unit B 1981) (Georgia law); Allen v. Aetna Life Ins. Co., 563 F.2d 1240, 1241-42 (5th Cir.1977) (Florida law); Massachusetts Cas.

Ins. Co. v. Forman, 516 F.2d 425, 428-30 (5th Cir.1975), cert. denied, 424 U.S. 914 , 96 S.Ct. 1114 , 47 L.Ed.2d 319 (1976) (Florida law); Paul Revere Life Ins. Co. v. Haas, 137 N.J. 190 , 644 A.2d 1098, 1104-08 (1994) (New Jersey law); Mutual Life Ins. Co. of New York v. Hayden, 87 Misc.2d 1039 , 386 N.Y.S.2d 978, 981-82 (N.Y.Sup.Ct.1976), aff 'd, 60 A.D.2d 823 , 401 N.Y.S.2d 992 (N.Y.1978) (New York law); 23 13 A.L.R.3d 1383 at § 5(a) (collecting cases).

These cases have ultimately concluded that, despite its reference to pre-existing illnesses and conditions, the incontestability clause “leaves the insurer free to exclude pre ¹⁷⁷ manifesting diseases and conditions from the policy coverage.” Equitable Life Assurance Soc’y of United States v. Bell, 27 F.3d at 1280 . The Supreme Court of New Jersey has recently suggested that such an interpretation presently represents the majority rule on this issue, stating: Most courts have read the language in ... [§ 441], or similar language, [despite the passage of the contestable period] to prohibit only rescission of the policy, not denial of a specific claim. # * ❖ sje Hí The majority rule is that the incontestability clause does not provide a basis for an insured to recover for a condition that is not covered under the policy. Most courts have held that [wjhere loss is claimed by reason of disability, it is necessary, under the average policy, that the cause of such disability arise within the policy terms and after the insurance has been effected. This is a condition of liability, a condition of insurance....

The incontestability clause does not apply under those circumstances, and there can be no recovery unless the cause of disability arose within the time designated. Haas, 644 A.2d at 1104 , 1105 (citing 1A John A. Appleman & Jean Appleman, Insurance Law and Practice § 333 at 390 (1981)). 24 See also Reaten, 648 F.2d at 301 (stating that under the majority view, the insurer “reserves the right to deny any claim [after the incontestability period has run] if it is not within the coverage as stated by the policy’s terms”); Forman, 516 F.2d at 428 (stating “[t]he great weight of authority ... holds that an incontestability clause ... does not deprive the insurer from defending on the ground that the particular disability was never within the policy coverage”). In adopting this view, the “courts [generally] emphasize that the first portion of the incontestability clause, rendering the statements in the insured’s application incontestable after the specified ¹⁷⁸ time period, relates solely to the validity of the policy and does not preclude the insured from limiting what is covered.” Bell, 27 F.3d at 1280 . See, e.g., Button, 847 F.2d at 588 (adopting the view that “the [incontestability] clause relates to the validity of the contract and not to the construction of policy provisions”); Keaten, 648 F.2d at 301 (finding that “after the period of incontestability has run, the insurer is only barred from contesting the validity of the policy itself ... [but] still reserves the right to deny any claim if it is not within the coverage as stated under the policy’s térms”); Allen, 563 F.2d at 1241 (recognizing that “[a]n incontestable clause does not bar the insur[e]r from proving that the loss was not covered by the terms of the policy”); Forman, 516 F.2d at 428 (holding that “an incontestable clause in a disability clause does not deprive the insurer from defending on the ground that the particular disability was never within the policy coverage”); Haas, 644 A.2d at 1104 (quoting 1A John A. Appleman & Jean Appleman, Insurance Law and Practice § 331 at 752 (1981)) (reasoning that “the ‘better rule is clearly that the incontestability clause relates only to the validity of the contract, and should not affect in any way whatsoever the construction of the terms thereof ”).

To this effect, the late Judge Cardozo, while Chief Judge of the New York Court of Appeals, explained: The provision that a policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years is not a mandate as to coverage, a definition of the hazards to be borne by the insurer. It means only this, that within the limits of the coverage the policy shall stand, unaffected by any defense that it was invalid in its inception, or thereafter became invalid by reason of a condition broken. Metropolitan Life Ins. Co. v. Conway, 252 N.Y. 449 , 169 N.E. 642, 643 (1930).

Notwithstanding these decisions, this issue remains open to significant debate. As one commentary has noted: The courts have uniformly construed incontestability clauses as barring a defense based upon fraud in the application for ¹⁷⁹ insurance, after the specified period has passed. There is somewhat less uniformity on the question whether the claim may be resisted on the ground that the disability antedated the issuance of the policy, however. While most courts take the view that pre-existing disability is a defense to coverage rather than a ‘contest,’ and is thus not negated by the incontestability clause, there is authority to the contrary, even in situations where the clause expressly negates the contestability of the insured’s prior condition of health. 13 A.L.R.3d at 1385.

Indeed, a substantial minority of the courts faced with this question have rejected the insurer’s attempt to exclude coverage for pre-manifesting illnesses in circumstances similar to those of the instant case. As one federal court recently explained: A growing minority of courts have rejected ... [the majori- ■ ty approach] by favoring a plain meaning approach to the statutory and policy language. These cases uniformly hold that ‘if an insured is not disabled for two years after issuance of the policy, then his claim for benefits cannot be denied on the grounds he had a pre-existing condition.’ Oglesby v. Penn Mutual Life Ins. Co., 889 F.Supp. 770, 776-77 (D.Del.1995) (citing Wischmeyer v. Paul Revere Life Ins.

Co., 725 F.Supp. at 1001 ) (other citations omitted). As noted by the Oglesby court, these cases often reach this result on the basis of principles of statutory and insurance policy construction. For instance, in Equitable Life Assurance Soc’y of the United States v. Bell, the Seventh Circuit held that, under Indiana law, a statutorily required incontestability clause, worded similarly to the clause in the instant case, 25 barred “the insurer from attempting to exclude coverage for losses attributed to pre-manifesting diseases and conditions” after the contestability period had expired. 27 F.3d at 1282 . Bell is particularly noteworthy because there, the insurer, as MONY does here, proposed the same reading of pre-existing ¹⁸⁰ “to include only those diseases and conditions that, although they existed before the policy became effective, did not manifest themselves.” Id. at 1280 .

In rejecting the insurer’s position, the Bell court noted that although this question “has sharply divided the courts,” the cases finding for the insurer uniformly emphasize that the first portion of the incontestability clause, dealing with the insurer’s ability to contest a statement in the insured’s application, “relates solely to the validity of the policy and does not preclude the insurer from limiting what is covered.” Id. After indicating that it agreed with this interpretation of the “initial provision of the incontestability clause,” the Seventh Circuit stressed that few of the cases finding for the insurer have addressed the second portion of the incontestability