PROTECTIVE LIFE INSURANCE COMPANY vs. DENNIS J. SULLIVAN & others. [Note 1]

MARSHALL, J. Protective Life Insurance Company (Protective Life) commenced the underlying action in the United States District Court for the District of Massachusetts seeking rescission of a life insurance policy issued by it to the defendant Dennis J. Sullivan, a resident of Massachusetts. Protective Life claimed that Sullivan obtained the policy through fraudulent misrepresentation. The policy form, which had been approved by the Commissioner of Insurance (commissioner), provided that Protective Life could not "bring any legal action to contest the validity of this policy after it has been in force for two years except for failure to pay the premiums unless fraud is involved" (emphasis supplied). The defendants moved to dismiss the action, asserting that the plaintiff's action to rescind the policy more than two years after its date of issue was prohibited by G. L. c. 175, s. 132, the Massachusetts incontestability statute. A judge of the United States District Court denied the motion.

After a bench trial, the District Court judge found by clear and convincing evidence that Sullivan had committed fraud, and on November 17, 1995, entered judgment in favor of Protective Life against Dignity Viatical Settlement Partners, L.P., and Dignity Partners, Inc. (collectively, Dignity). [Note 2] Dignity appealed and, on its own motion, the United States Court of Appeals for the First Circuit certified the following two questions of State law to this court pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981):

"1. Does Mass. Gen. L. ch. 175, s. 132, taken together with s. 124, bar an insurance company from contesting the validity of a life insurance policy more than two years after its date of issue on the ground that the insured made fraudulent misrepresentations in applying for the policy, where the policy provided that it was contestable for fraud at any time and where the Massachusetts Commissioner of Insurance approved the policy form?

"2. If the incontestability statute bars such an action, is

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the contestability period nonetheless equitably tolled under the circumstances of this case by Sullivan's failure to apply for the disability waiver to which he was entitled until two years after the policy was issued?"

Protective Life Ins. Co. v. Sullivan, 89 F.3d 1, 4-5 (1st Cir. 1996). We answer the first question certified in the affirmative, and the second question certified in the negative.

I

We summarize the facts relevant to the questions certified. See S.J.C. Rule 1:03, s. 3 (2). In November, 1990, Sullivan was first diagnosed as Human Immunodeficiency Virus (HIV) positive and began a course of treatment including use of the drug AZT. On September 24, 1991, Sullivan applied to Protective Life for a life insurance policy in the amount of $100,000, with an annual premium of $175. In his application, he falsely stated that he was not taking any medication, and he omitted the names of those doctors who knew of his diagnosis. Sullivan authorized Protective Life to conduct medical tests, including a test for HIV infection, but on November 8, 1991, Protective Life issued a policy to Sullivan without having ordered an HIV or any other medical test. The policy included an optional provision that, for an increase in the annual premium, gave Sullivan the right to waive the premium in the event he became disabled.

In 1992, Sullivan's health worsened and by June, 1992, Sullivan's HIV infection had progressed to Acquired Immune Deficiency Syndrome (AIDS), and he stopped working. In October, 1992, Sullivan applied for disability benefits from another insurance company. He did not apply to Protective Life for a waiver of his life insurance premiums due to his disability until November 8, 1993, exactly two years after Protective Life had issued its policy to Sullivan.

In October, 1993, Sullivan informed Protective Life through a broker that he wished to assign ownership of his policy to Dignity, a firm engaged in making viatical settlements, agreements under which an insured sells a life insurance policy for an immediate payment approximating the discounted face value of the policy. On December 14, 1993, Dignity delivered the assignment forms to Protective Life, which Protective Life approved on December 22, 1993. On the same day, Dignity paid Sullivan $73,000.

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It is undisputed that Sullivan knew he was HIV positive when he applied for the life insurance policy, and that he failed to disclose in his application that he was receiving medical treatment and any medication for his condition, despite questions calling for this information. It is also undisputed that Protective Life would not have issued Sullivan the policy had it known his true medical condition.

II

The first question certified asks whether G. L. c. 175, s. 132, taken together with G. L. c. 175, s. 124, bars an insurance company from contesting the validity of a life insurance policy more than two years after its date of issue on the basis of fraud, where the policy provided that it was contestable for fraud at any time and where the policy form was approved by the commissioner.

The commissioner's approval of Protective Life's life insurance policy form (in this case with a fraud exception to incontestability) reflects the commissioner's interpretation of G. L. c. 175, s. 132, as permitting an implied exception for fraud. [Note 3] See Colby v. Metropolitan Prop. & Cas. Ins. Co., 420 Mass. 799, 806 (1995) (by approving policy in issue commissioner's view of statute made clear); Flanagan v. Liberty Mut. Ins. Co., 383 Mass. 195, 196 n.3 (1981) (policy form approved by commissioner might have purported to resolve any statutory ambiguity). The proper interpretation of that statute is a question of law, and we review the commissioner's interpretation de novo. See Raytheon Co. v. Director of the Div. of Employment Sec., 364 Mass. 593, 595 (1974). In general, we grant substantial deference to an interpretation of a statute by the administrative agency charged with its administration. See, e.g., Gateley's Case, 415 Mass. 397, 399 (1993), and cases cited. But this principle is one of deference, not abdication, and we have overruled an agency's interpretation when it is contrary to the plain language of the statute and its underlying purpose. See Massachusetts Hosp. Ass'n, Inc. v. Department of Medical Sec., 412

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Mass. 340, 346 (1992); Kszepka's Case, 408 Mass. 843, 847 (1990). "While we will not lightly second-guess the Commissioner's interpretation of a statute, his approval is 'hardly persuasive' where the [interpretation] violates the language and policy of the statute." Cardin v. Royal Ins. Co., 394 Mass. 450, 456-457 (1985), quoting Surrey v. Lumbermens Mut. Cas. Co., 384 Mass. 171, 178 (1981).

We have not before squarely decided the issue whether G. L. c.175, s. 132, read together with G. L. c.175, s. 124, permits an insurer to include a fraud exception to the required two-year contestability period for life insurance policies. [Note 4] Our analysis begins, as it must, with the language of the statute itself. See Massachusetts Bay Transp. Auth. v. Massachusetts Bay Transp. Auth. Retirement Bd., 397 Mass. 734, 738 (1986). General Laws c.175, s. 132, provides, in relevant part, that no life insurance policy may be issued in the Commonwealth unless it contains in substance the following:

"2. A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years from its date of issue except for non-

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payment of premiums or violation of the conditions of the policy relating to military or naval service in time of war and except, if the company so elects, for the purpose of contesting claims for total and permanent disability benefits or additional benefits specifically granted in case of death by accident."

Thus G. L. c. 175, s. 132, requires all Massachusetts life insurance policies to provide that, after the policy has been in force during the lifetime of the insured for two years, the policy cannot be contested by the insurer for any but three specific reasons. There is no exception for fraud.

We have said that "[t]he fact that the Legislature specified one exception . . . strengthens the inference that no other exception was intended." LaBranche v. A.J. Lane & Co., 404 Mass. 725, 729 (1989). [Note 5] See Bagley v. Illyrian Gardens, Inc., 401 Mass. 822, 824 (1988) ("Expressio unius est exclusio alterius"); Collatos v. Boston Retirement Bd., 396 Mass. 684, 687 (1986) ("it is appropriate to follow the maxim that the statutory expression of one thing is an implied exclusion of other things omitted from the statute"); Harborview Residents' Comm., Inc. v. Quincy Hous. Auth., 368 Mass. 425, 432 (1975), and cases cited. See also 2A C. Sands, Sutherland Statutory Construction s. 47.23, at 217 (5th ed. 1992). Although a maxim of statutory construction is not to be followed "slavishly" where to do so would undermine the legislative purpose behind a statute, Bagley, supra at 825, and case cited, we are persuaded that the

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Legislature's omission of an exception for fraud in G. L. c.175, s. 132 (2), reflects its intent that there be no such exception. [Note 6]

This has particular relevance here because the Legislature has demonstrated that, when it intends to have a fraud exception to an incontestability statute, it knows how to create one. General Laws c. 175, s. 108 (3) (a) (2), sets forth the incontestability provision required in all health insurance policies issued in this Commonwealth. That statute specifically excepts "fraudulent misstatements": "After two years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability as defined in the policy commencing after the expiration of such two-year period." See Commonwealth v. LeBlanc, 407 Mass. 70, 75 (1990) (Legislature's omission of language in one statute, and inclusion of same language in other statutes, indicates that Legislature in fact intended to omit that language where it is absent); Tilcon Mass., Inc. v. Commissioner of Revenue, 30 Mass. App. Ct. 264, 269 (1991) (it is a "canon of statutory construction that, if specific language appears in one section of a statute and is absent from a related section, the absent language should not be read into the provision from which it is missing"). [Note 7]

Protective Life argues that our interpretation of G. L. c. 175, s. 132, is inconsistent with G. L. c. 175, s. 124, which, it argues,

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does allow insurers to contest for fraud at any time those policies issued without a medical examination. [Note 8] On Protective Life's reading of G. L. c. 175, s.s. 124, 132, and 186, [Note 9] a life insurance policy issued without a medical examination can be contested within two years of the date of issue on the ground that the insured made a material misrepresentation. After two years have passed, insurers must prove not only materiality, but also wilful fraudulent intent on the part of the insured. [Note 10] We disagree with Protective Life's interpretation of the statutory scheme.

General Laws c. 175, s. 124, first enacted in 1892 (St. 1892, c. 372), fifteen years before the Legislature enacted any incontestability statute, provides:

"In any claim arising under a policy issued in the commonwealth by any life company, without previous medical

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examination . . . the statements made in the application as to the age, physical condition and family history of the insured shall be held to be valid and binding on the company; but the company shall not be debarred from proving as a defense to such claim that said statements were wilfully false, fraudulent or misleading."

We are persuaded that the purpose of G. L. c. 175, s. 124, was to raise the burden of proof that an insurer must sustain when it contests a life insurance policy issued without a medical examination. It could not have been intended to create an exception to the later-enacted incontestability statute.

We believe that the statutory history confirms this interpretation. In Torres v. Fidelity & Guar. Life Ins. Co., 34 Mass. App. Ct. 376 (1993), the Appeals Court discussed the interrelationship between G. L. c. 175, s. 124 and s. 186. Section 186, applicable to all insurance policies, specifies that an insured's misrepresentation is not "material" unless it is made with actual intent to deceive or unless it increases the risk of loss to the insurer. [Note 11] Id. at 377. Section 124, adopted fourteen years after the adoption of G. L. c. 175, s. 186 (St. 1878, c. 157), imposes a heavier burden on the insurer when it contests a life insurance policy issued without a medical examination. Id. at 377-378. Statements in applications for life insurance policies issued without a medical examination are binding on the insurer unless it proves that the statements were wilfully false, fraudulent, or misleading. Id.

Protective Life argues that G. L. c. 175, s. 124, was designed to encourage insurers to issue policies without medical examinations by permitting contests for fraud without limitation. Our reading of the statutory history is different. In its attempt to discern the legislative intent behind G. L. c. 175, s. 124, the Appeals Court in Torres relied in part on statements made by the commissioner in annual reports submitted to the Legislature in the years preceding the enactment of G. L. c. 175, s. 124. Id. at 378-379. The court quoted from the Thirty-third Annual Report of the Insurance Commissioner, Pub. Doc. No. 9, at vii (1888):

"if . . . risks are taken without a medical examination, al-

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leged misrepresentation by the applicant -- who in a large number of these cases is made to understand next to nothing of the statement he is asked to sign -- as to his physical condition, ought not to be permitted as a bar when a claim arises. Misrepresentation by the agent and misunderstanding by the assured now lead, under the methods thus pursued, to almost innumerable cases of hardship and injustice." Id. at 379.

The commissioner repeated his recommendation that insurance contracts issued without a medical examination should not be subject to a claim that misrepresentation bars payment in 1889:

"Experience only the more strongly commends the suggestion made in this report last year; that, when any company issues [a life insurance] policy . . . no matter for how small an amount, - with no medical examination, it should be forbidden by law from setting up, as a bar to an accrued claim, alleged misrepresentation by the applicant as to his physical condition. It is the business of the company to ascertain whether lives presented for insurance are impaired; and, if it chooses to waive any pretence of an examination to test this vital question, the responsibility should be upon itself. Existing contrary practice leads to a wilderness of misunderstanding and misrepresentation, with hardships and losses to a class of people illy able to bear it." (Emphasis supplied.) Thirty-fourth Annual Report of the Insurance Commissioner, Pub. Doc. No. 9, at vii (1889).

The commissioner made this same recommendation again in his 1891 report, submitted to the Legislature in the year immediately preceding its enactment of G. L. c. 175, s. 124. The commissioner stated that he

"would repeat and emphasize the suggestion, twice before made in these reports, that when any company effects insurance upon a life, without medical examination, it should be forbidden from setting up, as a bar to any claim, alleged misrepresentation by the insured as to his family history or his physical condition at the time the policy was issued .... Doubtless four-fifths of the misunderstanding, disappointment and loss in this class of business, now

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grown to vast magnitude, arise from these grave defects . . . which ought to be speedily and radically remedied." Thirty-sixth Annual Report of the Insurance Commissioner, Pub. Doc. No. 9, at viii (1891).

General Laws c. 175, s. 186, already had been enacted when the commissioner made these recommendations in 1888, 1889 and 1891. The purpose of G. L. c. 175, s. 124 (based on the commissioner's recommendation), was to curb perceived unfair practices by insurance companies, by making it even more difficult for them to contest life insurance policies issued without medical examinations than it was to contest life insurance policies issued with medical examinations. We conclude, therefore, that the effect of G. L. c. 175, s. 124, when read together with the later enacted s. 132 (see St. 1907, c. 576, s. 75), is to increase the insurers' burden of proof when it attempts to rescind, within two years, life insurance policies issued without medical examinations. [Note 12] Neither the purpose nor the effect of G. L. c. 175, s. 124, was to create a fraud exception to the later enacted incontestability statute.

The legislative history of G. L. c. 175, s. 132, such as it is, confirms our interpretation. First, we note that as first enacted in 1907, the terms of G. L. c. 175, s. 132, are slightly different from the present statute. Statute 1907, c. 576, s. 75, read as follows:

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"2. A provision that the policy shall be incontestable after two years from its date of issue except for nonpayment of premiums and for engaging in military or naval service in time of war without the consent in writing of an executive officer of the company."

Thus, the exceptions to the original incontestability statute were even more narrow than the three exceptions currently permitted. See G. L. c. 175, s. 132.

In the Fifty-first Annual Report of the Insurance Commissioner, Pub. Doc. No. 9, at xxiv (1906), submitted one year before the enactment of G. L. c. 175, s. 132, the commissioner wrote:

"It may also serve to refresh the memory as to why some life insurance presidents are now in exile and officers of high rank under indictment; why unlimited confidence cannot be placed in the advice proffered by some others, who still occupy responsible positions; why it is necessary for legislation to cover so many questions relating to life insurance, and to do it with such unsparing firmness; why the freedom which some companies merit, and would not abuse, cannot be granted; why the public expressed such resentment and still shows it when approached on the subject of life insurance.... [The abuses by the companies] warrant legislation, which will, if possible, prevent recurrence of the abuses to which life insurance has for the past few years been subject."

In 1906, the Commission to Recodify the Insurance Laws issued its report to the Governor. 1906 House Doc. No. 1375. With respect to the question whether the Massachusetts Legislature should require "standard forms for life insurance policies," the Commission rejected that idea as "undesirable," but recommended that "certain provisions should be standardized, and the companies be left free to adopt policies not inconsistent with those required by law." 1906 House Doc. No. 1375 at 53. The Commission recommended that companies "be required" to include certain provisions including:

"2. Incontestability except for non-payment of premiums after one or two years from the date of the policy." Id. at 54.

In 1907, the Joint Special Committee on Insurance Appointed

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to Revise and Amend the Insurance Laws issued its report, proposing that standard life insurance policy forms be used in the Commonwealth. 1907 House Doc. No. 1085. The Committee suggested that all life insurance policies contain the following provision:

"INCONTESTABILITY. - This policy constitutes the entire contract between the parties and shall be incontestable from its date except for non-payment of premiums and except as otherwise provided in this policy. All statements made by the insured shall in the absence of fraud be deemed representations and not warranties and no such statement shall avoid this policy unless it is contained in a written application and a copy of such application shall be endorsed upon or attached to this policy when issued." 1907 House Doc. No. 1085 at 121, 128, 135, 141, 146, and 152.

The Legislature in 1907 did not adopt the Committee's proposal to promulgate standard life insurance policy forms. That same year, however, the Legislature did enact the Commonwealth's first incontestability statute, G. L. c. 175, s. 132. We conclude that the Legislature did not intend to create any fraud exception to the incontestability statute.

We are also not persuaded that our interpretation of the interplay between G. L. c. 175, s. 132, and G. L. c. 175, s. 124, would violate any public policy. [Note 13] In Reagan v. Union Mut. Life

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Ins. Co., 189 Mass. 555, 559 (1905), decided two years before the incontestability statute was first adopted by the Legislature, we ruled that a policy provision that precluded all contests after the date of the issuance of the policy, without affording the insurer any reasonable time to investigate and initiate appropriate contests, was void as against public policy. We observed, however:

"This is not like the numerous cases in which the policy provides that it shall be incontestable for fraud after the expiration of a specified time, which is not unreasonably short. It has often been held that a provision of that kind is valid because it is in the nature of a limitation of the time within which the [insurer] may avoid the policy for this cause. Such a provision is reasonable and proper, as it gives the insured a guaranty against possible expensive litigation to defeat his claim after the lapse of many years, and at the same time gives the company time and an opportunity for investigation, to ascertain whether the contract should remain in force. It is not against public policy as tending to put fraud on a par with honesty" (citations omitted.) [Note 14] Id. at 556.

Our view is reflected in our later discussion of the incontestability clause, and its purposes in Metropolitan Life Ins. Co. v. DeNicola, 317 Mass. 416, 418 (1944):

"[The incontestability clause] is 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. It prevents an insurer from lulling the insured, by inaction, into fancied security during the time when the facts could best be ascertained and proved, only to litigate them belatedly, possibly after the death of the insured. The insurer, within

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the period prescribed by the policy, must contest the policy, that is, must set up its invalidity in some judicial proceeding, by way either of attack or of defence." [Note 15]

There were sound policy reasons why the Legislature adopted a requirement that life insurance policies issued in Massachusetts contain incontestability provisions. [Note 16] The Legislature was, at the time, cognizant of the possibility that an insured might obtain a policy by fraudulent misrepresentations to the insurance company. It nevertheless declined to include -- as it surely could have -- an exception to incontestability for fraud. Where the Legislature has not provided for a fraud exception to the incontestability provision, and where the absence of a fraud exception does not violate public policy, we shall not imply such an exception. See Cardin v. Royal Ins. Co., 394 Mass. 450, 456 n.6 (1985) ("We . . . reject as an inappropriate intrusion into the legislative function the idea that we should enforce exclusions which may appeal to us as reasonable and appropri-

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ate . . ."). [Note 17] We recognize that Sullivan's wilful concealment of his medical condition was deplorable and deserves condemnation. We do not pass judgment favorably or unfavorably on the balance that the Legislature has struck between the competing policy interests that underlay G. L. c. 175, s. 132 (2). We simply conclude that the Legislature was within its province in striking such a balance in the first instance.

III

The second question certified asks whether, if the incontestability statute bars rescission on the basis of fraud after two years, the incontestability period was equitably tolled under the circumstances of this case by Sullivan's failure to apply for the disability waiver to which he was entitled until two years after the policy was issued.

Protective Life contends that the incontestability period was tolled [Note 18] in this case because Sullivan "concealed" his misrepresentations by delaying his application for a waiver of his premiums on account of his disability -- a waiver to which he was entitled -- for precisely two years, the same time period

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beyond which the policy was incontestable. Dignity replies that G. L. c. 175, s. 132, is more in the nature of a statute of repose than a statute of limitations, and that any tolling of the two-year period is inappropriate. Dignity further contends that, even if the incontestability statute can be tolled under some circumstances, Sullivan's delay in applying for a waiver of his premium on account of his disability does not warrant a tolling of the incontestability statute. Because we conclude that Sullivan's conduct (or rather absence of conduct) did not toll the running of the incontestability period, we need not -- and do not -- decide whether G. L. c. 175, s. 132, is subject to tolling under any other circumstances. [Note 19]

We begin by noting that the doctrine of equitable tolling is applicable only where the prospective plaintiff did not have, and could not have had with due diligence, the information essential to bringing suit. See Wolin v. Smith Barney Inc., 83 F.3d 847, 852 (7th Cir. 1996). A party attempting to invoke that doctrine will be held to a duty of reasonable inquiry. Id. at 853. Here, Sullivan specifically authorized Protective Life to conduct whatever medical tests it desired, including a test for HIV infection. Had Protective Life exercised reasonable diligence, and had it not chosen to waive the authorized medical tests, it presumably would have discovered Sullivan's fraud.

Under the discovery rule, a statute of limitations [Note 20] does not begin to run until the prospective plaintiff learns or should have learned that he has been injured. Wolin, supra at 852. The discovery rule operates to toll a limitations period only where a

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misrepresentation concerns a fact that was "inherently unknowable" to the aggrieved, Friedman v. Jablonski, 371 Mass. 482, 485 (1976), or where a wrongdoer concealed the existence of a cause of action through some affirmative act done with the intent to deceive, or breached some duty of disclosure. Puritan Medical Ctr., Inc. v. Cashman, 413 Mass. 167, 175 (1992). We cannot say that Protective Life's action for rescission is based on an "inherently unknowable" wrong on the part of Sullivan; through the exercise of reasonable inquiry, Protective Life could have learned of Sullivan's medical condition either before granting him the policy or within the two-year period.

Moreover, although the District Court found that Sullivan's delay in applying for a disability waiver of the premium amounted to an ongoing course of fraudulent conduct designed to conceal his fraud in the application, we do not believe that Sullivan's delay constitutes an "affirmative act" that warrants application of the discovery rule. Sullivan was under no obligation to file a claim for a disability waiver of his premium. The incontestability period cannot be tolled where, as here, the insured did not perform any affirmative acts to conceal the existence of his original fraud in the application. See Puritan Medical Ctr., supra at 175.

IV

For the reasons stated, we answer the first question certified, "Yes," and the second question certified, "No." The Reporter of Decisions is to furnish attested copies of this opinion to the clerk of this court. The clerk in turn will transmit one copy, under the seal of this court, to the clerk of the United States Court of Appeals for the First Circuit, as answers to the questions certified, and will also transmit a copy to each party.

So ordered.