JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & another [Note 1] vs. JULIAN BANERJI.

MARSHALL, C.J. We are asked in this case to consider the scope of G. L. c. 175, § 108 (5) (a), [Note 2] which prohibits an insurer from rescinding a "policy of accident and sickness insurance," [Note 3] because of a statement made by an insured in his application for an insurance policy unless the application is attached to or endorsed on the policy when issued. Cf. Opara v. Massachusetts Mut. Life Ins. Co., 441 Mass. 539 (2004) (Opara) (concerning cognate attachment statute for life insurance policies, G. L. c. 175, § 131). Specifically at issue is whether an insurer may rely on a statement made by an insured in his application for future earnings protection (FEP) benefits in order to deny coverage and attempt to rescind the benefit.

In 2000, a judge in the Superior Court, sitting without a jury, found for the insured, Julian Banerji, on the claim for rescission of John Hancock Mutual Life Insurance Company of FEP

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benefits issued to Banerji. [Note 4] Banerji was eligible to purchase the FEP benefit because he had purchased an individual disability policy from Hancock. The judge relied on the contractual language of the policy, although he acknowledged the potential applicability of G. L. c. 175, § 108 (5) (a). [Note 5] The judge entered judgment for Banerji on his counterclaim to recover the FEP benefits due, but denied his other counterclaims. [Note 6] Both parties appealed.

In a rescript opinion, the Appeals Court reversed the judgment with regard to rescission, awarding Hancock rescission of the FEP benefit. The Appeals Court thus found it unnecessary to decide Banerji's ancillary claims. John Hancock Mut. Life Ins. Co. v. Banerji, 62 Mass. App. Ct. 906, 909 (2004). Relying principally on Opara, supra, the Appeals Court held that neither the attachment statute, G. L. c. 175, § 108 (5) (a), nor the wording of Banerji's individual disability insurance policy required attachment of the application for the FEP benefit because that benefit was a supplement to Banerji's individual disability policy and not a "new and distinct policy." Id. at 908. We granted Banerji's application for further appellate review.

We affirm the judgment of the Superior Court on Hancock's rescission claim, although on different grounds from those relied

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on by the judge. We conclude that G. L. c. 175, § 108 (5) (a), mandates that an insurer may not rely on an insured's statement in his application for FEP benefits where the insurer has not attached the insured's FEP benefit application to the endorsement at the time the endorsement is issued. Because G. L. c. 175, § 108 (5) (a) controls, we need not consider whether the original disability insurance contract at issue required Hancock to attach Banerji's FEP application to the FEP endorsement. In all other respects we affirm the judgment of the Superior Court. We remand the case to the Superior Court for further proceedings consistent with our opinion.

1. Background. We summarize the relevant factual findings from the judge's detailed and thoughtful memorandum of decision. This case concerns two applications submitted by Banerji to Hancock for disability insurance benefits. The first was an application for an individual disability insurance policy, which guaranteed the insured an income stream based on his existing income, together with a predetermined annual cost-of-living adjustment in the event that the insured became disabled and was unable to continue working at full salary. [Note 7] The second application was for FEP benefits, which allowed the holder of an individual Hancock disability insurance policy to receive, for additional consideration, and subject to Hancock's underwriting requirements, monthly disability benefits (in addition to those provided by the individual disability insurance policy) as the annual income of the insured increased over time. [Note 8]

In August, 1990, Banerji, through Hancock agent Jack Turgel, applied to Hancock for an individual disability insurance policy. [Note 9] The Hancock application form required Banerji to provide details about his current medical condition, current

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income, and current insurance coverage, including any disability insurance. As of the date of his application, Banerji was employed by Harvard University, which did not provide Banerji with disability insurance benefits, as Banerji noted on his application.

In September, 1990, while his application was pending, Banerji accepted a new position as a senior research scientist at Procept, Inc. (Procept). As a result of this change in employment, his salary rose from $25,000 to $47,000. He promptly notified Hancock of the change in employment and of his new salary. Hancock did not inquire whether Procept provided Banerji with disability insurance; Procept did in fact provide group disability insurance, but Banerji was unaware of this. [Note 10]

On October 2, 1990, Hancock issued an individual disability insurance policy to Banerji. It provided for a monthly benefit of $1,500, with annual cost-of-living adjustments, in the event that Banerji became disabled and was unable to work. The policy, to which Banerji's application was attached, stated, among other things, that "[a] copy of your application is attached and is a part of this policy." [Note 11] Banerji's individual disability policy also contained an FEP clause, which allowed him to apply annually for a term addition that would increase his monthly benefit amount if his earnings increased. Hancock was marketing the FEP benefit as "the single most important feature a disability policy can have."

In October, 1991, Banerji suffered a stroke. After a brief period of hospitalization, he returned to work at Procept full time and at full salary. Banerji did not apply for disability benefits at that time. In November, 1993, while still employed at Procept (albeit in a new position designed to accommodate

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his stroke-related physical limitations), Banerji submitted an FEP application to Hancock, using a Hancock preprinted form and having consulted with Turgel, an authorized agent of Hancock. See note 8, supra. In his application, Banerji requested an FEP benefit of $1,550 a month, which when added to the $1,500 monthly benefit already provided by his 1990 individual disability policy would provide Banerji with a total of $3,050 each month in the event he was unable to work due to disability. Hancock's FEP application form required Banerji to provide information about his annual income, his current access to disability insurance benefits, and whether he was currently disabled. As explained by Hancock, it required this information to avoid overinsuring its insureds in the event of a disability. On the FEP application he submitted to Hancock, Banerji stated that he did not have access to any disability insurance other than his existing Hancock individual disability insurance. See note 10, supra. [Note 12]

In December, 1993, Hancock approved Banerji's FEP application, and Banerji's monthly premiums increased accordingly. Turgel then sent Banerji a letter containing the FEP endorsement, together with instructions that the endorsement should be attached to Banerji's 1990 individual disability policy. The letter did not refer to Banerji's FEP application, nor was a copy of the FEP application attached to or enclosed with the endorsement. [Note 13] The judge concluded that, in order to save time and expense and to encourage its insureds to purchase the FEP benefit, Hancock streamlined its underwriting process. Among other things, Hancock never instructed its agents to return a copy of the FEP application with the FEP policy. Moreover, Hancock, mindful of inconveniencing those who purchased the FEP, never required the insured to return the original disability policy to Hancock so that the insurer could physically attach the FEP addendum to the original disability policy. The judge

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concluded that "Hancock never informed Dr. Banerji, either in writing or orally, that a copy of his FEP [a]pplication should be attached to either the original policy or to the FEP addendum."

In August, 1994, Banerji left his employment at Procept. [Note 14] In October, 1994, he submitted claims to Hancock for both the basic monthly individual disability benefit of $1,500 and the additional monthly FEP benefit of $1,550. After conducting an investigation, Hancock approved Banerji's claim for the $1,500 monthly benefit, but denied Banerji's claim for FEP benefits on the sole ground that, contrary to Banerji's statement in his FEP application, Banerji had disability insurance, provided by Procept, at the time he applied for the FEP benefit. Because the combination of the employer-provided group disability benefit, the basic Hancock individual disability benefit, and the additional FEP benefit exceeded Hancock's published participation limits, Banerji would not have qualified for the additional FEP benefit had Hancock been informed of the existence of Banerji's employer-provided group disability insurance. Hancock therefore notified Banerji that it was voiding the FEP benefit endorsement, and tendered to Banerji the premiums that he had paid for that endorsement. Banerji refused the tender.

2. Application of the attachment statute. Construing the cognate attachment statute applicable to life insurance policies that preceded G. L. c. 175, § 131, in 1905, this court held that the "language of the statute plainly has reference to an application upon which an original policy is issued, and not to any contract of revival." Holden v. Metropolitan Life Ins. Co., 188 Mass. 212, 214 (1905) (Holden). See Reidy v. John Hancock Mut. Life Ins. Co., 245 Mass. 373, 376 (1923) (concluding that application for reinstatement of lapsed insurance policy not subject to attachment statute). Relying in substantial measure on those two cases, Hancock argues the attachment statute at issue

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here, G. L. c. 175, § 108 (5) (a), is applicable only to the original policy, and that the Appeals Court was correct in characterizing the FEP benefit as "merely supplement[ing]" the original disability policy issued to Banerji in 1990, thus falling beyond the purview of the attachment statute. See John Hancock Mut. Life Ins. Co. v. Banerji, 62 Mass. App. Ct. 906, 908 (2004). Hancock points to a number of uncontested facts to support its position that the FEP benefit was "supplemental" to the 1990 policy, including that the FEP endorsement did not have a policy number separate from the 1990 policy, and that the FEP benefit was available only to holders of existing Hancock individual disability insurance policies. Id.

Hancock's position and the decision of the Appeals Court, however, run contrary to our holding in Opara, supra. In that case, the insured had allowed a $1 million whole life policy of insurance to lapse due to nonpayment of the premium. Subsequently, and after several medical procedures in which doctors had determined that he had a cancerous growth in his small bowel, the insured applied for reinstatement of the policy. On his reinstatement application, the insured misrepresented his physical condition. See id. at 542. The insurer approved the reinstatement application (as well as a subsequent application to change the policy from whole life to term life coverage), and sent the insured a reinstated policy to which his original application, but not his reinstatement application, was attached. Id. at 543. After the insured died, his beneficiaries sought payment under the reinstated policy, which the insurer refused based on the statements in the reinstatement application. Id. at 544. We held that, because of the insured's misstatements in his reinstatement application, the original policy was never reinstated. We held further that in such circumstances, the attachment statute did not prevent the insurer from refusing to pay benefits under the policy to the beneficiaries. Id. at 546-547. See Holden v. Metropolitan Life Ins. Co., supra at 214 (attachment statute does not apply to "any contract of revival").

Here, unlike in Opara and Holden, the insured did not apply for reinstatement of an existing (albeit lapsed) policy; instead, he applied for a new, separate, and distinct layer of disability protection, in the form of new benefits not provided under his

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1990 policy. There are significant differences between applications for reinstatement (or revival) and applications for additional benefits, the crucial one being that an insured who applies for reinstatement seeks merely to reacquire coverage that he previously held (in other words, to revive the status quo ante), whereas an insured who applies for additional benefits seeks to acquire new coverage he has not had before. In Opara, we noted that one key reason the insurer was entitled to rely on the insured's misrepresentations (despite having failed to attach the revival application to the revived policy) was because the insured "did not submit a new application for insurance[,] [n]or did he separately pay for the term life insurance coverage." Id. at 546.

The situation here is different. To obtain his additional FEP benefits, Banerji was required to submit a new application, [Note 15] which required him to make new representations to Hancock concerning his income and access to disability insurance. This information, as Hancock forthrightly recognizes, was material to the level of coverage that Hancock would be willing to provide if it accepted Banerji's application. Stated differently, Banerji had to negotiate new terms of an insurance contract by establishing that he qualified for the FEP benefit, both by showing that he was earning more income and by demonstrating that he had no other disability coverage. He was not merely exercising an option under the existing policy that would allow him to obtain additional benefits automatically on the payment of additional premiums. Cf. Reidy v. John Hancock Mut. Life Ins. Co., supra at 376 (application for reinstatement of lapsed policy not subject to the attachment statute; insured was not negotiating for a "new contract," but "to restore . . . all his rights under the policy . . . as if he never had been in default"). Finally, Banerji had to provide new monetary consideration for the FEP benefit: once his application for the FEP benefit was accepted by Hancock, his annual premiums doubled, from $700 to $1,400. See Gem State Mut. Life Ass'n v. Gray, 77 Idaho 157, 163 (1955) (while "accidental death supplement" to life

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insurance policy "became a part of the original contract of insurance," it provided "additional insurance separate and apart from that provided by the original policy, for which a separate and additional consideration was agreed on and paid. Thus, it is in effect a severable and independent part of the original contract. The situation is analogous to cases in which separate or additional insurance is given to a vendor or mortgagee upon an additional or independent consideration").

Where there was a new application for new benefits not provided in the original insurance contract and for new consideration, and where that new application contained representations material to Hancock's underwriting decision, the FEP application was an "application for a policy" as that term is used in G. L. c. 175, § 108 (5) (a). See 2 G. Couch, Insurance § 18:8 (3d ed. 1995 & Supp. 2005) ("A statutory requirement that the application be attached to the policy does not require attachment of a supplemental application which contains no new matter of material import. Where, however, substantial amendment of the application takes place, the amended application or other documents containing the amendments must be attached to the policy"). See also G. L. c. 175, § 108 (1) (defining "policy of accident and sickness insurance" as including "any policy or contract" [emphasis supplied]). Hancock may rely on Banerji's statements in his application for FEP benefits if, and only if, Hancock attached the FEP application to the issued FEP endorsement. [Note 16] See Pahigian v. Manufacturers' Life Ins. Co., 349 Mass. 78, 84 (1965) ("Where the insurer fails to attach a correct copy, it cannot rely in an action against it on the policy, on misstatements in the application as a defence"); Salisbury v. Monumental Life Ins. Co., 1 F. Supp. 2d 97, 100 (D. Mass. 1998), quoting Albro v. Manhattan Life Ins Co., 119 F. 629, 632 (C.C.D. Mass. 1902), aff'd, 119 F. 281, cert. denied, 194 U.S. 633 (1904) ("where the alteration or omission of the application would affect the rights of the parties, 'no tribunal has the right to say the statute does not apply' ").

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Our analysis is bolstered by the purpose of attachment statutes such as G. L. c. 175, § 108 (5) (a), and G. L. c. 175, § 131 (applicable to life insurance policies). The requirement that an insured's application be attached to the policy primarily protects the insured by giving him the opportunity to "correct material errors in the application." W. F. Meyer, Life and Health Insurance Law § 6:8, at 144 (1971). See Schiller v. Metropolitan Life Ins. Co., 295 Mass. 169, 173 (1936) (purpose of attachment is to "furnish to every person holding insurance . . . a copy of the application, upon which the effectiveness of the policy may in some circumstances depend, so that he may know the exact terms of the contract"); 2 G. Couch, Insurance § 18:6 (3d ed. 1995) (purpose "is to guarantee that the insured is in possession of the entire contract"). The attachment requirement also serves to secure the right of the insurer to rely on any material misrepresentations made by the insured in the application, because the representations of an insured form the basis of the decision to underwrite. This dual purpose of the statute -- to protect both the insured and the insurer -- would be defeated if we were to construe the attachment requirement to permit an insurer to rescind the FEP benefit based on the misstatements in the insured's FEP application when the insured had no opportunity to review (and correct, if necessary) such misstatements when the policy was issued. See Sandberg v. Metropolitan Life Ins. Co., 342 Pa. 326, 328-329 (1941) (insured "is entitled to have the whole application before him, if any part of it is to be used against him as a defense").

Hancock's argument that the FEP benefit should be analyzed under the reinstatement exception in G. L. c. 175, § 108 (5) (a), is unavailing. [Note 17] False material statements by an insured in a reinstatement application subject an insurer to an unreasonable

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amount of underwriting risk because the insurer expects to insure the individual applying for reinstatement on the same terms as those on which the parties originally agreed. The Legislature has explicitly shielded insurers who issue policies of "accident and sickness insurance" from this risk by allowing insurers to rely on the representations in reinstatement or revival applications without requiring attachment of the application to the reinstated policy when issued. See G. L. c. 175, § 108 (5) (a). [Note 18] The Legislature has not similarly shielded insurers who provide new and additional benefits to the insureds of such policies, i.e., an insurance product affirmatively designed to reflect a change in the status quo, in this case a product providing additional benefits when the insured's income increases. The information requested by Hancock and provided by Banerji was not a reaffirmation of information previously provided in order to revive an existing benefit. It was new information sought and provided for the purpose of enabling Hancock to approve or deny new benefits. General Laws c. 175, § 180 (5) (a), permits two exceptions to the attachment requirement: reinstatement or renewal of an insurance policy. See note 17, supra. Neither circumstance pertains here.

3. Remaining claims. We may summarily dispose of Banerji's remaining claims. First, we agree with the judge that the evidence at trial demonstrated that Hancock acted in good faith and reasonably in investigating and disputing Banerji's claim for FEP benefits. Banerji's claims under G. L. c. 93A, and G. L. c. 176D, therefore fail for want of evidence. See Buster v. George W. Moore, Inc., 438 Mass. 635, 642-644 (2003) (judge's findings supported by evidence will be upheld on appeal unless there is clear error). [Note 19]

Second, we agree with the judge that Banerji is not entitled

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to collect the lump-sum present value of all FEP payments due to him in the future. Banerji's reliance on Parker v. Russell, 133 Mass. 74 (1882) (lump-sum present value awarded for total breach of contract), and Commissioner of Ins. v. Massachusetts Acc. Co., 314 Mass. 558 (1943) (lump-sum present value awarded where insurer insolvent), is misplaced. See 9 A. Corbin, Contracts § 969, at 790 (interim ed. 2002) (even if "the action of the insurer amounts to a 'total' breach . . . it does not follow necessarily that the injured party should be given a judgment for the present value of that uncertain number of future instalments that will fall due while the insured lives and remains disabled"). Banerji's FEP policy remains an enforceable contract, and there is no suggestion that the insurer is not able to pay Banerji according to the contractually agreed-on benefit disbursement timetable. Moreover, as the judge carefully explained in his memorandum of decision (and again in his memorandum on Banerji's motion to amend or vacate findings on presumptive disability), Banerji does not suffer from "total disability" as defined in his disability policy. [Note 20] Any award of a lump-sum payment would therefore be unduly speculative. We see no reason to depart from the general rule that future instalments

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under a contract cannot be accelerated. See Badger v. Titcomb, 15 Pick. 409, 413-414 (1834).

Banerji also seeks damages in both tort and contract for infliction of emotional distress, pointing to testimony concerning the stress and emotional problems that Banerji and his wife suffered when Hancock refused to pay the FEP benefits. Hancock argues that these issues are not adequately preserved. But we need not resolve that question as we conclude that Banerji is not entitled to such damages on either basis. The judge denied the tort claim, concluding that the insurer had not engaged in any conduct that was "extreme and outrageous." Haddad v. Gonzalez, 410 Mass. 855, 871 (1991). We agree. His careful findings are not challenged by Banerji, and his conclusion is fully consistent with these findings.

As to the contract claim for emotional distress, damages for mental suffering are generally not recoverable in an action for breach of contract. See, e.g., McClean v. University Club, 327 Mass. 68, 76 (1951); St. Charles v. Kender, 38 Mass. App. Ct. 155, 159-161 (1995). See also Restatement (Second) of Contracts § 353 (1981). Damages for emotional distress may be recovered if they result from physical harm, DiGiovanni v. Latimer, 390 Mass. 265, 271 (1983), or are the result of intentional or reckless conduct of an extreme and outrageous nature, Agis v. Howard Johnson Co., 371 Mass. 140, 144-145 (1976). The judge concluded that the insurers acted fairly (if incorrectly) in denying payment of the FEP benefit, and there is nothing inherent in the coverage provided by an insurance policy for FEP benefits that would put an insurer on notice that emotional distress would be a foreseeable result of its good faith decision to deny a claim. Cf. Sullivan v. O'Connor, 363 Mass. 579, 587 (1973) (foreseeable distress damages recoverable in action for breach of contract in respect to cosmetic operation on plaintiff's nose). The judge was correct to deny emotional distress damages.

Finally, Banerji seeks recovery of his attorney's fees and costs. In Wilkinson v. Liberty Mut. Ins. Co., ante 663 (2006), we recently affirmed that we adhere to the traditional rule that each party to litigation in an insurance coverage dispute is responsible for his own attorney's fees and costs. See Waldman

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v. American Honda Motor Co., 413 Mass. 320, 321 (1992). Contrast Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93 (1997) (where dispute with insurer concerns "duty to defend," an award of attorney's fees may be proper). The judge correctly denied Banerji's request for attorney's fees and costs.

4. Conclusion. The judgment of the Superior Court is affirmed. The case is remanded to the Superior Court for a calculation of damages for the FEP benefits past due, together with prejudgment and postjudgment interest, and for such other and further relief as may be required, consistent with this opinion.

So ordered.