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May 10, 1965


The opinion of the court was delivered by: Henley, District Judge.

This is a diversity case brought by plaintiff, a citizen of Arkansas, against defendant, a Missouri corporation having its principal place of business in that State. The amount in controversy, judged by the demand of plaintiff, is in excess of $10,000, exclusive of interest and costs. Federal jurisdiction is not questioned and is established.

The suit is based upon two group industrial insurance policies issued by defendant and its predecessor, Missouri State Life Insurance Co., to Phillips Petroleum Company and providing life and disability insurance to employees of Phillips. Prior to September 1, 1961, the plaintiff was the holder of a certificate under each of the group policies, the earlier of which was written by Missouri State Life and assumed by defendant, and the other of which was issued by defendant itself. Plaintiff claims disability benefits under both policies.

In February of this year the Court denied a motion for summary judgment filed by plaintiff, but in connection with the denial suggested that the case be submitted to the Court, as a trier of disputed facts, on the record, including briefs, made up in connection with the motion. That suggestion was acceptable to both sides, and the case has been so submitted.

Plaintiff was an outdoor employee of Phillips for many years, his work involving outdoor activities in the oil fields in Arkansas and Texas. Effective September 1, 1961, Phillips permitted plaintiff to retire in advance of regular retirement age due to the deteriorating condition of his health. Plaintiff's complaints were rheumatoid arthritis, a serious and progressive disease, plus certain other conditions which need not be mentioned.

It is the position of the plaintiff that prior to and at the time of his retirement he was permanently and totally disabled within the meaning of the policies, and that he is entitled to the disability benefits which the policies provide. He claims further that the conduct of defendant with respect to his claim has been such that the defendant is liable not only for monthly installments alleged to have accrued up to this time, but also for the present value of future installments, plus a statutory penalty of 12 percent and a reasonable attorney's fee.

Prior to a significant amendment to the group policies in 1959 they provided participating Phillips employees with life insurance and disability insurance coverage. However, these coverages were not cumulative. That is to say, if a participating employee became disabled while covered by the policies and successfully established a claim for disability benefits, he lost his life insurance protection. Further, the policies specified in general, and with certain qualifications not here pertinent, that all insurance coverage ceased when an employee retired from the employ of Phillips, except that he could receive monthly benefits on account of a pre-retirement disability of sufficient magnitude, provided that he filed proof of such disability on forms provided by the Company within 12 months of his retirement.*fn1

In 1959 both policies were amended by a written agreement between defendant and Phillips. By virtue of the amendment Phillips employees could continue their insurance protection under the policies after retirement if they elected to do so. However, it was provided that the continuance of insurance protection after retirement would be without prejudice to pre-retirement disability claims, provided that proof of such claims was made on Company forms within twelve months after retirement.

The certificates issued to plaintiff prior to the 1959 amendment to the group policies purported to set forth certain significant provisions of the policies themselves, including the provisions as to the making of post-retirement proof of pre-retirement disability.

When the policies were amended in 1959, no new certificates were issued to plaintiff, and there is nothing to indicate that he had any personal knowledge or was given any personal notice about the terms of the amendment, or that he knew that his electing to take post-retirement insurance protection would be without prejudice to a pre-retirement disability claim provided that he made sufficient proof of such disability within a year after he retired.

Immediately prior to his retirement plaintiff's basic life insurance coverage under his older certificate was $2,000, and his life insurance coverage under his newer certificate was $11,000. The disability provisions of the policies called for monthly disability benefit payments the amounts of which were based upon the amount of life insurance in force at the time of the commencement of compensable disability. Each policy set up optional schedule of payments with the option to be exercised by Phillips.*fn2 It was further provided that disability payments would be made to Phillips as trustee for the disabled certificate holder.

Both policies required that disability be both total and permanent in order to entitle a certificate holder to disability payments. And "total disability" was defined in substance as an inability, due to accident or disease, to engage in any occupation or to perform any work for wages or profit. The earlier policy excluded employment-connected disability. No such exclusion was contained in the later policy.

Upon his retirement plaintiff was issued two new certificates, which stated expressly that they superseded all former certificates. The new certificates recited certain provisions of the group policies relating to the continued life insurance protection of plaintiff, but did not refer in any way to the savings provision of the 1959 amendment relating to pre-retirement disability, and said nothing whatever about notice. As a matter of fact the new certificates themselves say nothing about any disability protection, and standing alone they seem to afford life insurance protection only. However, the defendant through its attorney conceded at pre-trial conference that plaintiff does have some disability protection under the new certificates, but that any disability payments under the new certificates would have to be based on plaintiff's present life insurance coverage which amounts to only $4,000, as compared to $13,000 under the old certificates.*fn3

The one year period for making proof of a pre-retirement disability claim expired, as far as plaintiff was concerned, on September 1, 1962. As of that date he had not made any such proof.

On April 17, 1963, the present attorney for plaintiff addressed a demand letter to the defendant. That letter referred to the basic policies by number and also referred to the amount of life insurance under the older policy as being $2,000, and the amount of such insurance under the newer policy as being $11,000. It was stated that plaintiff had become totally disabled on August 31, 1961, as a result of rheumatoid arthritis, and that his disability was permanent. Counsel then proceeded:

    "You have been advised of Mr. Yarbrough's
  disability prior to this time and he has heard
  nothing from you with regard to the payments to
  which he is entitled under the terms of the
  policies provided for total and permanent
  disability benefits.
    "Demand is hereby made upon you for payment of
  benefits under the terms and ...

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