United States: Sequeira v. Lincoln National Life Insurance Company

(Supplemental Life Insurance Policy Deemed Ambiguous Based on Whether Employee “Actually At Work” When He Died in a Hospital Bed of a Heart Attack)

In Sequeira v. Lincoln National Ins. Co., ____ Cal.App.4th ____ (August 31st, 2015), the California First District Court of Appeal reversed the trial court’s entry of summary judgment in connection with a widow’s claim for benefits under a supplemental life insurance policy based on ambiguity in connection with whether such policy was triggered due to the death of her husband while in the hospital, rather than actually at his place of employment.

The deceased, Donald Sequeira (“Sequeira”), had been employed with the City of Vacaville (the City) since approximately 1990. Defendant, Lincoln National Insurance Company (“Lincoln”), provided basic life insurance coverage to the City’s employees and also offered employees the option of purchasing supplemental coverage from Lincoln. On October 7, 2009, Sequeira completed an enrollment form for basic coverage as well an additional $275,000 in supplemental coverage. Sequeira designated his wife, Michelle Sequeira, as the primary beneficiary of both the basic and supplemental coverage. Sequeira made two premium payments for the supplemental coverage before the end of the year via paycheck deductions.

Lincoln issued the basic and supplemental policies to the City on January 1, 2010, for participating employees, including Sequeira. The parties agreed that the basic policy was in effect on January 1, 2010, and that plaintiff was entitled to benefits under that policy. Their dispute centered on whether plaintiff was entitled to benefits under the supplemental policy.

The supplemental policy contained the following eligibility provision:


“If you are a Full-Time Employee and a member of an employee class shown in the Schedule of Insurance; then you will become eligible for the coverage provided by the Policy on the later of:

“(1) the Policy’s date of issue; or

“(2) the day you complete the Waiting Period.”

The supplemental policy defined a “Full-Time Employee” as an employee:

“(1) whose employment with the EMPLOYER is the employee’s principal occupation;

“(2) who is not a temporary or seasonal employee; and

“(3) who is regularly scheduled to work at such occupation at least the number of hours as shown in the Schedule of Insurance.”

On the same page as the eligibility provision, the supplemental policy contained the following provision regarding effectiveness:


“Your insurance is effective on the latest of:

“(1) the first day of the Insurance Month coinciding with or next following the day you [4] become eligible for the coverage;

“(2) the day you resume Active Work, if you are not Actively at Work on the day you become eligible;

“(3) the day you make written application for coverage; and sign:

“(a) a payroll deduction order; or

“(b) an order to pay premiums from your Flexible Benefit Plan account, if Employer contributions are paid through a Flexible Benefit Plan; or

“(4) the first day of the Insurance Month following the date the Company approves your coverage, if evidence of insurability is required.” (Italics added.)

The parties agreed that Sequeira was eligible for coverage under the supplemental policy, but disagreed on whether the supplemental policy ever became effective as to Sequeira. The parties’ dispute centered on whether the “active work” requirement in paragraph (2) of the Effective Dates of Coverage provision required Sequeira to perform his work duties between January 1 and his death on January 6 in order for the supplemental policy to become effective. The terms “active work” and “actively at work” found in paragraph 2 are defined in the supplemental policy as follows:

“ACTIVE WORK OR ACTIVELY AT WORK means the full-time performance of all customary duties of an employee’s [5] occupation at the EMPLOYER’S place of business (or other business location to which the EMPLOYER requires the employee to travel.)”

The terms “Active Work” and “Actively at Work” are used in other parts of the supplemental policy. One such place is the waiting period provision, which states: “WAITING PERIOD: 30 days of continuous Active Work.”

The term “Active Work” also appears in the “Termination of Coverage” provision, which states:

“Ceasing Active Work terminates your eligibility. However, you may continue coverage as follows: … [¶] … [¶]

“(2) If you cease active work due to a temporary lay off, an approved leave of absence, or a military leave; then coverage may be continued:

“(a) for three Insurance Months after the lay off or leave begins;

“(b) provided premium payments are made on your behalf.”

Sequeira did not work on January 1, 2010, the day the supplemental policy was issued, because it was a paid holiday. He was hospitalized suddenly on Saturday, January 2nd and died on Wednesday, January 6. His cause of death was related to a viral infection in his heart. He did not report to work between January 1 and his death on January 6.

Subsequently, plaintiff submitted a claim to Lincoln for benefits under both the basic and supplemental policies. Lincoln paid benefits to plaintiff under the basic policy, but denied her benefits under the supplemental policy, reasoning that Sequeira never returned to work from December 30, 2009 prior to the effective date until his date of death. Therefore, Mr. Sequeira was never “actively at work” on or after the effective date of the policy so his coverage under this policy never became effective. The plaintiff filed a complaint against Lincoln National on August 31, 2010 alleging causes of action for breach of contract and bad faith based on its failure to pay benefits afforded by the supplemental life insurance policy. Plaintiff filed a motion for summary adjudication against Lincoln arguing that Lincoln owed her a duty under the supplemental policy to pay the $275,000 in benefits. In turn, Lincoln filed its own cross-motion for summary adjudication on the ground that it did not breach the supplemental policy by denying plaintiff benefits. The trial court denied plaintiff’s motion and granted Lincoln’s motion. For purposes of appeal, subsequently, the parties stipulated to a judgment in favor of Lincoln.

The trial court reasoned that coverage was not afforded under the policy because Mr. Sequeira was not “actively at work” because he was not on the job, at the time he died. As a result, although he met the eligibility requirements, the policy did not become effective as to him.

In reversing the trial court’s decision, the Court of Appeal held that the policy was ambiguous in connection with the meaning of “actively at work.” According to the Court of Appeal, such phrase could be interpreted to mean that the deceased need only be a full-time employee, rather than physically at work, at the time of death. In particular, the court noted that Lincoln’s interpretation of the policy bordered on nonsensical, given that an employee could die on the weekend and be denied coverage based on Lincoln’s interpretation of the phrase “actively at work.”

The Court of Appeal explained the ambiguity as follows:

We begin with the supplemental policy’s definition of “Active Work or Actively at Work” and conclude that it supports an interpretation referring to an employee’s full-time status, and not whether the employee is actually performing work. “Active Work or Actively at Work” is defined as “‘the full-time performance of all customary duties of an employee’s occupation at the EMPLOYER’S place of business.’” Lincoln focuses on the word “performance” and contends it refers to the execution of an action, as opposed to a particular status. (See Merriam-Webster’s 11th Collegiate Dict. (2007) p. 920 [defining “performance” as “the execution of an action”].) However, Lincoln’s argument ignores that the pertinent phrase is not just “performance,” but “full-time performance.” The word “full-time” is found elsewhere in the supplemental policy as part of the definition of “Full-time Employee.” The definition of “full-time” there does not depend on an employee being on the job at a given moment in time. Instead, it addresses whether an employee has another occupation, whether the employee is temporary or permanent, and the hours the employee is regularly scheduled to work—in other words, an employee’s status. Given this, a reasonable insured could interpret “full-time performance” in the definition of “Active Work or Actively at Work” to also refer to employment status, as opposed to actually being on the job at any given moment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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