Insurance – Disability insurer denied summary judgment in lawsuit over rescission

Where a disability insurer rescinded a policy based on alleged misrepresentations by the policyholder, but there are disputed issues of material fact over whether recission was allowed, if the policyholder first breached the contract and if either party acted with unclean hands, the cross motions for summary judgment were largely denied.

Background

After Sherrill Worth Stockton III made a claim for disability benefits from New York Life Insurance Company, it rescinded his coverage. This lawsuit followed. Now before the court are cross motions for summary judgment.

Counterclaims

Stockton moves for summary judgment on NY Life’s fraud in the inducement and breach of the implied covenant of good faith and fair dealing counterclaims, arguing that NY Life has suffered no compensable damages and that the counterclaims fail on their merits. The court agrees.

Rescission

Stockton argues he is entitled to summary judgment because he is authorized to enforce the policy’s incontestability provision and NY Life had no right to rescind his coverage. NY Life argues that Stockton deliberately delayed filing his claim until after the contestability period expired, thereby preventing NY Life from investigating and contesting his coverage before June 1, 2022.

Whether Stockton’s delay was deliberate and calculated to bypass the contestability period presents a factual question that cannot be resolved on summary judgment. Material factual disputes also exist regarding the policy’s notice requirements and whether Stockton’s failure to provide timely notice estops him from enforcing the incontestability provision. Moreover, material disputes exist regarding whether NY Life would have contested his coverage before the contestability period expired on June 1, 2022, had notice been timely.

Stockton nevertheless argues that NY Life waived any rights arising from his failure to give timely notice by engaging in five months of correspondence without mentioning the timeliness issue. While Stockton’s interpretation of NY Life’s silence as waiver is plausible, a jury must determine whether NY Life voluntarily and intentionally abandoned a known right, or whether it preserved its rights by timely asserting them once the claim was complete.

Stockton next argues that NY Life is not entitled to rescind coverage because it cannot comply with Virginia statutory requirements or the policy’s incontestability provision. I find that substantial disputes of material fact exist regarding whether NY Life can satisfy these requirements, precluding summary judgment in Stockton’s favor.

Affirmative defenses

Because NY Life has expressly admitted that its defenses of payment and accord and satisfaction do not relate to the payment of these benefits, those defenses cannot bar Stockton’s claim for disability benefits as a matter of law. Accordingly, plaintiff’s motion for summary judgment with respect to defendant’s third affirmative defense is granted.

Defendant’s MSJ

NY Life moves for summary judgment on multiple grounds, arguing that: (1) Stockton fraudulently induced NY Life to provide coverage by misrepresenting his other insurance; (2) Stockton materially breached the contract by failing to replace his other coverage; (3) under the 66 2/3 percent provision, no monthly benefit is available because Stockton already receives disability payments exceeding that threshold; (4) Stockton’s coverage ended when he stopped working in April 2022, before any alleged disability arose and (5) the false date provided by Stockton triggered the contestable review and constituted material breach.

First, genuine disputes of material fact preclude summary judgment on NY Life’s fraud claim. Second, whether Stockton’s retention of other policies constituted a breach—and if so, whether that breach was material—presents factual questions inappropriate for resolution on summary judgment.

NY Life then argues that even if coverage is not rescinded, Stockton cannot recover benefits because he already receives disability payments from other sources exceeding 66 2/3 percent of his average monthly income, thereby triggering a contractual bar in the policy. I cannot resolve this issue on summary judgment.

Fourth, here are genuine disputes of material fact regarding when and why Stockton stopped working. Fifth, while NY Life argues that Stockton cannot recover because his “false date” triggered NY Life’s contestable review, and he cannot complain about the results of a review that his own misrepresentation caused, this argument is unpersuasive. Defendant’s motion for summary judgment denied.

Unclean hands

Stockton moves for summary judgment to apply the unclean hands doctrine to bar NY Life from rescinding his disability insurance coverage. NY Life opposes Stockton’s motion and cross-moves for summary judgment on its unclean hands defense. Even if the unclean hands doctrine could bar legal claims in Virginia, genuine disputes of material fact preclude summary judgment for either party on this issue.

Plaintiff’s motion for summary judgment on defendant’s first and third counterclaims and third affirmative defense granted. All other motions denied.

Stockton III v. New York Life Insurance Co., Case No. 7:23-cv-00646, March 31, 2026. WDVA at Roanoke (Ballou). VLW 026-3-156. 39 pp.

Full-Text Opinion

VLW 026-3-156
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