The New York Court of Appeals recently rejected an insured’s argument that the placement of a “Relation of Earnings to Insurance” (REI) Clause within the “General Provisions” of a disability insurance policy rendered the clause deceptive and unenforceable. Friedman v. Connecticut Gen. Life Ins. Co., No. 116 (N.Y. Ct. App. October 18, 2007).
The defendant insurer issued a disability income policy to the plaintiff insured in which an REI clause was located in the “General Provisions” section of the policy. The REI clause specified that, if the benefits covered exceeded the insured’s monthly earnings at the time disability commenced or a 2 year period thereafter, the insurer would only be responsible for a reduced amount of the benefits under the policy. The insured subsequently suffered a disabling injury and the insurer applied the policy’s REI clause to reduce the insured’s monthly benefits.
The insured brought suit alleging that the insurer’s application of the REI clause was in breach of contract, was unconscionable, and violated New York insurance statutes and regulations. The insured’s primary argument in support of its lawsuit was that the location of the REI clause in the “General Provisions” section, rather than the total disability benefits section, of the policy was deceptive and in violation of New York Insurance Law § 3216.
The trial court agreed, holding that the REI clause was void and granting the insured full disability benefits and reimbursement for payment deductions. The insurer appealed. The appellate court rejected the lower court’s interpretation of Insurance Law § 3216, holding that the REI clause’s location in the policy did not violate the statute as a matter of law.
In affirming the appeal’s court’s ruling, New York’s highest court ruled that Insurance Law § 3216 mandates only the wording of an REI clause, not its location within a policy. Because the wording used in the REI clause at issue precisely tracked the statutory requirements, the Court of Appeals found the clause fully enforceable.