Lax v. Monarch Life Insurance Company

Background

Monarch issued James D. Lax two disability insurance policies, one in 1987 and another in 1990. The policies provided monthly benefits if Lax became disabled. For total disability, the maximum benefit period was lifetime if the disability began before the insured’s 65th birthday, and 24 months if it began afterward.

Lax alleged that he became disabled before turning 65. He applied for benefits in March 2019, after turning 65, and Monarch approved monthly payments under both policies. In June 2021, after two years of payments, Monarch terminated the benefits because it determined that Lax’s disability began after his 65th birthday. Lax alleged that he had provided information showing that his disability began no later than 2018, when he was 64.

Lax asserted five causes of action: breach of the policies based on termination of his disability benefits; breach of the covenant of good faith and fair dealing; anticipatory breach and repudiation of the policies; unjust enrichment; and breach of the policies’ residual-disability provisions. Monarch moved to dismiss the second through fifth causes of action. Lax also sought attorneys’ fees and punitive damages.

Rulings on the Claims

Good-faith claim. The court dismissed the second cause of action. Under New York law, the duties created by a first-party insurance policy are contractual, and there is no separate bad-faith cause of action based on denying insurance benefits. Lax conceded that this independent claim was unavailable. The court did not decide whether bad faith could support consequential damages because that issue was not necessary to resolve the motion.

Repudiation claim. The court dismissed the third cause of action. An anticipatory breach claim under a disability insurance policy requires an insurer to repudiate the entire policy. Monarch allegedly denied Lax’s claim based on its interpretation of the policy’s benefit-period provisions; it did not disclaim the policies or state that they were invalid. The court therefore held that the alleged termination of benefits was a dispute over coverage, not a repudiation of the policies.

Unjust-enrichment claim. The court dismissed the fourth cause of action as duplicative of Lax’s contract claims. Lax based both theories on the same alleged failure to pay benefits after he paid premiums, and he identified no additional facts supporting unjust enrichment. Because the parties did not dispute that the policies were valid and enforceable, the court found no separate basis for the unjust-enrichment claim.

Residual-disability claim. The court dismissed the fifth cause of action under Rule 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. The policies stated that residual benefits would not be paid when the combined period of total and residual benefits exceeded either the maximum benefit period or 24 months after the insured’s 63rd birthday. The court found this language unambiguous. Because Lax alleged that Monarch paid total-disability benefits for 24 months from June 2019 to June 2021, and the complaint stated that he was 64 in 2018, the court held that the policies permitted Monarch to stop residual-benefit payments.

Attorneys’ Fees and Punitive Damages

The court struck Lax’s requests for attorneys’ fees and punitive damages. New York law generally does not allow an insured to recover the expenses of suing an insurer to establish rights under an insurance policy. Punitive damages also were unavailable because Lax did not allege an independent tort, sufficiently egregious conduct, or conduct forming part of a pattern directed at the public. Lax conceded that these remedies were not available under the allegations presented.

Disposition

Judge Gregory H. Woods granted Monarch’s motion to dismiss Lax’s second, third, fourth, and fifth causes of action and to strike Lax’s requests for attorneys’ fees and punitive damages. The opinion’s conclusion does not state a separate disposition of the first breach-of-contract cause of action.