Reaper v. ACE American Insurance Company

Background

Red Reaper alleged that he voluntarily donated bone marrow to the National Marrow Donor Program on March 15, 2012. ACE had issued an insurance policy to the National Marrow Donor Program that provided temporary and permanent disability benefits to eligible donors. Reaper alleged that he experienced continuing pain and weakness in his hips, back, and legs after the donation and was permanently disabled.

Reaper alleged that he contacted the National Marrow Donor Program in June 2012 about submitting a disability claim. According to the complaint, the program discouraged him from filing a claim with ACE and gave him an incorrect interpretation of the policy. Reaper’s counsel submitted a claim in September 2020, and ACE denied it in February 2021. Reaper then sued ACE for breach of contract and breach of the duty of good faith and fair dealing.

ACE moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. ACE argued that Reaper’s claims were untimely under the policy’s deadlines.

Contractual Deadlines

The policy required written proof of loss within 90 days after the loss, unless that was not reasonably possible, and in no event later than one year after proof was otherwise required, except when the claimant lacked legal capacity. The policy also stated that no lawsuit could be brought more than three years after the date proof of loss was required.

ACE argued that proof of loss was due within 90 days after Reaper’s March 2012 bone marrow procedure and that any lawsuit had to be filed by June 2015. The court did not adopt that precise calculation. Instead, it considered California Insurance Code section 10350.7, which can allow proof of loss for continuing disability benefits within 90 days after the insurer’s period of liability ends.

The court noted that courts disagreed about how to interpret the phrase “the period for which the insurer is liable.” It did not decide which interpretation was correct because Reaper’s lawsuit was untimely even under the interpretation most favorable to him. Under the policy, permanent total disability benefits were capped at $250,000 and paid at $5,000 per month, for a maximum benefit period of approximately 4.167 years. The policy also required the permanent disability to begin within 365 days after the covered accident. The court therefore concluded that ACE’s maximum liability period was approximately 5.167 years after the March 15, 2012 procedure.

Using that calculation, the court determined that proof of loss was due approximately August 15, 2017, and that the lawsuit had to be filed by approximately August 15, 2020. Reaper filed the action in July 2021. The court held that the lawsuit was untimely under the policy.

Tolling and Estoppel Arguments

Reaper argued that the limitations period should be extended because ACE’s February 2021 denial letter did not provide notice of the contractual deadline. The court rejected this argument, explaining that the filing period had already expired before Reaper submitted his claim and before ACE sent the denial letter. The court found that the authority Reaper cited did not allow extension of the deadline in these circumstances.

Reaper also argued that ACE should be prevented from relying on the deadline because the policy did not provide him with notice of it and because the National Marrow Donor Program allegedly discouraged him from filing a claim. The court found that the complaint did not allege facts showing that ACE was required to provide additional notice or that the National Marrow Donor Program was ACE’s agent. The court therefore rejected equitable estoppel, a doctrine that can prevent a party from relying on a position when its conduct allegedly caused another party to act to that party’s detriment.

Disposition

The court found that the claim was untimely on the face of the complaint and GRANTED ACE’s motion to dismiss. The court could not say that amendment would necessarily be futile, so it allowed Reaper to file an amended complaint within 21 days if he could do so consistently with his obligations under Rule 11. The court also continued the telephonic case-management conference to February 15, 2022.