Defendant-Appellee, Massachusetts Casualty Insurance Company (“MCIC”), petitions for rehearing following our decision in Nunn v. Massachusetts Casualty Insurance Co.,
Plaintiffs-Appellants appeal from a September 10, 2012 order of the United States District Court for the District of Connecticut (Arterton, J.) granting Defendant’s motion for summary judgment. The district court erred in failing to correctly apply Pennsylvania’s reasonable expectations doctrine to Plaintiffs’ reformation claims and in finding the breach of contract claims to be time-barred. We therefore VACATE and REMAND in accord with the following.
BACKGROUND
Ronald Nunn and Donald Vaden are former National Basketball Association (“NBA”) referees. In September 1996, Plaintiffs participated in a referee training camp in New Jersey and attended a union meeting hosted by the National Basketball Referees Association (the “NBRA”). At the meeting, Steven Lucas, a sales representative for Sun Life of Canada, the company MCIC had designated as its administrator for disability income products, gave a presentation about supplemental disability insurance offered by MCIC. Sun Life authorized Lucas to solicit applications for MCIC’s insurance policies. He was introduced as a “disability expert” with seventeen years’ experience. During the presentation, Lucas described a supplemental
this program is a function of you being covered in your occupation at the time disability starts. If you can’t be an official but you can work in a store some place you go ahead and work there. I mean, you are totally disabled from being an NBA official that is what the disability is based on.
(Id. at 33) (emphasis added). He stressed repeatedly that one of the supplemental insurance’s key advantages was that it covered policy-holders unable to perform their “own occupation” — here, NBA referee— until they were sixty-five years old, regardless of the extent of disability. Lucas reiterated this point numerous times and further explained that while their current disability policy only paid benefits for ten years after disability, his company’s policy would make monthly payments to age sixty-five no matter when the insured became disabled. (Id. at 10). Again and again he counseled the gathered referees that “[tjhey are all still going to collect the [monthly payments] through the age of 65[;]” the “fact that it is issued to age 65 it guarantees you that the supplement is truly that because it is tax free[;]” “[t]he program covers you to 65 as I mentioned before!;]” and “[t]he policy is guaranteed to you to age 65.” (Id. at 11, 12, and 14).
Within weeks of his presentation, Lucas sent each Plaintiff an application for supplemental coverage. Each completed the application with Lucas’ assistance over the phone. Within a few days of each other, Plaintiffs submitted applications through Lucas for the supplemental disability insurance policy he had described. Lucas signed both. Neither Plaintiff read the description of coverage prior to submitting their respective application. Plaintiffs received their copies of MCIC’s supplemental disability insurance policy, but again neither read the policy.
During his deposition, Lucas agreed that “the terms of the policy as [he] described them were not consistent with the terms of the policies that were sold to the NBA referees[.]” (Lucas Dep. at 12-13). He admitted that the policies’ “own-occupation period of the definition of disability” was “inconsistent” with the terms described in his presentation. (Id. at 17). He did not tell the NBRA members that the policy he
In 2002, Nunn suffered a knee injury that ended his career as an NBA referee. The next year, Vaden also suffered a career ending injury. Each began receiving monthly payments pursuant to their supplemental insurance policies; but after sixty months — Nunn was fifty-eight and Vaden fifty-five — the payments stopped. Because both Plaintiffs were able to work at other jobs — in fact, both continued working for the NBA in other capacities— MCIC ceased payment.
Both Plaintiffs claim that based on Lucas’ presentation, they expected to receive payments until age sixty-five. Vaden explained that he did not read the policy because “[he] really went by what [Lucas] told [him] because [he] trusted [Lucas].” (Vaden Dep. at 37). “[Lucas] was convincing, and then the union as a whole was excited about it, so I trusted him.” (Id. at 60). Nunn similarly explained that “[he] didn’t feel there was a need [to read the policy]. It was pretty clear how [he] understood Mr. Lucas’s presentation.” (Nunn Dep. at 27).
In August 2010, Plaintiffs filed suit in the United States District Court for the District of Connecticut, alleging breach of contract and/or seeking reformation with respect to each policy. MCIC moved for summary judgment, asserting that Plaintiffs’ claims were barred by Connecticut’s six-year statute of limitations, and that the insurance policies contained unambiguous language limiting Plaintiffs to sixty months of supplemental disability insurance payments if they were able to perform any gainful occupation thereafter.
The court concluded that Plaintiffs were not entitled to reformation. In reaching this decision, the district court found that Pennsylvania law governed the substance of the contract. The court explained that under Pennsylvania law, courts generally give effect to the plain language of a contract, but if “the insurer [ ] either unreasonably obscure[d] the terms or outright deceive[d] the insured,” Pennsylvania law requires courts to interpret contracts based on the “reasonable expectations” of the insured. Nunn v. Massachusetts Cas. Ins. Co., 3:10CV1350 JBA,
The court also determined, and the parties do not dispute, that Connecticut law supplies the statute of limitations period for Plaintiffs’ breach of contract claims. Based on Connecticut’s six-year period, the court concluded the claims were time-barred because the breach occurred in 1996, the date the policies were issued— not in 2008 or 2009, when MCIC ceased making payments and Plaintiffs became aware of the limits of their policies.
While Connecticut is the forum state, both parties agree that Pennsylvania is the “contract state,” and thus Pennsylvania’s law applies to “matters of substance.” In ascertaining the substantive law of the forum, federal courts will look to the decisional law of the forum state, as well as to the state’s constitution and statutes. Erie R. Co. v. Tompkins,
Pennsylvania law is somewhat unique in that it employs the reasonable expectations of the insured in some situations to govern contract interpretation. Gilderman v. State Farm Ins. Co.,
The Third Circuit surveyed the Pennsylvania Supreme Court’s decisions on the doctrine of reasonable expectations eight years ago in Tran v. Metropolitan Life Insurance Co.,
In Standard Venetian, the insured purchased a general liability policy for his company, Venetian. The policy covered personal injury or property damage caused by Venetian, but excluded coverage for property damage to Venetian’s products caused by its employees or by the products themselves. Standard Venetian,
Venetian argued that because the exclusion had never been noted or explained to its principals the exclusion could not be enforced against it. Id. at 305-06,
Four years later in Tonkovic, the Pennsylvania Supreme Court put an end to that temptation. In Tonkovic, the insured had specifically requested a disability policy that would pay his home mortgage if he became disabled as a result of an accident for which he would also receive workers’ compensation. His insurance agent— aware of this expectation — made no effort to disabuse the insured that his policy would not coincide with the coverage requested. Tonkovic,
a crucial distinction between cases where one applies for a specific type of coverage and the insurer unilaterally limits that coverage, resulting in a policy quite different from what the insured requested [as in Rempel], and cases where the insured received precisely the coverage that he requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for [as in Standard Venetian]. When the insurer elects to issue a policy differing from what the insured requested and paid for, there is clearly a duty*116 to advise the insured of the changes so made. The burden is not on the insured to read the policy to discover such changes, or not read it at his peril.
Id. at 454,
one theme emerges ... courts are to be chary about allowing insurance companies to abuse their position vis-a-vis their customers. Thus we are confident that where the insurer or its agent creates in the insured a reasonable expectation of coverage that is not supported by the terms of the policy[,] that expectation will prevail over the language of the policy.
Tran,
These cases reveal that reasonable expectations cases fall into two camps. In one, “where one applies for a specific type of coverage and the insurer unilaterally limits that coverage, resulting in a policy quite different from what the insured requested,” the insured’s expectations are reasonable and therefore govern the contract. West v. Lincoln Ben. Life Co.,
Plaintiffs’ claims fall within the first camp. Plaintiffs have put forth sufficient evidence to create a material issue of fact as to whether Nunn and Vaden reasonably expected that the policies would provide coverage through age 65 as long as they were disabled from performing as referees, based on Lucas’ representations. Vaden and Nunn contend they never read their policies, instead assuming that each reiterated the terms Lucas had previously described to them. When they were subsequently injured and unable to work as NBA referees, they argue that, as Lucas had allegedly promised, they should have received payments until age sixty-five.
An insured’s failure to read the policy does not defeat his reasonable expectations. As the Supreme Court of Pennsylvania explained in Tonkovic, “[w]hen the insurer elects to issue a policy differing from what the insured requested and paid for .... [t]he burden is not on the insured to read the policy to discover such changes, or not read it at his peril.”
Contrary to the holding of the district court, nothing in Pennsylvania precedent suggests that Plaintiffs must assert claims of fraud or misrepresentation be
Therefore, the district court erred in granting summary judgment to MCIC on Plaintiffs’ reformation claims. Pennsylvania’s “reasonable expectations” doctrine as set out above governs Plaintiffs’ claims for the reformation of the contracts, which the district court held are not barred by lach-es.
Nonetheless, MCIC presses that Plaintiffs’ attempt to enforce the contract is untimely. Its argument is premised on a strained understanding of the relationship between a procedural matter — the applicable state statute of limitations — and the substantive policies inherent in Pennsylvania contract law.
Plaintiffs concede in their brief that Connecticut law controls the statute of limitations — six years — on their breach of contract claims. See Connecticut General Statutes § 52-576(a). Connecticut, however, does not follow Pennsylvania’s version of the reasonable expectations doctrine. MCIC argues that under Connecticut law, Plaintiffs’ breach of contract claims accrued when Plaintiffs received insurance policies that did not conform with Lucas’ alleged promises. See Tolbert v. Conn. Gen. Life Ins. Co.,
But the parties and the district court agree that Pennsylvania substantive law defined the contract’s interpretation and the parties’ obligations thereunder; Pennsylvania is the contract state. Pennsylvania law determines whether Plaintiffs are entitled to reformation; whether they were absolved under the circumstances from reading the policy at delivery; and whether the contract is to be interpreted (or recast) in a manner consistent with Plaintiffs’ expectations of coverage.
The substantive law of Pennsylvania controls how to interpret the contract— and reform it when necessary — and how to determine the nature and scope of the contractual rights and obligations in play; it is the last word in this case. Though Connecticut law decides the length of the limitations period, if Plaintiffs prevail in showing entitlement to reformation, it would eviscerate the very heart of Pennsylvania’s reasonable expectations doctrine to give force to Connecticut law as to when the claim accrued. It would be a hollow victory indeed for Plaintiffs to succeed on
The district court’s order and judgment dismissing Plaintiffs’ complaints is VACATED with costs, and the matter is REMANDED to the district court for further proceedings in accord with this decision.
Notes
. The policy includes a "Notice of 10-Day Right to Examine this Policy” clause stipulating that Plaintiffs could return the policy if they were "not satisfied for any reason” within 10 days of receiving it. (Nunn and Vaden Dis. Inc. Policy at Cover).
. Plaintiffs did not cross-move for summary judgment.
. The court denied MCIC’s motion to dismiss the reformation claim for laches but then concluded that even if the reasonable expectations doctrine applied, contract reformation would be improper because it “is an equitable remedy that is sparingly applied, and here, there has been extreme delay in filing suit....” Nunn,
. We review an award of summary judgment de novo, construing the evidence in the light most favorable to the nonmoving party and drawing all reasonable inferences in his favor. McBride v. BIC Consumer Prods. Mfg. Co.,
. The district court correctly decided that MCIC had failed on the current record to show any prejudice from any delay in Plaintiffs’ bringing their claims for reformation. However, the court later concluded that Plaintiffs’ reformation claims failed because "there ha[d] been extreme delay in filing suit....” Nunn,
. MCIC also asserted in its motion for summary judgment at the district court that it is not accountable as a matter of Pennsylvania law for Lucas’ representations, which are the subject of this lawsuit. The issue remains open on remand.