Life Insurance Policy’s “Actively at Work” Provision Found Ambiguous as Meaning Either “Full-Time Employee” Status or “Actually Performing Work”

In Sequeira v. Lincoln National Life Ins. Co. (no. A139639; filed 8/31/15), a California Court of Appeal found the terms “Active Work or Actively at Work” ambiguous regarding the effective date of an employee’s supplemental life insurance policy where the policy incepted on a holiday, and the employee died before returning to work.

In Sequeria, the City of Vacaville offered employees basic and supplemental life insurance benefits. The policies were issued January 1, with the basic coverage effective immediately, but the supplemental coverage effective “the day you resume Active Work, if you are not Actively at Work on the day you become eligible.” The terms “active work or actively at work” were defined as “the full-time performance of all customary duties of an employee’s occupation at the employer’s place of business (or other business location to which the employer requires the employee to travel.)”

The Plaintiff was a long-time City employee who opted to purchase both basic and supplemental coverages. The Lincoln National policies were issued as of Friday, January 1, which was a paid City holiday. The Plaintiff became ill on Saturday, January 2, and died on January 6, never having returned to his job. Lincoln National paid his wife the death benefit under the basic coverage, but took the position that nothing was owed under the supplemental coverage, since he had never returned to work.

In the subsequent bad faith lawsuit, the trial court agreed with Lincoln National, granting summary judgment on the ground that the Plaintiff “was not ‘actively at work’ because he was not on the job, at his employer’s place of employment, performing his customary duties; he was on paid holiday. Mr. Sequeira was hospitalized on January 2, 2010 and passed away on January 6, 2010. He did not resume Active Work on or after January 1, 2010. As a result, although he met the eligibility requirements, the policy did not become effective as to him.” According to the trial court, “The definition of ‘Active Work or Actively at Work’ in Mr. Sequeira’s policy does not pertain to the employees’ status…. The Effective date provision in Sequeira’s policy pertained to the employee’s location, e.g., he was required to be in full-time performance of his customary duties at the employer’s place of business on January 1, 2010. Although sympathetic to Plaintiff, the court cannot redraft this insurance contract.”

But the appeals court disagreed, finding the policy ambiguous. Reading the policy as a whole, and relying on case law from other jurisdictions, the appeals court concluded that the phrase “actively at work” could be equally read as referring to the insured’s status of employment, rather than his employment activities on a given day. The court found that reading “actively at work” in the manner advanced by Lincoln National would produce “bizarre” results with regard to the policy’s “waiting period” and “termination of coverage” provisions. The court also rejected the insurer’s argument that the plaintiff’s interpretation created redundancy, and the court distinguished case law relied on by the insurer as involving different policy wordings.

Thus, the Sequeria court concluded that “the policy supports an interpretation referring to an employee’s full-time status, and not whether the employee is actually performing work…. The definition of ‘full-time’ [in the policy’s definition of ‘full time employee’] does not depend on an employee being on the job at a given moment in time. Instead, it addresses whether an employee has another occupation, whether the employee is temporary or permanent, and the hours the employee is regularly scheduled to work—in other words, an employee’s status. Given this, a reasonable insured could interpret ‘full-time performance’ in the definition of ‘Active Work or Actively at Work’ to also refer to employment status, as opposed to actually being on the job at any given moment.”

Having found that the policy was capable of multiple interpretations, the Sequeria court resolved the ambiguity according to the reasonable expectations of the insured: “We have no trouble determining that Sequeira reasonably expected that the supplemental policy was effective before his death. He enrolled in coverage in October 2009 and made premium payments for coverage later that year. Lincoln then issued a policy on January 1, 2010. Sequeira could reasonably expect that the supplemental policy was effective on January 1, 2010, and he certainly would not expect that the coverage he paid for would be ineffective because he took New Year’s Day off from work and became ill the next day.”

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September 1, 2015