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COMMERCIAL INS. CO. v. KRAIN

January 19, 1994

COMMERCIAL INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff,
v.
LAWRENCE S. KRAIN, Defendant.



The opinion of the court was delivered by: MARVIN E. ASPEN

 MARVIN E. ASPEN, District Judge:

 Plaintiff Commercial Insurance Company of Newark, New Jersey brings this four-count complaint against defendant Lawrence S. Krain, seeking rescission of two insurance policies issued to the defendant, and restitution of amounts paid to him thereunder. Presently before the court is Krain's motion to dismiss for failure to state a claim and for failure to comply with the applicable statute of limitations, and Commercial's motion for leave to file an amended complaint. For the reasons set forth below, Krain's motion is denied, and Commercial's motion is granted.

 I. Motion to Dismiss Standard

 A motion to dismiss should not be granted unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); see also Beam v. IPCO Corp., 838 F.2d 242, 244 (7th Cir. 1988); Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir. 1985), cert. denied, 475 U.S. 1047, 89 L. Ed. 2d 574, 106 S. Ct. 1265 (1986). We take the "well-pleaded allegations of the complaint as true and view them, as well as reasonable inferences therefrom, in the light most favorable to the plaintiff." Balabanos v. North Am. Inv. Group, Ltd., 708 F. Supp. 1488, 1491 n.1 (N.D. Ill. 1988) (citing Ellsworth).

 II. Background

 Plaintiff Commercial Insurance Company is a New Jersey corporation which is licensed to do business in Illinois. The present action relates to two insurance policies offered by Commercial and issued to defendant Lawrence S. Krain. Krain applied for the Illinois State Medical Society Disability Income Protection Plan on December 26, 1984, and Commercial issued the policy on January 18, 1985. He made his first claim to Commercial under this policy on November 15, 1985, and has since received $ 168,000.00 in benefits. Krain applied for the second policy, the Illinois State Medical Society Group Major Medical Expense Policy, on February 11, 1985, and Commercial issued the policy on April 1, 1985. On November 15, 1985 and January 1, 1987, Krain made claims under the policy, and Commercial has paid out $ 38,887.82 in benefits.

 III. Discussion

 Krain's first argument in favor of dismissal arises from the language of the policies themselves. Each policy contains a clause entitled "Time Limit on Certain Defenses." In the Major Medical Policy, the clause reads as follows:

 
After two years from the effective date of a person's insurance, no statements, unless fraudulent, made by such person may be used to void the insurance or deny a claim for loss incurred or disability which begins after the end of such two year period.

 The parallel provision in the Disability Income Protection Plan states:

 
If You made a misstatement on the application for this Policy, We may not use it to void this Policy or to deny a claim for loss incurred or disability that starts after 2 years from the effective date. But if the misstatement was fraudulent there is no time limit. *fn1"

 From this language Krain makes two arguments. First, he claims that these clauses act as an automatic bar to any lawsuit filed more than two years after the effective date of the policy. Indeed, he asserts that the above clauses unambiguously support this claim. We disagree. The language clearly applies to situations in which the loss or disability occurs more than two years after the effective date, and not necessarily in which any lawsuit is filed more than two years after the effective date. That is, these clauses do not bar an action filed more than two years after the start of the policy which deal with a loss incurred or a disability which begins less than two years ...


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