ALBANY, N.Y., October 24 – The New York Court of Appeals, in a unanimous decision, ruled that the Relation to Earnings to Insurance (REI) clause?within the General Provisions of a disability insurance policy?complies?with Insurance Law Section 3216.

In Friedman v. Connecticut General Life Insurance Company, Connecticut General issued a disability policy including Total Disability Benefit and Policy Specifications sections but failed to mention they were subject to REI, which in certain circumstances could reduce the amount of the disability benefit based on the policyholders prior earnings. The REI clause was placed in General Provisions, at the end of the policy. ?

The insurance company applied the REI clause to reduce Friedmans payments, and Friedman commenced action alleging, among other things, statutory and regulatory violations, deceptive practices, breach of contract, and unconstitutionality.

Supreme Court concluded that Connecticut General violated Insurance Law Section 3216(c)(c)(7), which governs the placement of exceptions and reduction of indemnity in health and accident policies. It interpreted the statute to require that all exceptions and reductions that apply only to a particular benefit, such as the REI clause, must be placed with the benefit provision to which they apply, in this case the total disability benefit. Since it was not, the court said the REI clause was unenforceable and awarded summary judgment to Friedman.

The Appellate Division, First Department reversed, holding that the REI clause was not subject to Insurance Law section 3216(c)(7), but instead to 3216(d)(2) and (d)(4), which prescribe the caption and language to be used for an REI clause, and the order in which the provisions it governs must be printed.

Friedman claimed that even if the REI clause was enforceable, Connecticut had not calculated his benefits correctly, contending that once this clause is no longer moot, it must be reinstated because it has never been considered on its merits by any court.

Judge Susan Read, writing the Court of Appeals decision, upheld the Appellate Courts decision with modification. She said the record makes clear that between Supreme Courts initial order, which was addressed solely to the pleadings, and its subsequent order, which disposed of Connecticut Generals and plaintiffs motions for summary judgment and partial summary judgment respectively, neither party submitted additional facts on the subject of the placement of the REI clause.

Connecticut Generals motion for summary judgment and its supporting memoranda, exhibits, and affirmations merely reassert the argument made in its earlier motion to dismiss; that is, that plaintiff insufficiently alleged a mistake.

For his part, plaintiff did not cross-move for summary judgment on this particular cause of action. Instead, he simply took the position that there were material issues of fact regarding Connecticut Generals misapplication of the REI clause, assuming it to be enforceable.

As a result, Read wrote, this requires further adjudication. Therefore, the Appellate Department decision should be modified, without costs, by reinstating the REI cause of action and remitting to Supreme Court for further proceedings on that cause of action, and, as so modified, should be affirmed.

Concurring in the opinion were Chief Judge Judith Kaye and Judges Ciparick, Graffeo, Smith, Pigott, and Jones.