A recent article published in Life Health Pro put the spotlight on a South Carolina case that involved the cancellation of a life insurance policy for non-payment of premiums, otherwise known as a lapsed policy case. I highlight it here because it is something that I frequently come across as a life insurance attorney.
Although the beneficiary lost the case, there are instances where she can prevail if the facts are on her side and a smart, knowledgeable attorney works hard to develop available arguments.
The facts of the case, venued in a South Carolina federal court, were sympathetic to the beneficiary. Her husband, the insured, had been diagnosed with Parkson’s Disease and dementia in the time frame when the premium payment was due, was hospitalized and died about six months later. Further, just before he died, his widow called the insurer to ask if she could pay any missed premium payments, but was told that the insured would have to contact the company to reinstate the policy (which he lacked the capacity to do) or he would have to authorize her to communicate with it (which he also was incapable of doing).
The court ruled that, despite the widow’s contention that proper cancellation notices had not been sent, the policy was no longer in effect on the date of death. South Carolina law does not contain requirements for the termination of life insurance policies for non-payment of premiums and the policy did not impose any special requirements.
The court also held that because the insurer had previously accepted 22 premium payments during the grace period (a short period of time after the premium due date during which an insurer will still provide coverage if a premium payment is made) did not mean that it had waived its right to terminate the policy in this case, because the grace period had expired.On the 22 prior occasions, the payment was made during the grace period, but again, in this case, it had expired. Thus, according to the court, the previous course of conduct did not create a reasonable expectation that premium payments would be accepted after the grace period expired.
In my experience, it is frequently the case that life insurance companies will accept late premium payments when it suits their financial interest to do so, such as early in the life of the policy, even when the grace period has expired. But when the insured is of advancing age, and of course when the insured dies, they will suddenly tighten up their standards for timely payments.
This waiver argument was rightly made by the widow’s attorney, but unfortunately it did not prevail.
Finally, the court rejected the argument that because the widow had contacted the insurance company to try to make payment, the policy should not have terminated. This is particularly tough to swallow, because this was not a simple case of non-payment, but rather, the widow was trying to salvage the policy. Under equitable principles and basic fairness, I think the policy should have been honored.