Pay Premium or Lose Coverage

No Contractual Right to Reinstatement

Insurance is a based on the terms of the contract. It is not a right conferred upon persons by the U.S. Constitution. It requires the insured to keep certain promises made by the insured to the insurer, the most important of which is the obligation to pay the premium. When the insured breaks the promise and fails to pay the premium the policy will usually cease to exist and the insured loses all rights to the benefits of the insurance policy.

In Angel Moreno And Carmelita Moreno v. Wells Fargo, N.A.; American Bankers Life Assurance Company Of Florida, Formerly Known As Union Security Life Insurance Company, …, — Fed.Appx. —- , Ninth Circuit, 2016 WL 3092186 (6/2/16) the Ninth Circuit was faced with the appeal of Angel Moreno and Carmelita Moreno whose suit had been dismissed. Their amended complaint alleged claims under Arizona law against Defendants Wells Fargo, N.A. (Wells Fargo) and American Bankers Life Assurance Company of Florida (American Bankers) for disability benefits.

The Morenos’ claims included those for breach of the duty of good faith and fair dealing, breach of contract, consumer fraud, and unfair and deceptive acts and practices in the business of insurance.


This case arises from a home loan that the Morenos obtained through Wells Fargo. In conjunction with this loan, the Morenos elected to purchase disability insurance coverage from Union Security Life Insurance Company, now known as American Bankers. The insurance policy at issue provided that coverage would terminate if and when: “You are considered in default under the terms of your debt agreement with the Creditor, or in default with your monthly insurance premium.”

It was not disputed that the Morenos failed to timely make full mortgage and insurance premium payments beginning in April 2012, several months prior to Wells Fargo’s August 20, 2012 letter notifying the Morenos that their insurance coverage had ended. Accordingly, the Morenos’ failure to make their payments caused them to lose their insurance coverage, not any act or omission by defendants.

To be sure, Wells Fargo’s Truth in Lending Disclosure for Optional Credit Insurance provided that the Morenos would be notified prior to termination. As such, the Morenos contend that had they been notified prior to termination, they would have corrected the deficiency. However, neither the disclosure nor the insurance policy provided a right to cure or to reinstatement, and the statutory right to cure under Arizona law does not apply to insurance agreements. Accordingly, it would not have been reasonable for the Morenos to expect that a right to cure existed.

The parties do not dispute that Mr. Moreno became disabled in December 2012. Nor do the parties dispute that the Morenos seek coverage under the policy in question beginning at that time. The Morenos’ disability insurance coverage, however, terminated several months before Mr. Moreno’s disabling event and, therefore, before any coverage rights under their policy would have accrued.


As a result, any failure by defendants to provide prompt notice of termination in April 2012 when the Morenos first failed to make full mortgage and insurance premium payments did not cause the Morenos’ loss.

Because the Morenos cannot overcome their causation problem, any amendment of the complaint would have been futile.

Nor did the district court abuse its discretion in awarding attorneys’ fees. The Morenos’ contention that the district court did not give sufficient consideration to their financial condition is unavailing. The district court acknowledged and discussed the Morenos’ financial condition and dramatically lowered the attorneys’ fees award sought by each defendant as a result.


The Ninth Circuit, avoiding its usual facility to write a long and convoluted opinion, stuck to the facts and the law and concluded that when an insured breaches the contract by failing to pay the premium and the mortgage payments they are not entitled to recover credit disability benefits.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

Mr. Zalma is the first recipient of theLEGENDAWARD first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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