Sending a Check After Expiration of Policy Does Not Automatically Reinstate Policy

Failure to Pay Premium Causes Life Insurance Policy to Expire

A key condition of every insurance policy is the payment of premium when due. When the insured of a life insurance policy failed to pay the premium his policy lapsed and provided no coverage. After the insured died his heirs tried to retroactively reinstate the policy by sending a check and demand for the benefits of the policy.

In Julianna Brannen, as Trustee of the 1996 C. Bishop Brannen III Irrevocable Trust, a.k.a. Jill, Sarah-Averill Brannen, Clinton B. Brannen, IV v. Jackson National Life Insurance Company, No. 19-14025, the United States Court Of Appeals For The Eleventh Circuit (April 23, 2020) the heirs sought to recover under the decedent’s life insurance policy. The insurance company denied coverage because the policy lapsed due to non-payment prior to the decedent’s death.

The heirs sued, arguing that the insurance company waived the lapse by accepting belated payment after the decedent died and retaining the funds for twelve days. Alternatively, they argued that the insurance company accepted an offer to enter into a new contract by endorsing and depositing their belated premium check. The district court rejected both arguments and granted summary judgment in favor of the insurance company.

FACTUAL BACKGROUND

Bishop Brannen died on July 24, 2016. Prior to his death, Mr. Brannen failed to pay the premium on his life insurance policy, causing it to lapse. Hoping to recover the policy’s $2.3 million in death benefits, Mr. Brannen’s children and ex-wife (the Brannens) hired an attorney to send a demand to the insurance company. Among other things, the demand package included a two-page letter, a claim form, Mr. Brannen’s death certificate, and a check for the past-due premium.

The insurance company received the demand package on March 15, 2017, at its corporate headquarters. The insurance company’s mailroom endorsed the check and scanned the contents of the package into an internal database. The demand letter and check went to the new business department.  The check was deposited on March 22, 2017.

On March 27, 2017, an employee of the third-party administrator determined that the premium payment could not be applied towards Mr. Brannen’s policy because the policy had lapsed. The employee directed that the payment be refunded. The same day, the insurance company printed a refund check for the premium payment and mailed it to the Brannens’ attorney.

The Brannens sued the insurance company that eventually moved for summary judgment, which the district court granted in full.

DISCUSSION

Waiver Of The Policy Lapse

Mr. Brannen’s insurance policy lapsed because he failed to pay his premium on time. The Brannens argue that the insurance company waived the lapse by knowingly depositing their check for the missing payment and retaining the funds for twelve days.

Although Georgia courts have long recognized that an insurance company’s knowing retention of a belated premium payment can serve as an implied waiver of a lapse for non-payment if the insurer accepts, and retains past-due premiums which are paid subsequent to the due date. In such a situation the court may conclude that the insurer renewed the contract and waives the forfeiture for non-payments, Georgia requires that the acceptance is unconditional and the facts are known.

The Eleventh Circuit concluded that the insurance company did not improperly “retain” the Brannens’ belated payment so as to waive the policy lapse. The insurance company held on to the payment for only twelve days. Despite the letter and other materials that accompanied the check, twelve days was not unreasonably long for the insurance company to determine whether the payment was properly tendered.

The Eleventh Circuit concluded that district court did not err in granting summary judgment on the Brannens’ waiver argument since there was no evidence of waiver.

Entry Into A New Contract

The Brannens argued that by cashing their check with full knowledge of its purpose, the insurance company created and breached a binding contract. More specifically, they argued that their demand was a clear offer to the insurance company to accept the late premium in exchange for death benefits, forgoing bad faith litigation, and a report to the insurance commissioner.

The Georgia Court of Appeals has held that “[t]he acceptance of premiums after default does not create a new contract, but merely continues the binding effect of the original policy.” Union Cent. Life Ins. Co. v. Merrell, 184 S.E. 655, 657 (Ga. Ct. App. 1936). To hold otherwise would mean that acceptance of belated premiums could result both in a revival of a lapsed contract and the formation of a new contract. Taken even further, it would mean that any insured could send a letter and check to their insurer and then bind the insurer to whatever “offer” the letter purportedly described when the check is deposited. Neither of these outcomes comports with Georgia contract law or common sense.

The district court correctly concluded there was no dispute of material fact that the insurance company did not waive the policy lapse and that the insurance company did not accept an offer to enter into a new contract. Accordingly, the district court did not err in granting summary judgment in the insurance company’s favor.

ZALMA OPINION

Life insurance is nothing more than a contract. When that contract requires regular payment of premium it stays in effect as long as the payment is made in a timely fashion. In this case the policyholder allowed the policy to lapse. The heirs, though their attorney, attempted to collect on a no longer effective $2.3 million policy by belatedly sending a check for the premium not paid and claiming that cashing the check and holding it for 12 days was sufficient to reinstate the policy after the death of the insured. It was a good try but failed because the insurer returned the check promptly and because the payment was too late to reinstate the policy after the policyholder had died.


© 2020 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  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. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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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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