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Court: Lapsed life insurance is no life insurance

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A federal district court in South Carolina has ruled that an insured’s failure to make payments on his life insurance policy led it to lapse before his death. The court rejected the insured’s widow’s contentions that the insurer had not properly notified the insured of the lapse and had not acted in good faith.

The case

For many years prior to his death on June 12, 2010, William R. Wactor (the Decedent) had a life insurance policy issued by Jackson National Life Insurance Company. His wife, Nancy K. Wactor, was the sole beneficiary of the life insurance policy and the personal representative of the Decedent’s estate. 

Pursuant to the terms of this policy, the premium payments were to be paid quarterly. The Decedent made his last quarterly premium payment on Oct. 25, 2009. After the quarterly payment due Jan. 25, 2010, was not paid, Jackson National mailed a grace period notice to the Decedent dated Feb. 4, 2010, in which Jackson National informed him that the premium had not been paid and that the policy would end on Feb. 25, 2010, unless the premium was paid. 

Jackson National then sent a lapse notice dated Feb. 25, 2010, in which it informed the Decedent that the premium still had not been paid, but if the premium was paid by March 26, 2010, the policy would automatically be reinstated, without any additional requirements. Further, the letter stated that if the premium was not received by March 26, the Decedent would have to pay additional unpaid premiums, plus interest, and complete a reinstatement application and obtain approval from Jackson National for reinstatement. 

In early 2010, the Decedent was diagnosed with mild dementia; he subsequently developed other health issues that ultimately resulted in his hospitalization and death. On June 11, 2010, the day before the Decedent died, Ms. Wactor called Jackson National and told the operator that the Decedent had developed Parkinson’s disease and inquired if the Decedent had made the appropriate payments on his life insurance policy. Jackson National informed her that the life insurance policy was no longer in force and that the last payment had been received on Oct. 25, 2009. 

Ms. Wactor inquired as to whether she could pay any missed premium payments. Jackson National told her that the owner of the policy, the Decedent, would have to contact them for instructions on how to reinstate the policy and what amount would be required to do so. Ms. Wactor told Jackson National that she did not know that the Decedent would be able to contact Jackson National. After determining that Ms. Wactor did not have a financial power of attorney, Jackson National suggested that the owner of the policy could authorize her to receive the information needed to reinstate the policy. Ms. Wactor stated that the Decedent maybe could do that at some point soon, but not currently, and the phone call ended.

On June 16, 2010, Jackson National sent Ms. Wactor a letter informing her that the policy had lapsed on Feb. 25, 2010, and that no benefits were payable to her as the beneficiary. Thereafter, Ms. Wactor sued Jackson National, alleging breach of contract, equitable estoppel, unjust enrichment, bad faith, and breach of the duty of good faith and fair dealing. 

The insurer moved for summary judgment. 

The court’s decision 

The court granted the insurer’s motion. 

In its decision, the court first rejected Ms. Wactor’s argument that the insurer had not provided adequate notice of cancellation. The court found that there was no notice provision in the life insurance policy, and it added that there were no statutory requirements in South Carolina regarding notice prior to the cancellation of a life insurance policy. 

In addition, the court found that Jackson National’s previous grant of a grace period to the Decedent did not mean that it had forfeited its right to cancel the life insurance policy for non-payment of future premiums. In particular, the court said that even if Jackson National had accepted late payments 22 times from the Decedent over the 19–year period of the policy, it was “undisputed that on those occasions, the Decedent paid the late premiums during the grace period” and that Jackson National had never allowed the Decedent to pay premiums after the grace period had lapsed.

Thus, the insurer had done “nothing that would have created a reasonable expectation of insurance coverage past the expiration of the grace periods,” and Jackson National’s prior conduct of accepting late premiums during a grace period could not “in any way” be construed as a waiver or forfeiture by Jackson National from canceling the policy for non-payment of premiums after a subsequent grace period had lapsed. 

The court next ruled against Ms. Wactor’s bad faith claim, finding nothing to suggest that Jackson National had acted in an unreasonable manner in denying coverage. According to the court, based on the non-payment of the premiums and the lapse of the policy, Jackson National “had reasonable grounds for denying this claim.” 

Next, the court rejected Ms. Wactor’s contention that Jackson National should be estopped from canceling the Decedent’s life insurance policy because Jackson National had refused to provide her with “all the meaningful information regarding the status of the [policy] other than their position that the [policy] had lapsed due to non-payment.”

The court explained that during Ms. Wactor’s phone call to Jackson National, Jackson National had offered two ways by which she could act on behalf of the Decedent: Ms. Wactor could obtain a power of attorney to manage the Decedent’s affairs or the Decedent could contact Jackson National and authorize Ms. Wactor to receive information regarding the policy. Finding no evidence of any material misrepresentations by Jackson National or detrimental reliance by Ms. Wactor, the court ruled against her estoppel claim. 

Finally, the court found nothing in the record to suggest that Jackson National had acted in an unreasonable manner in denying coverage or in its handling of this claim, observing that it was “undisputed” that the premiums had not been paid and the policy had lapsed for nonpayment of the premiums. “Jackson National had a reasonable ground for its actions,” the court concluded, and “no rational trier of fact could find that Jackson National acted unreasonably in its handling of this claim.”

The case is Wactor v. Jackson National Life Ins. Co., No. 8:11–3167–TMC (D.S.C. July 10, 2013).

Originally published on FC&S Legal: The Insurance Coverage Law Information Center. FC&S Legal is theindustry’s ONLY single-source, comprehensive portal developed specifically for insurance coverage law professionals.To find out more, visit All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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