FAILURE TO FOLLOW PROCEDURE TO REINSTATE LAPSED POLICY IS FATAL
U.S. District Court Judge John McBryde granted the insurer’s motion for summary judgment because the life insurance beneficiary failed to follow the proper procedure to reinstate a lapsed life insurance policy. In Hall v. Fidelity & Guaranty Life Insurance Company, 4:13-CV-394-A, 2014 WL 642802 (N.D. Tex. Feb. 18, 2014), Plaintiff’s husband purchased a life insurance policy on his life and named his wife, the plaintiff, the sole beneficiary. When Plaintiff’s husband died, she sued F&G for breach of contract, breach of the duty of good faith and fair dealing, violations of the Texas Deceptive Trade Practices Act and violations of the Texas Insurance Code for refusing to pay her the death benefits. She contended the insurer improperly allowed her adult daughter to use an invalid power of attorney to change the beneficiary. The Court disagreed.
The Court held the reason the insurer did not pay the death benefits to Plaintiff was because the life insurance policy lapsed for failure to pay premiums. Initially, the first premium payment was missed because Plaintiff’s husband’s checking account was closed so monthly premium payments could not be drafted on it. The insurer sent a notice of rejected payment to Plaintiff’s husband. When nothing was paid, the insurer sent two late payment notices to Plaintiff’s husband informing him the policy would lapse if the premiums were not paid by the end of the grace period. When payment was still not sent, the insurer sent a notice that the policy had lapsed and was terminated for failure to pay premiums, but that it could be reinstated by sending to the insurer a reinstatement application and payment of all past due premiums. F&G later received payment of one past due premium, but no reinstatement application. Plaintiff’s husband then died a few days later. The insurer denied Plaintiff’s claim for death benefits and returned the one premium payment.
The Court held there was no breach of contract because Plaintiff was not entitled to any benefits under the terms of the insurance policy. The insurer had not received a reinstatement application or the remaining missed premium payments. Additionally, the Court held there was no evidence that a change of beneficiary was ever made, so Plaintiff’s claim about one was irrelevant. Finally, the Court held because there was no breach of contract, there was also no showing the Defendant breached any extra-contractual duties.