4th Circuit Finds Insurer Was Not Required to Provide Notice Prior to Cancelling Life Insurance Policy for Unpaid Premium

An insured’s failure to make payments on his life insurance policy led it to lapse before his death according to Fourth Circuit Court of Appeals in Wactor v. Jackson National Life Insurance Co., No. 13-2367, 2015 WL 1020653 (4th Cir. Mar. 10, 2015). Rejecting the beneficiary’s contentions that the insurer had not properly notified the insured of the lapse and had not acted in good faith, the Fourth Circuit affirmed the decision of the U.S. District Court for the District of South Carolina.

William Wactor (“Decedent”) passed away on June 12, 2010. Prior to his death he maintained a life insurance policy with Jackson National. Nancy Wactor 19(“Wactor”) was the sole beneficiary of the policy and the personal representative of Decedent’s estate. Under the terms of the policy, the premium payments were to be paid quarterly. If a premium was not timely paid, the policy became “in default,” commencing a 31-day grace period. During the grace period, Decedent remained covered and could reinstate the policy by paying the overdue premium. If the premium remained unpaid, the policy would be cancelled and the coverage would lapse. The policy could then be reinstated upon receipt of evidence of insurability and payment of all past due premiums with interest. The policy did not contain a provision requiring Jackson National to furnish notice prior to cancelling coverage for unpaid premium. During the 19 years Decedent maintained the policy, Decedent failed to timely pay his premium on 22 occasions. Each time, Jackson National mailed a grace period notice to Decedent and Decedent then paid the premium within the grace period.

Decedent made his last premium payment on October 25, 2009. After the January 25, 2010 payment was not made, Jackson National mailed a grace period notice to Decedent informing him the premium had not been paid, and, unless it was, the policy would end on February 25, 2010. Jackson National sent a lapse notice dated February 25, 2010, indicating the premium still had not been paid, but if it was paid by March 26th, the policy would automatically be reinstated without additional requirements. The letter also stated that if the premium was not received by March 26th, Decedent would have to pay additional unpaid premiums plus interest, complete a reinstatement application, and obtain approval from Jackson National.

In early 2010, Decedent was diagnosed with dementia and developed other health issues which ultimately resulted in his hospitalization and death. On June 11, 2010, Wactor called Jackson National and inquired if Decedent had made the appropriate payments on the policy. Jackson National informed her the policy was no longer in force and the last payment had been received on October 25, 2009. Wactor asked if she could pay the missed payments. Jackson National told Wactor the owner of the policy, Decedent, would have to contact them. Wactor told Jackson National that Decedent was in the hospital and unable to do so. After determining Wactor did not have a financial power of attorney, Jackson National suggested Decedent could authorize Wactor to receive the information needed to reinstate the policy. Decedent died the following day. On June 15th, Decedent’s daughter contacted Jackson National to make a claim on the policy. She was informed the policy had lapsed. She then sent a letter to Jackson National explaining Decedent suffered from dementia prior to his death, which resulted in his missing the premium payments. On June 16th, Jackson National sent Wactor a letter informing her the policy had lapsed on February 25, 2010, and no benefits were payable to her as beneficiary.

Wactor filed suit against Jackson National alleging a breach of contract, equitable estoppel, unjust enrichment, bad faith, and breach of duty of good faith and fair dealing. Jackson National moved for summary judgment on all claims, which the district court awarded. Wactor appealed.

Notice: Wactor contended Jackson National through its course of dealing in providing written grace period notices to Decedent waived its right to cancel the policy without notice, and relied on Edens v. South Carolina Farm Bureau Mutual Insurance Co., 308 S.E.2d 670 (S.C. 1983), to argue Jackson National could cancel the policy only if Decedent actually received the cancellation notices. The court disagreed, recognizing that neither South Carolina law nor the policy required giving any notice prior to cancelling the policy. Given the policy’s silence, the policy was not ambiguous as to notice, rendering Edens inapplicable. Edens, 308 S.E.2d at 671 (finding life insurance policy provision stating cancellation could be effected by “giving written notice” ambiguous; contract must be interpreted to require “actual receipt [as] a condition precedent to cancellation”). The court also rejected the contention that Jackson National had waived its right to cancel the policy based on its prior dealings with Decedent. Although Jackson National previously had accepted late payments from Decedent, each of those payments was made during the grace period. Jackson National had never accepted payments from Decedent after the grace period, and thus “did nothing that would have created a reasonable expectation of insurance coverage past the expiration of the grace periods.” Accordingly, Jackson National’s prior conduct could not be construed as a waiver. As there was no dispute that Jackson National mailed the cancellation notices, and Jackson National was not obliged to provide notice prior to cancellation, the court found no genuine issue of material fact existed with respect to the notices.

Estoppel: Wactor contended that Jackson National should be estopped from relying on the policy’s cancellation based on Wactor’s June 11, 2010 phone call to Jackson National. By making that call, Wactor had sought information so that she might “cure any breach that may have occurred,” but “Jackson National refused to communicate with [Wactor], concealing all meaningful information.” The court disagreed. The undisputed evidence was that, during the call, Jackson National notified Wactor of several ways she could obtain authority to act for the Decedent. Although Wactor hypothesized she could have cured Decedent’s breach had Jackson National provided her with more information, the court concluded that “there is simply no evidence of any material misrepresentation by Jackson National or detrimental reliance by Wactor.”

Bad Faith: Wactor argued the policy was not effectively cancelled because Decedent had not received the cancellation notices, and thus Jackson National unreasonably refused to pay benefits due. She further maintained that Jackson National acted in bad faith by denying her claim for benefits without investigating Decedent’s cognitive abilities or its prior course of dealings with Decedent, because Jackson National knew that Decedent had not received the cancellation notices. Correspondingly, Wactor argued Jackson National breached the duty of good faith and fair dealing in its handling of the claim.  The court disagreed, indicating that “nothing in the record [would] suggest that Jackson National acted in an unreasonable manner in denying coverage or its handling of this claim,” given that the premiums had not been paid and coverage had lapsed. “No rational trier of fact could find that Jackson National acted unreasonably in its handling of this claim.” Accordingly, the court found no material issues of fact existed with respect to the claims for bad faith and breach of duty of good faith and fair dealing.

Having found no material issues of fact existed and summary judgment was properly awarded on all causes of action, the Fourth Circuit affirmed the decision of the South Carolina District Court.


About Joel W. Collins, Jr.
Founding Partner

Joel W. Collins co-founded Collins & Lacy, P.C in 1984. Upon graduation from the University of South Carolina School of Law, Joel served four years in the Judge Advocate General’s Corps (JAGC) of the United States Army and served one year in Viet Nam with the Americal Division, where he was awarded the Bronze Star and Army Commendation Medals. Read Joel's Biography