The Policy Lapse Lawsuit
From: inforcepro.com
As many of you have heard, there has been another tragic case of a life insurance policy lapsing and not catching it until the policyholder had already passed away. The insured, David Stewart, was separated, living alone, and battling depression, therefore opening up his mail was not a major priority in his struggle with his health. Stewart was issued a $500,000 policy from Northwestern Mutual in June 2004 with a monthly premium of $1,420 for 20 years. It was reported that he made his monthly payments in a timely manner, never missing a payment up until June 2012. By July 2012, his policy had lapsed.
After a few months of battling depression, David passed away and his estranged widow, Laura found the unopened letter from Northwestern Mutual stating that his policy had lapsed but, “you can apply to restore full protection and policy values, provided the insured is living. To do so … enclose the reinstatement payment coupon with your payment of $1,436 … by September 9, 2012…. If your payment is not received by September 9, 2012, the insured will be required to submit additional information, which may include a medical examination and records from a physician….”
Unfortunately, Laura found the letter on September 9th so she had to act fast. The next day, Laura received a call from a Northwestern Mutual agent instructing her to write a check for her late husband’s past-due premium to restore the policy and came by her house and picked the check up that day. The twist, the insurance company cashed the check sometime between September 10th and September 27th.
However, after cashing the check, Northwestern Mutual called Laura on September 26th and said that her claim for the death benefit could not be honored because the policy had lapsed a few months ago, while her husband was fighting for his health and while she was living elsewhere. They refunded her check the next day.
Laura brought this civil action against Northwestern Mutual alleging four claims of relief: (1) breach of the insurance contract; (2) declaratory judgment that Northwestern Mutual had reinstated the policy by cashing her check and holding it for 17 days; (3) promissory estoppel (based on the agent’s assurance that the policy would be reinstated if she provided him with a check covering the missed premium) and (4) breach of the agent’s fiduciary duty to the insured.
