My father-in-law (who worked for DeLorean Motors long ago) once told me that success in business was simply a process of accumulating whip marks.  Succeeding in the law is no different.  Here’s a whip mark I got a few months ago, and which you can avoid by always paying your insurance premiums on time

I generally don’t handle personal lines cases, but I did handle this one for the estate of an executive who worked for a corporate client of our firm. “Bob” was a 40-year-old officer with a major beer distributorship.  He had a $3 million life insurance policy through Jackson National Life (JNL), with his wife as the beneficiary.  He failed to pay his annual premium by the scheduled date.  JNL sent him a lapse notice, which said that if he paid the premium in 30 days, he wouldn’t have to go through medical underwriting again.  He still failed to pay his premium.  Two weeks after the extension granted by JNL ran out, Bob paid the premium by electronic funds transfer.  JNL held the money for a month, then returned it by snail mail with a reinstatement application.  By that time, Bob had become ill, and he died shortly thereafter of a ventricular fibrillation, leaving a widow and two small children.   Naturally, JNL denied coverage on the ground the policy had lapsed.

I argued that by holding the premium for a month with no further communication to the policyholder, and enjoying the float on the policyholder’s funds, the carrier had waived its right to contest coverage and to require underwriting.  I cited a line of authority to that effect, including Provident Life and Cas. v. Fein, 310 N.J. Super. 110, 123 (App. Div. 1998) (an insurance company must provide “the earliest reasonable notice that the insurance company is not simply accepting the overdue premium payment and reinstating the policy as a matter of course”);  John Hancock Mutual Life Ins. Co. v. Hefner, 134 N.J.Eq. 336, 338 (1944) (to prevent unconditional acceptance, insurance company must notify policyholder promptly that it is not accepting the premium payment); and N.J.S.A. 17:29-B(4)(9) (making it an unfair claims settlement practice for insurance companies to fail to respond in a prompt  fashion to all communications from policyholders).

Whatever, said both the trial court and the appeals court, reasoning as follows (I’ve changed my client’s name for purposes of this post):

“The District Court stated expressly that ‘[t]here is no bright line rule for determining the reasonableness of the time period that a premium has been retained,’ and that ‘[the Court in Glezerman v. Columbian Mutual Life Insurance Co., 944 F.2d 146 (3d Cir. 1991)] indicated that a more in-depth examination of the circumstances is warranted.’  Indeed, we explained in Glezerman that an insurer’s extended retention of an overdue premium payment was simply ‘evidence that a policy has been reinstated.’ We did not purport categorically to find a waiver for any particular length of time during which an insurer retains an overdue payment; instead, the delay is but a factor bearing on the ‘intentional-relinquishment’  standard set forth by well-settled New Jersey law. Here, JNL placed Smith on notice time and again that his failure to remit payment before the end of the grace period — and later, before April 28, 2006 — would result in a lapsed Policy. In such an event, unless and until a reinstatement application had been completed by Smith and accepted by JNL, the Policy would be in default and no coverage would be available in the interim. Based on its prior communications to Smith, therefore, we conclude that JNL did not waive its right to enforce the Policy as written.” 

Do I think this ruling is wrong?  Shockingly, yes.  In this day and age, holding an electronic funds payment for over a month without so much as an e-mail to the policyholder seems like waiver to me.  But I don’t wear a black robe.  So pay your premiums on time.