It is hard for someone in Weatherford, Mineral Wells, Millsap, Aledo, Hudson Oaks, Springtown, Willow Park, or any where else in Parker County to understand a life insurance policy. Here is a case that shows how some are interpreted.
The style of the case is Assurity Life Insurance Company v. Varsha Grogan, et al. This is a case decided by the United States Fifth Circuit Court of Appeals in 2007. It is an appeal from the district court’s entry of final judgment in favor of Grogan entitling her to proceeds from her husband’s life insurance policy. Assurity argued that, under Texas law, the policy issued to Mr. Grogan never took effect because it contained a “good health” condition precedent to its effectiveness; and that Mr. Grogan was not in good health on the date relevant to the policy’s effectiveness.
On April 4, 2002, Mr. Grogan submitted to Assurity an application for $1,000,000 of whole life insurance on his own life. This application did not progress and was later closed. On August 8, 2002, Mr. Grogan sent Assurity a letter reaffirming his desire to apply for the policy.
On August 26, 2002, Mr. Grogan faxed to Assurity a new application along with another request to reopen his application. The new application was identical to the first in all respects. The last page of the application provided the following paragraph in bold:
C. In the event the first premium on the policy applied for is not paid upon the date of this application, the insurance under such policy shall not take effect unless the application is approved by the Company at its Home Office, such policy issued and delivered to the Proposed Insured/Owner, and such first full premium paid during the Proposed Insured’s lifetime and continued good health ….
Assurity issued the policy on August 27, 2002, and mailed it to Mr. Grogan, along with delivery instructions, on August 30, 2002. Mr. Grogan completed the delivery instructions by returning to Assurity a “Delivery Certificate” he had signed and marked as “received September 3.”
The Delivery Certificate provided:
As requested, this policy has been issued without the first premium having been collected with the application.
It is hereby certified that there has been no change in the good health of the Insured since the date of the application and it is understood and agreed that the policy shall be effective as of the date of issue only upon payment of the first premium during the lifetime and continued good health of the Insured.
Mr. Grogan paid his first premium on September 6, 2002, and Assurity received the signed Delivery Certificate on September 20, 2002.
On October 7, 2002, Mr. Grogan found out that a lump on his neck, which he had known about for at least a year, most likely was cancerous. On October 24,2002, he began chemotherapy treatment for Hodgkin’s disease. Mr. Grogan died on February 17, 2003, due to complications stemming from chemotherapy treatment for his cancer.
In March 2003, Mrs. Grogan as beneficiary applied for the proceeds from the life insurance policy. However, because Mr. Grogan died during the policy’s two-year contestability period, Assurity requested his medical records for the five years preceding his death. After reviewing the records, Assurity determined that Mr. Grogan was not in good health on the date relevant to the policy’s effectiveness. Therefore, Assurity refused to pay benefits.
In discussing the case, the court noted Assurity’s policy in one part states that “[the policy] shall not take effect unless … [the] first full premium [is] paid during the Proposed Insured’s lifetime and continued good health ….” The policy in another part states that “[the policy] shall be effective as of the date of issue only upon payment of the first premium during the lifetime and continued good health of the Insured.”
The Court said “…we do not see how Assurity could have made the policy language much clearer. The policy unambiguously states that in order for it to take effect the insured/proposed insured must make the first premium payment while in good health.”
The Court said that although the policy’s plain language alone made it sufficiently clear that good health is a condition precedent to effectiveness, it noted that this Court and the Texas Supreme Court numerous times had deemed similar language a condition precedent to the policy being effective.
So, for the policy to take effect, Mr. Grogan was required to be in good health when he paid his first premium. Mr. Grogan paid the premium on September 6, 2002. Therefore, it needed to be determined whether he was in good health on that date.
Texas courts have consistently held that a person is not in good health when he or she suffers from a serious illness that continues and eventually causes their death. The record facts stipulated to by the parties make clear that Mr. Grogan indeed suffered from such an illness when he paid his first premium.
Mr. Grogan ultimately died from complications stemming from chemotherapy administered to combat his cancer. Although Mr. Grogan was not diagnosed with Hodgkin’s disease until October 2002, the record reveals that he had cancer long before his formal diagnosis.
Mr. Grogan possibly had cancer as early as 2000, when he began seeking medical attention for a sore throat. Over the next year and half, he sought medical attention for a sore throat seven times. In any event, by September 4, 2001, Mr. Grogan had developed and sought medical care for a painful lump on the left side of his neck. Mr. Grogan again sought care for the lump on his neck on August 26, 2002. By that time, the lump was the size of a golf ball. On September 20, 2002, a biolpsy was conducted and later showed that the lump on the left side of Mr. Grogan’s neck was Hodgkin’s lymphoma. Without doubt, Mr. Grogan had cancer prior to September 6, 2002, and therefore was not in good health when he paid his first premium.
These cases are difficult. This case illustrates once again why an experienced Insurance Law Attorney needs to be involved in looking at and evaluating a case.
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