Dallas Fort Worth Insurance Lawyer Blog
Here is a 1980, Texas Supreme Court opinion wherein the Court found no bad faith and in fact found in favor of the insurance company. The opinion is styled, Life Ins. Co. of the Southwest v. Overstreet.
This was an unusual case in that the dispute was over whether or not a premium had been timely paid.
Maxie Overstreet, the insured, died on April 24, 1974, at which time he had not paid the 1974 annual premium on the policy. Life Insurance Company (LIC) says that by the date of death, the policy had lapsed because the premium had fallen due on March 15, 1974, the thirty-one-day grace period had expired on April 15, and the insured’s death on April 24 had occurred nine days after the grace period’s termination. Jacquei Overstreet says that the premium payment date was April 18 rather than March 15, that non-payment of the annual premium on April 18 did not end the policy until thirty-one more days, and that Overstreet’s death on April 24 was well within the grace period.
The contentions of the beneficiary are that the provisions of Overstreet’s application for the policy were a part of the policy and that the policy did not become effective and was not in force until it was issued and delivered upon the payment of the full first premium. Because that payment was not made until April 18, 1972, the argument is that each annual premium thereafter became due on that date. The application contained this paragraph:
3. Any insurance approved by the Company for issuance as a result of this application, unless effective prior to policy delivery in the manner specified in the receipt attached hereto, shall be considered in force only when a policy shall have been issued by the Company and said policy manually received and accepted by the Applicant and the full first premium paid thereon, in the case of life insurance, during the good health of the Proposed Insureds . . ..
The policy, however, contains other relevant provisions. The first thing that a reader sees upon reading the policy is a plastic window at the top of the first page. Words that were typed and printed at the top of the second page appear through the window. The information thus disclosed is the name of the insured, the policy number, the name of the owner of the policy, the amount of the insurance, which was $100,000, the insurance plan, and what the policy calls the “Effective Date.” Opposite the “Effective Date” are the words, “March 15, 1972.”
The next relevant part of the policy says that the first premium was payable on the “Effective Date,” which, as the policy had already stated, was March 15, 1972. The same paragraph states that subsequent premiums would be payable in periodic installments “thereafter.” The word, “thereafter,” refers to the Effective Date, or March 15, 1972. This third paragraph provides:
The consideration for this Policy is the application therefor and the payment of premiums as herein provided. The first premium in the amount specified in the Insurance Schedule is payable on the Effective Date and subsequent premiums are payable in periodic instalments thereafter until premiums have been paid for the period specified in the Insurance Schedule or until the prior death of the Insured.
On the third page, there is a paragraph which requires the insured to pay his premiums annually in advance. A provision of that paragraph says that the premiums “shall fall due on the same day of the month on which the first premium is due,” and that the failure to pay the premium when due or within the grace period will end the policy except as it otherwise provides. All premiums were thus due on the day on which the first premium was due. The first premium, as we have seen from the paragraph on the first page, was due on the “Effective Date”; and that date, as the policy stated at the outset, was March 15. This is the paragraph concerning premium payments:
PREMIUM PAYMENTS. Any premium hereon is payable in advance at the Home Office of the Company, or to an authorized agent of the Company, in exchange for the Company’s official receipt signed by the President or Secretary and countersigned by the agent. Premiums may be paid in periodic instalments at the instalment rates specified in the Premium Schedule but premiums may be changed to a monthly basis only if the amount of the monthly premium is stated in the Premium Schedule. The payment, of an annual, semi-annual, quarter-annual or monthly premium will maintain this Policy in force for one year, six months, three months or one month, respectively. Such periods will be deemed to expire and the next premium shall fall due on the same day of the month on which the first premium is due. Failure to pay any premium when due or within the period of grace provided shall cause this Policy immediately to become void except as otherwise provided herein.
The rule is that a definite statement in the policy of the date on which annual premiums will be due is the due date. Such a statement of the due date controls even over a provision stating that a policy will not be in force until it is initially delivered and the first premium is paid during the good health of the insured. Once the policy comes in force, all of the terms of the policy become operative including its provision about the “Effective Date.”
The policy before the Court expressly fixes the Effective Date at March 15, 1972. The policy provides that “The first premium… is payable on the Effective Date,” that is, on March 15, 1972; that “subsequent premiums are payable in periodic instalments thereafter”; and that “The payment of an annual premium will maintain this Policy in force for one year ….” This one-year period, according to the policy, “will be deemed to expire and the next premium shall fall due on the same day of the month on which the first premium is due.” In this case, the premium was not paid on the day it was “due.” Although the first premium was not in fact paid on the Effective Date, March 15, it was clearly “due” on that date; it was “payable” then.
Stating a definite “Effective Date,” as this policy does, is important. A definite time is essential to such determinations as the insured’s age at the “Effective Date” and the resulting premium rate, cash surrender value, loan value, paid-up insurance benefits, incontestible period.