subsequent 20-day period in which the policy could be
reinstated, American Crown received check number 146 from the
Albert T. Dickson Trust for $1904.50 which it credited as late
payment of the October 3, 1987 premium. American Crown
deposited this check but on November 25, 1987, the check was
returned by the bank for insufficient funds. American Crown
redeposited the check and the bank notified American Crown via
a Graphnet message on December 8, 1987, that the check was
returned a second time. Kaszycki Aff., Exh. K-6.
Dickson died on November 23, 1987. American Crown and its
general agent state that plaintiff had no knowledge of that
fact until December 17, 1987. Goodman Aff. ¶ 3.
On November 25, American Crown received from the Trust check
number 149 originally dated November 24, 1987,*fn1 for
$1904.50 designated on the memo line as "November Premium."
Roberts Aff., Exh. T-28. American Crown credited the check as
payment of the premium due November 3, 1987. Plaintiff
deposited this check but was notified by Graphnet message on
December 3, 1987, that the bank returned this check as well.
Kaszycki Aff., Exh. K-10.
Check 149 was not redeposited. The Trustees sent plaintiff
a bank check dated December 10, 1987, to replace check number
149. American Crown deposited this check on December 14, 1987.
On December 17, 1987, American Crown received check number 150
in the amount of $1904.50 to replace check number 146.
Kaszycki Aff. ¶ 21. American Crown states that it learned of
Dickson's death for the first time later that day and did not
deposit check 150.
The Trustees filed a death claim on the policy in January
1988. On April 18, 1988, American Crown denied the Trustees'
claim for benefits under the policy and refunded the $1904.50
premium paid by bank check deposited on December 14, 1987.
Contrary to the facts as alleged by plaintiff, the Trustees
claim that prior to nonpayment of the October 3, 1987,
premium, American Crown had received over-payments of premiums
totalling $1886.30. As applied to the policy, this alleged
credit for overpayment would have substantially paid the
premium due October 3, 1987. In support of this theory,
defendants note that at no time during the aforementioned
events did American Crown notify them of a lapse or potential
lapse of the policy. The Trustees further claim that
plaintiff's deposit of the bank check on December 14, 1987,
beyond the overall 51-day grace period, constituted a waiver
of late payment of the balance due October 3 which kept the
policy in force.
In their answer dated October 3, 1989, the Trustees
interposed a first counterclaim against American Crown and
third-party claim against Crown Life Insurance Company,
plaintiff's parent company, for conspiracy and common law
fraud. Defendants demanded punitive damages on both claims.
The claims allege in substance that American Crown altered its
internal records to create the appearance that premium
payments were tendered after the policy had lapsed and
improperly denied payment of proceeds under the policy.
Defendants interposed a second counterclaim against American
Crown for breach of the contract of insurance.
To grant a motion for summary judgment a court must find
that there is no genuine issue as to any material fact and
that the moving party is entitled to judgment as a matter of
law because, after sufficient time for discovery, the
non-moving party has failed to make a sufficient showing of an
essential element of its case as to which it has the burden of
proof. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548,
91 L.Ed.2d 265 (1986).
1. Lapse of the Policy
At oral argument, plaintiff's counsel led the Court through
a step-by-step accounting of premiums owed and payments
received on the policy from its inception August 3, 1984,
through December 1987. The accounting is summarized in the
Appendix to this opinion. Based on plaintiff's presentation,
which included copies of defendants' cancelled checks as well
as pertinent exhibits, the Court is convinced that an
erroneous credit balance of $1604.50 appeared in the "suspense
account" for the policy due to clerical mistake and that no
overpayment of premiums existed at all at the time the October
3, 1987, premium became due.*fn2
Defendants, who issued and signed the payment checks in
question, failed to identify, either in their papers or during
argument, a single check, receipt or other instrument or
document raising a genuine issue of overpayment which
contradicts plaintiff's accounting presentation. In fact,
defendants' notations on checks in payment coincide exactly
with plaintiff's presentation and defendants have not shown
how any credit balance could have developed in the suspense
account. The burden of proving payment amounting to
overpayment is on the Trustees. See Nab Constr. Corp. v. Great
Am. Ins. Co., 70 A.D.2d 559, 416 N.Y.S.2d 815 (App. Div. 1979).
The record thus conclusively indicates that the policy
lapsed as a result of non-payment of the October 3, 1987,
premium. The policy lapsed at the end of the 31-day grace
period on November 3, 1987, and no valid payment was made
during the 20-day reinstatement period ending November 23,
1987. The only payment received prior to November 23 was check
number 146 which was returned for insufficient funds. The
policy specifically provided that a dishonored check would not
constitute payment of a premium.
Defendants point to several documents to demonstrate that
whether the policy lapsed on November 3, 1987, is an issue of
fact precluding summary judgment. First, they rely on
handwritten notes by Mary Ann DeLuca, an employee of
plaintiff, stating that as of November 24, 1987, the policy
was paid to December 3, 1987. DeLuca Aff., Exh. D-2. DeLuca
reached this conclusion because she noted, "Nov. was paid on
11-25-87." However, the only payment received on November 25
was check number 149 which was dishonored, and the policy
specifies that a "bad check" does not constitute payment of a
premium. Thus, check number 149 could not have paid the policy
to December 3 as DeLuca's notes indicate.*fn3
Defendants also rely on a form notice dated December 10,
1987, entitled "Notice of Returned Check", which states:
The days of grace for payment of unpaid premium
will expire on December 23, 1987. If payment is
not received by that date your policy will lapse.
Roberts Aff., Exh. T-15. Defendants argue that this document,
which was evidently sent after check 149 was dishonored on
December 3, 1987, demonstrates that the policy had not lapsed
prior to December 23, 1987, and would not lapse until that
date. The Notice states that the "unpaid premium" referred to
was the premium due November 3, 1987. The Notice is correct in
stating that the overall 51-day grace period for the November
3 premium would end on December 23, but the document on its
face is not evidence that the November 3 premium was the
first unpaid premium on the policy, nor is it evidence that the
premium previously due on October 3, 1987, was "paid." American
Crown did not finally learn that the October 3 premium was an
unpaid premium until the bank notified them on December 8,
1987, that check number 146 was returned a second time.
Evidently, the form notice upon which defendants are relying
was issued without
knowledge of that dishonor and without notice of the
Defendants also argue that plaintiff's acceptance and
deposit of the bank check dated December 10, 1987, in
replacement of check number 149, as a payment of premiums
constituted a waiver by plaintiffs of late payment. Defendants
rely on Cronk v. Metropolitan Life Ins. Co., 69 A.D.2d 977, 416
N YS.2d 104 (App. Div. 1979), which states:
Upon receipt of a premium after expiration of the
grace period, an insurer may 'deal with it in any
one of three ways: (1) Accept it unconditionally
as a due payment of premium. (2) Return it to the
insured. (3) Hold it for the insured pending a
possible reinstatement of the policy.'
416 N.Y.S.2d at 106 (citing Divita v. New York Life Ins. Co.,
244 A.D. 498, 279 N.Y.S. 900 (App. Div. 1935). Defendants argue
that since plaintiff never notified them of a lapse, the policy
remained in force and plaintiff's acceptance of the bank check
on December 10, 1987, was an unconditional acceptance of the
check as a "due payment of premium" under Cronk and a
concomitant waiver of late payment.
Defendants mischaracterize the effect of "unconditional
acceptance" under Cronk. Divita, the case in which the three
options were first enunciated, continues:
Under option No. 1 the company waives the lapse,
and under option No. 2 it insists upon it. Under
option No. 3 it holds the premium as trustee for
the insured, in the meantime waiving none of its
279 N.Y.S. at 907. Thus it is clear that unconditional
acceptance of late payment by the insurer under option No. 1
acts not as a waiver of late payment, as defendants contend,
but rather as a waiver of lapse. In this case, the policy
provided that reinstatement after lapse would only be upon
evidence that the insured "is insurable on the same basis as
when the policy was issued." Since the insured was no longer
alive on December 10 and in fact had been dead for over two
weeks when plaintiff accepted the bank check, no evidence
could be provided that the insured was insurable on the same
basis as when the policy issued and no employee of plaintiff
had the power to waive the lapse at that time. Such a
provision in an insurance policy is legal in New York. See
Scott v. American Republic Life Ins. Co., 88 A.D.2d 949, 451
N YS.2d 190 (App. Div. 1982) (the insurer is free to impose
conditions on reinstatement after lapse which, if not complied
with, preclude reinstatement under any circumstances).