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AMERICAN CROWN LIFE INS. CO. v. DICKSON

October 9, 1990

AMERICAN CROWN LIFE INSURANCE COMPANY, PLAINTIFF,
v.
CATHERINE DICKSON, ROMA POOLE AND PAT O'BRIEN, AS TRUSTEES OF THE ALBERT T. DICKSON IRREVOCABLE INSURANCE TRUST, DEFENDANTS. CATHERINE DICKSON, ROMA POOLE AND PAT O'BRIEN, AS TRUSTEES OF THE ALBERT T. DICKSON IRREVOCABLE INSURANCE TRUST, THIRD-PARTY PLAINTIFFS, V. CROWN LIFE INSURANCE COMPANY, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.

OPINION AND ORDER

This is an action pursuant to 28 U.S.C. § 2201 seeking a declaratory judgment that a term life insurance policy issued by plaintiff on the life of Albert T. Dickson lapsed for non-payment of premiums prior to the death of the insured and that plaintiff is not obligated to pay the face amount of the policy. Defendants have interposed counterclaims and a third-party claim alleging conspiracy, common law fraud and breach of contract. Plaintiff and the third-party defendant now move for summary judgment pursuant to Fed.R.Civ.P. 56 granting declaratory relief and dismissing defendants' counterclaims and third-party claim. For the reasons set forth below, plaintiff's and third-party defendant's motion is granted.

BACKGROUND

On August 3, 1984, for consideration of biannual premium payments of $13,971.65, American Crown Life Insurance Company ("American Crown") issued a term life insurance policy, Policy Number 1,920,074 ("the policy"), providing $5 million in coverage to Albert T. Dickson ("Dickson"). Dickson named the Albert T. Dickson Irrevocable Insurance Trust as beneficiary under the policy which was one of three issued by plaintiff to the insured. Effective February 3, 1985, Dickson reduced the policy's coverage to $4 million, to $3 million effective August 3, 1985, and finally to $2 million effective March 3, 1986.

Effective February 3, 1986, Dickson converted from biannual premiums to monthly premium payments of $1884.50. The subsequent March 3, 1986, reduction in the face amount of the policy reduced the monthly premium to $1264.50. The term policy, which did not pay dividends, provided for annual premium increases on the anniversary of the policy. The monthly premiums increased to $1604.50 on August 3, 1986, and to $1904.50 on August 3, 1987. Showman Supp.Aff., Exh. F, p. 3.

The policy issued to Dickson provided inter alia for a 31-day grace period for unpaid premiums after which the policy lapsed. The policy also provided that any check or other instrument given in payment which is not honored when presented for payment will not constitute a payment of the premium. The policy further 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." Kaszycki Aff, Exh. K-4.

American Crown had a separate practice of allowing automatic reinstatement without proof of insurability for an additional twenty-day period beyond the end of the grace period if payment was received from the insured while he was alive. Roenfeldt Aff. ¶ 4.

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 ...


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