The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.
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.
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,
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.
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.
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.
The premium payment due October 3, 1987, was not received
within the 31-day grace period ending November 3, 1987. On
November 19, 1987, before the end of the
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 ...