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Michelle Wilson v. Northwestern Mutual Insurance Company

November 4, 2010

MICHELLE WILSON, PLAINTIFF-APPELLANT,
v.
NORTHWESTERN MUTUAL INSURANCE COMPANY, DEFENDANT-APPELLEE.



The opinion of the court was delivered by: Miner, Circuit Judge:

09-1895-cv

Wilson v. Northwestern Mutual Insurance Company

Argued: June 10, 2010

Before: MINER, SACK, and HALL, Circuit Judges.

Appeal from summary judgment entered in the United States District Court for the Southern District of New York (Young, J., sitting by designation) in favor of insurer defendant- appellee, in an action brought by plaintiff-appellant claiming she was the beneficiary of two life insurance policies issued by defendant to her late husband, the District Court having found that (1) plaintiff's husband terminated a "Whole Life Policy" in the amount of $150,000 four months prior to his death, and (2) plaintiff's husband retroactively terminated a "Term Life Policy" in the amount of $350,000 when he asked the insurer to "refund his last payment and let the policy lapse."

Affirmed in part, vacated in part, and remanded in part.

Plaintiff-appellant Michelle Wilson ("Wilson") appeals from a summary judgment entered on March 31, 2009, in the United States District Court for the Southern District of New York (Young, J., sitting by designation), in favor of defendant-appellee Northwestern Mutual Life Insurance Company ("Northwestern") on Wilson's claim that she is the beneficiary of two life insurance policies issued to her late husband, Kenneth Wilson ("Kenneth"), by Northwestern. The District Court determined that there were no genuine issues of material fact as to Kenneth's termination of one life insurance policy, the "Whole Life Policy," on February 28, 2005, and failure to pay any premiums after that date. The court further determined that Kenneth also terminated the other life insurance policy, the "Term Life Policy," as of February 28, 2005, when, on May 23, 2005 (several weeks before his death on June 6, 2005), he directed Northwestern to "refund his last payment and let the policy lapse."

I. Background

A. The Insurance Policies: Issuance, Payments and Terminations

On May 29, 2004, Northwestern issued two life insurance policies to Kenneth: a whole life policy ("Whole Life Policy") with a face amount of $150,000 and a term life policy ("Term Life Policy") with a face amount of $350,000. At that time, Kenneth was thirty-five years old, a husband and father of two, and had been a Bank Officer at JP Morgan for the past eleven years.

At Kenneth's request, Northwestern set up an Insurance Service Account ("ISA") whereby the premiums on the two policies would be paid on a monthly basis and funded through electronic fund transfers ("EFT") from Kenneth's bank account. Each of the policies contained the following "Grace Period" provision:

Grace Period. A grace period of 31 days will be allowed to pay a premium that is not paid on its due date. The policy will be in full force during this period. If the insured dies during the grace period, any overdue premium will be paid from the proceeds of the policy.

If the premium is not paid within the grace period, the policy will terminate as of the due date unless it continues as extended term or paid-up insurance under Sections 7.2 or 7.3.

Each policy further provided for reinstatement more than thirty-one days after the end of the grace period upon submission of evidence of insurability and payment with interest of unpaid 4 premiums. The reinstatement option would be open to the policyholder for five and three years 5 after termination of the Whole Life and Term Life Policies, respectively. 6 Kenneth did not always pay on time. On three different occasions between August 2004 7 and early 2005, Kenneth's EFT payments to the ISA were rejected by the bank for insufficient 8 funds, resulting in the closing of the ISA each time. Following each of the first two closings that 9 took place on September 24, 2004, and January 11, 2005, Kenneth made subsequent EFT 10 payments to reopen the ISA and satisfy his premiums. Following the third missed payment and 11 the resulting ISA closing on March 15, 2005, the ISA was reopened once again on April 5, 2005, 12 with an EFT payment of $224.85. Since that amount was insufficient to satisfy Kenneth's 13 premium obligations beyond February 28, 2005, the ISA was "closed yet again" on April 12, 14 2005.

15 On April 27, 2005, instead of paying the delinquent payments as he had done in the past, 16 Kenneth called Northwestern and spoke with Melissa Nowak in the Policyowner Services 17 Department. Kenneth asked to have his ISA reopened for the Term Life Policy only and to have 18 the premium for that policy be paid through December 28, 2005. The premium for the Whole 19 Life Policy having been paid through February 28, 2005, and no premium payment having been 20 made within the thirty-one-day grace period, the Whole Life Policy terminated on February 28, 21 2005. Kenneth provided the necessary banking information so that a one-time draft could be 22 issued to cover the premiums for the Term Life Policy. On April 28, 2005, the ISA was 23 reactivated for the Term Life Policy only, and on April 29, 2005, Kenneth made an EFT payment 24 of $215.60 to his ISA, which satisfied the premiums for March through December. As a result 25 of this transaction, Kenneth's ISA supposedly had a zero balance as of April 29, 2005. 26 On May 23, 2005, however, Kenneth telephoned Northwestern to inquire about a 1 negative balance reported in his ISA and spoke with Diane Knueppel ("Knueppel"), a Senior 2 Customer Service Representative. From her, he learned that the negative balance resulted from a 3 $35.00 premium adjustment fee. According to Knueppel, the fee could not be waived because 4 Kenneth's Term Life Policy was no longer a companion policy to the terminated Whole Life 5 Policy. Knueppel's notes from her conversation with Kenneth, contemporaneously created that 6 day in Northwestern's Casetracker system, revealed that she "[s]poke with client"; [i]nformed 7 him that the $35 is a policy fee that . . . is no longer waived"; and that "[c]lient is now asking to 8 be refund[ed] his last payment and let the policy lapse." After ...


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