Applying New Jersey law, the the United States District Court for the Southern District of New York held that the John Hancock Life Insurance Company was entitled to withhold unpaid premium payments from a life policy’s death benefit. In John Hancock Life Insurance Company v. Katzman, the policy was in default when the insured died. Interpreting the words of the policy and finding no ambiguity, the court held that the policy allowed the insurer to subtract the unpaid monthly premiums from the policy’s death benefit as a matter of law.
The facts and procedural history of the Katzman case are convoluted and do not have much bearing on the court’s holding. The court’s analysis of the legal issues is quite simple and straightforward. In this matter, the insured purchased a universal life insurance policy with a death benefit of $1,250,410.40 from John Hancock in 2008. At the time of the insured’s death in May of 2014, he owed John Hancock $196,589.60 in premium payments.
The policy had gone into default in April of 2010. Pursuant to the terms of the policy, John Hancock advised the beneficiary that it would pay the death benefit minus the unpaid premiums. The reduced amount was later paid. Litigation then ensued and eventually John Hancock filed the instant interpleader action to be discharged of any liability under the policy.
The court examined a key policy provision to determine whether John Hancock was entitled to reduce the payment by the amount of unpaid premiums. The policy stated that the insurer “will deduct from the proceeds all monthly deductions due and unpaid as of the date of the Life Insured’s death” if the insured dies while the policy is in default.
It was undisputed that the policy went into default in April of 2010. It was also undisputed that the insured died while the policy was in default. Accordingly, the court found that no triable issue of fact existed and that John Hancock was entitled to make the deduction for the unpaid premiums as a matter of law.