New York Court Holds Life Insurer Must Pay Claim After Failing to Strictly Comply With Statutory Notice Requirements Regarding Policy Termination

A New York court found that Allstate Life Insurance Company was required to pay the proceeds of a life insurance policy because it had failed to properly notify the insured of the termination of the policy. In Rivera v. Allstate Life Insurance Company of New York, the Suffolk County trial court entered summary judgment in favor of the insured and found as a matter of law that the insurer must pay the $100,000 policy limits for failing to comply with the notice requirements of Insurance Law § 3211. The court noted that its decision was in line with public policy disfavoring forfeiture of life insurance policies for non-payment of premium.

In Rivera, the insured purchased a policy in 2005 and opted to have monthly premium payments electronically withdrawn from her checking account. In August of 2013, the insured was terminally ill with cancer and missed a payment after closing the checking account without making alternative arrangements to pay the monthly premium. The insured had made all prior payments since the inception of the policy.

After the bank refused the payment, Allstate sent the insured a series of letters regarding the missed payment. The first letter was dated August 27, 2013 and advised the insured that the payment due date was August 13, 2013. The letter requested that a replacement payment be made and that her policy “may lapse” if she fails to do so. Allstate then unilaterally terminated the monthly payment plan and initiated a quarterly premium schedule.

A second letter, also dated August 27, 2013 and entitled “Notice of Payment Due,” advised the insured that a quarterly premium payment for a larger amount was due August 21, 2013, which was six days prior to the issuance of the letter. The letter also stated that if the premium was not paid within a grace period of 31 days from the due date, then the policy would terminate.

A third letter, dated August 28, 2013, advised that her policy “was at risk for lack of payment” and that the policy would continue for 31 days from August 27, 2013. The letter continued by stating that coverage would cease if the payment was not received by September 27, 2013. No payment was made. The insured passed away on September 28, 2013.

The beneficiary of the policy, the insured’s son, submitted a claim to Allstate for the death benefit. Allstate denied the claim on the basis that the policy lapsed for non-payment of premium on August 21, 2013 and terminated at the expiration of the grace period on September 27, 2013. The son then filed suit against Allstate for failing to give proper notice under Insurance Law § 3211 of the premium due and the risk of policy lapse.

Under Insurance Law § 3211, the insurer must follow certain requirements when terminating a life insurance policy for non-payment of premium. A written notice must be sent at least 15 days and no more than 45 days prior to the payment due date and must state the amount of the payment, the due date, the place and person to whom it is payable, and specify that unless payment is made on or before the due date or within the specified grace period, then the policy will terminate.

The court examined the letters Allstate sent to the insured and found all of them lacking. Since the first letter addressed the missed monthly payment, it had no impact on the analysis and was disregarded by the court. The court reviewed the second letter, which advised of the new quarterly premium and was dated six days after the premium due date, and found that it failed to comply with the requirement that written notice must be sent at least fifteen and not more than 45 days prior to the payment due date. The court found that the third letter was also deficient because it did not clearly set forth the premium payment due date and also was not sent within the required fifteen and forty-five time frame before the payment was due.

Accordingly, since Allstate did not comply with the requirements of Insurance Law § 3211, the court held that the policy was still in effect at the time of the insured’s death and that plaintiff was entitled to the policy proceeds.