Illinois Federal Court Dismisses Claim That Premium Payment After Insured’s Death Reinstated Lapsed Life Insurance Policy

The U.S. District Court for the Northern District of Illinois recently dismissed a complaint filed by a policy beneficiary asserting that her husband’s lapsed life insurance policy was reinstated because she paid the unpaid premiums five days after her husband’s death. The beneficiary argued that the insurer waived the right to declare the $500,000 policy lapsed because the insurer’s agent told her the policy would be reinstated despite her husband’s death if she issued and gave him a check for the past due premium amount and the insurer deposited the check without attempting to refund the money until seventeen days later. The court rejected these arguments as unsupported by the complaint and contrary to the language of the application, which states that the agent did not have authority to waive the insurer’s rights. Also, the mere receipt, deposit and refund of the premium payment was insufficient to establish that the insurer waived the right to declare the policy lapsed. The court found that the insurer took no other action that reflects an intent to reinstate the policy and it expressly disclaimed such intent in the policy itself and its letter to the insured informing him how to reinstate his policy. According to the opinion, four days after her husband’s death, the beneficiary found the unopened letters from the insurer regarding policy termination and actions the insured could take to reinstate the policy. The court also dismissed the beneficiary’s claims of promissory estoppel and breach of fiduciary duty asserted against the insurance agent. A copy of the court’s opinion in Stewart v. Northwestern Mutual Life Ins. Co., No. 15 C 11600, 2016 WL 1555715 (N.D.Ill. April 18, 2016) can be found here.