When is a life insurance forfeiture ineffective despite the insured’s failure to make a timely premium payment? The answer was provided in Harwick v. AXA Equitable Life Ins. Co., 2020 WL 7698367 (N.D. Ill. December 27, 2020), where the court cited an Illinois statute that embodies a public policy against undue forfeiture of life insurance coverage.

The Harwick case involved the following facts: The insured, Douglas Harwick, died on April 19, 2019. From 1993 until December 2018, Harwick paid quarterly premiums totaling nearly $24,000 to maintain $250,000 in life insurance benefits for  his two sons who were named as beneficiaries. Because Harwick failed to pay a premium due in March 2019, the life insurer, AXA Equitable, denied the beneficiaries’ claim, asserting a lapse in coverage prior to Douglas Harwick’s death.

AXA maintained that Harwick’s life insurance was forfeited because it had sent a notice of payment due on Feb. 21, 2019, stating that a premium was due on March 15, 2019. Since Harwick died without having paid that premium by the date it was due or within a 30-day grace period following the premium due date, his life insurance coverage was void.

The plaintiffs challenged the denial, citing 215 ILCS 5/234(1), which prohibits a life insurer from declaring a policy forfeited or lapsed within six months following the failure to pay a premium unless notice had previously been given to the insured stating that in the event of nonpayment, the policy coverage would be forfeited and become void. However, AXA’s premium notice did not state the policy would be “forfeited and void,” although AXA maintained its notice “substantially complied” with the statutory requirement. The court disagreed.

The notice sent to the policyholder stated:

“What if you do not pay your premium on time? Pay your premiums promptly to assure that you keep your insurance in full effect. If a premium is not paid by the end of the grace period the policy will terminate except for any continuing insurance benefits that may be provided by any cash value under the policy or by law.

“In any event, supplemental benefits (such as those provided by accidental death or additional term insurance provisions) do not continue after the grace period.”

Comparing that language to the statutory requirement, the court concluded: “Even if section 234(1) does not require a notice that uses the statutory terminology verbatim, the statute would be meaningless, and its purpose would be defeated, if it did not at least require an insurance company to convey clearly the consequences of nonpayment of a premium.”

The court found AXA’s notice was “at best, ambiguous. Saying that a policy ‘terminates’ conveys a different message from saying that it is ‘forfeited’ or ‘void.’” The court reiterated that “the law does not allow forfeiture unless the insurer has provided clear notice of the consequences of nonpayment”; and no such language was contained in AXA’s notification.

The court cited language from other cases in which courts found compliance with section 234(1), finding that by comparison to explicit language as to lapse and forfeiture, the language in the premium notice AXA Equitable sent to Harwick was unclear. The court further explained:

“The language the insurance company used in each of these cases made it quite clear that missing a payment meant the life insurance was gone; it said that ‘all coverage under this policy will end’ or that ‘the policy will become forfeited and void.’ By contrast, the wording used in AXA’s notice — ‘the policy will terminate except for …” — does not convey the same message; it is nothing if not unclear.”

Finally, the court cited Wegrzyn v. Jackson National Life Insurance Co., No. 10 C 2140, 2011 WL 2672510 (N.D. Ill. July 8, 2011), which involved a notification that failure to pay the premium “will cause your insurance policy to lapse.” In that case, the court had determined the absence of “forfeited and void” language was fatal to the coverage denial and that the use of the term “lapse” was “not sufficiently precise” and seemed “unclear regarding whether it is conveyed that the Policy would become forfeited and void.” Applying that ruling to the Harwicks’ situation, the court found: “Saying that the insurance policy would ‘terminate’ if Douglas Harwick missed a payment is not the same as saying that he would ‘forfeit’ the policy or that it would become ‘void.’”

Accordingly, the court ruled that Harwick’s policy remained in force at the time of his death and that benefits were owed to his beneficiaries.

The complete statute at issue was not quoted verbatim in the ruling, but Sec. 234(1) states in relevant part:

“No life company doing business in this State shall declare any policy forfeited or lapsed within six months after default in payment of any premium installment or interest or any portion thereof…unless a written or printed notice stating the amount of such premium… due on such policy, the place where it shall be paid and the person to whom the same is payable, shall have been duly addressed and mailed with the required postage affixed, to the person whose life is insured… at least fifteen days and not more than forty-five days prior to the day when the same is due and payable, before the beginning of the period of grace…. Such notice shall also state that unless such premium or other sums due shall be paid to the company or its agents the policy and all payments thereon will become forfeited and void, except as to the right to a surrender value or paid-up policy as provided for by the policy.” (Emphasis added.)

Based on a comparison between the statutory language and the contents of the premium notice, the deficiency in AXA Equitable’s notice to Douglas Harwick was apparent. The court was thus able to effectuate public policy in preventing a forfeiture of a policy for which the insured had paid substantial premiums for 25 years without interruption when he died just four days after the grace period for payment ended.

This article was first published by Chicago Daily Law Bulletin on February 4, 2021

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