Reminder Notice Can Extend Grace Period for Life Insurance Premium Payment in Maryland

In a decision of interest to estate attorneys and insurance advisors, the Maryland Court of Special Appeals considered whether a life insurance policy issued to Dr. John Griffith (“Dr. Griffith”) was in force at the time of his death.  See United States Life Ins. Co. v. Wilson, 198 Md. App. 452, 18 A.3d 110 (2011).

On July 28, 2007, Dr. Griffith was struck and fatally injured by a passing motor vehicle.  Prior to his death, Dr. Griffith purchased a 10 year level term life insurance policy (“Policy”) from United States Life Insurance Company in the City of New York (“US Life”). He was the named insured under the Policy and his wife, Elizabeth Wilson (“Wilson”), the primary beneficiary. The Policy was administered by AMAIA, a subsidiary of the American Medical Association. 

Premiums were due on the Policy bi-annually, on November 15 and May 15. The Policy had a “Grace Period” provision, however, that provided:

Each premium, after the first, may be paid up to 31 days after its due date. . . .The insurance provided by the group policy will stay in effect during this period. If the premium is not paid by the end of this period, such insurance will end at that time. United States Life may extend the grace period by written notice. Such notice will state the date the insurance will end if the premium remains unpaid.

The Policy also contained a “Reinstatement” provision that provided the Policy could be reinstated without the written approval of US Life so long as any overdue premium was paid within 31 days from the end of the Grace Period. 

Dr. Griffith failed to make the premium payment that was due May 15, 2007. After he missed the payment, US Life sent him a Reminder Notice that stated: “To assure active coverage, full payment must be received no later than 60 days [from May 15, 2007].”  On July 23, 2007, Dr. Griffith entered an online directive for his bank to make the payment.  The bank complied and on July 25, 2007, issued a check for the payment and sent the check to AMAIA.  AMAIA received the check on July 30, 2007.  Without knowledge of Dr. Griffith’s death, AMAIA returned the check, contending that the Policy had lapsed and could not be reinstated unless a new application was submitted.

Wilson subsequently filed a claim under the Policy for death benefits. AMAIA denied the claim, indicating that the Policy was not in force at the time of Dr. Griffith’s death. Litigation ensued and ultimately, the trial court granted summary judgment to Wilson on her breach of contract claim against US Life and AMAIA (“the Insurers”).

The Insurers appealed, arguing that the trial court’s judgment was erroneous. Specifically, they argued that the Reminder Notice did not extend the Grace Period from 31 to 60 days and as such, the Policy lapsed because payment was not received within the required time frame. Alternatively, they argued that even if the Reminder Notice had extended the Grace Period from 31 to 60 days, there was no obligation to reinstate the Policy because Dr. Griffith died before the Insurers received and negotiated the premium payment.

The Court of Special Appeals rejected the Insurers’ arguments concluding that the trial court had correctly entered summary judgment in favor of Wilson.  In so concluding, the Court held that the Reminder Notice served to extend the Grace Period to July 14, 2007, as expressly permitted under the Policy, because the notice was in writing and contained a substitute date that the insurance would end?60 days from May 15, 2007. 
 
The Court then held that because the premium payment was dispatched to the Insurers within 31 days of July 14, 2007, the conclusion of the extended Grace Period, the Insurers were required to reinstate the Policy pursuant to the contract terms. The Court explained that the premium payment was deemed received by the Insurers not when they took actual physical possession of the payment, but rather when Dr. Griffith’s bank dispatched the payment, or set it into motion. Thus, Dr. Griffith’s acceptance of US Life’s offer to reinstate his Policy was effective and his Policy revived on July 25, 2007, when his bank sent the premium payment to the Insurers. Accordingly, the Court held that the Policy was in force at the time of Dr. Griffith’s death on July 27, 2007.