Life Insurance – Missed Payments

Aledo life insurance attorneys need to know the effect of payments missed on a life insurance policy. To begin with, each policy is different and thus the policy language needs to be read and then applied to the facts of the situation.
A February 2014, opinion from the Houston Court of Appeals, 1st District dealt with this issue to the detriment of the beneficiary. The style of the case is Lambana v. AIG. Here is some of the relevant information.
Pamela Lombana (“Lombana”), acting as the trustee of the Lombana Investment Trust challenged the trial court’s rendition of summary judgment in favor of AIG on her claims against AIG for breach of contract, breach of an oral or implied contract to reinstate, promissory estoppel, negligence, violations of the Texas Insurance Code, violations of the Texas Deceptive Trade Practices Act (“DTPA”), breach of the duty of good faith and fair dealing, fraud, and fraud by nondisclosure. This appeals court affirmed the trial court decision.
The Policy contained the following language pertinent to Lombana’s claims:
PREMIUM PAYMENT The first premium is due on the date of issue and is payable at our home office or to an authorized agent, insurance will not take effect before this premium is paid. Later premiums are due and payable at the intervals and for the period shown . . . while the insured is alive. Later premiums may be sent to our home office or given to an authorized agent in exchange for a receipt signed by one of our officers. With our consent, premiums may be paid at other intervals.
Any premium, after the first, not paid on or before its due date will be in default. Each due date will be the date of default.
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GRACE PERIOD A 31 day grace period, without interest charge, is allowed for the payment of each premium after the first. This policy will stay in force during this period. If the premium is not paid before the end of the grace period, insurance will end and this policy will lapse.
…. ELIGIBILITY If your policy lapses, it may be eligible for reinstatement if all of the following conditions are met:
1. The policy has been in force continuously for at least five years immediately prior to the date of lapse;
2. All premiums have been paid in a timely manner during this period;
3. The lapse results from an unintentional default in premium payments caused by the mental incapacity of the insured; and 4. We receive a request for reinstatement and proof of the insured’s mental incapacity within one year from the date of the lapse.
….
PROOF AND REQUEST To establish proof of the insured’s mental incapacity, we must be provided with a clinical diagnosis by a physician licensed in Texas and qualified to make the diagnosis. We will accept the proof and request for reinstatement from:
1. you; 2. the insured, if you are not the insured; 3. the legal guardian of the insured; 4. other legal representative of the insured; or 5. the legal representative of the estate of the insured.
….
MENTAL INCAPACITY Mental incapacity means lacking the ability, based on reasonable medical judgment, to understand and appreciate the nature and consequences of a decision regarding failure to pay a premium when due and the ability to reach an informed decision in the matter.
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REINSTATEMENT We will reinstate an eligible policy within a period of one year after the date of lapse. We will require payment of all unpaid premiums, plus 6% interest, from the date of lapse to the date of reinstatement.
1. Your policy will be treated as if it has been in force continuously since the lapse;
2. The policy provisions will apply as if there had been no lapse; and 3. You will be required to make any and all future premium payments required by the policy provisions to keep the policy in force.
…. DEFINITIONS Lapse – The due date of the last premium that remains unpaid after the expiration of the grace period defined in the policy.
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PAYMENT OF PROCEEDS Proceeds will be payable on the date of the insured’s death. This policy will terminate on the earlier of (1) the date of the insured’s death, or (2) the final expiry date.
Upon receipt of due proof of the insured’s death, we will pay the insured’s beneficiary the face amount. We will add to the face amount any premium paid for the period beyond the policy month in which the insured’s death occurs. If death occurs during the grace period of an unpaid premium, an amount equal to one month’s premium will be deducted from the proceeds.
Due proof of the insured’s death will consist minimally of our company claim form completed by the beneficiary and a certified copy of the death certificate of the insured.
Interest as required by law will be added to the proceeds payable under this policy.

In October 2006, Dr. Lombana was diagnosed with rheumatoid arthritis, and his health deteriorated. Prior to the Policy’s annual premium due date of April 28, 2008, AIG sent a billing notice to the Investment Trust at 414 Alkire Lake Drive, Sugarland, Texas 77478.5 Lombana admits that this premium payment was not made. On May 18, 2008, AIG sent a payment reminder to the Investment Trust at the Alkire Lake address, but the U.S. Postal Service returned it to AIG, showing a change of address to “5307 Saint George Square Ln., Houston, Texas 77056.” AIG then forwarded the payment reminder to the St. George address. No premium payment was made during the 31-day grace period provided by the Policy, and the Policy lapsed on the date of default, April 28, 2008. AIG then sent a Notice of Termination to the Investment Trust on June 27, 2008.
Lombana argued that the trial court erred in granting AIG summary judgment on her claims against AIG for violations of the Texas Insurance Code and the DTPA because she presented evidence that AIG failed to conduct a reasonable investigation into whether she entered into a contract to reinstate the Policy, the AIG call representative made affirmative representations and omitted material facts during the January 22, 2009 telephone call, and AIG failed to timely pay benefits due under the Policy.
Having concluded that the Policy had lapsed prior to, and had terminated upon, the death of Dr. Lombana, and Lombana provided no evidence that an oral or implied contract was entered into during her January 22, 2009 telephone call with the AIG call representative, this court further concluded that there is no basis for Lombana’s claims that AIG violated the Texas Insurance Code or the DTPA.
Lombana argued that the trial court erred in granting AIG summary judgment on her claims against AIG for violations of the Texas Insurance Code and the DTPA because she presented evidence that AIG failed to conduct a reasonable investigation into whether she entered into a contract to reinstate the Policy, the AIG call representative made affirmative representations and omitted material facts during the January 22, 2009 telephone call, and AIG failed to timely pay benefits due under the Policy.
Having concluded that the Policy had lapsed prior to, and had terminated upon, the death of Dr. Lombana, and Lombana provided no evidence that an oral or implied contract was entered into during her January 22, 2009 telephone call with the AIG call representative, this court further concluded that there is no basis for Lombana’s claims that AIG violated the Texas Insurance Code or the DTPA.
Many other points were discussed in this case and thus it is worth reading.