Life Insurance – Electronic Funds Transfer

Life Insurance lawyers will eventually receive a phone call wherein the potential new client complains that the life insurance company quit making agreed upon payments for the life insurance from the potential client’s bank account.
Here is a 2023 opinion from the Southern District of Texas, Victoria Division, that discusses this issue.  The opinion is styled, Gloria Fric v. Allstate Life Insurance Company.
The opinion discusses several legal issues.  The focus here will be the issue related to the electronic funds transfer.
This was a life insurance policy that was purchased in 1987.  Approximately thirty years later, the Fric’s signed an automatic withdrawal agreement with Allstate under which Allstate would withdraw $436.75 from the Fric’s personal bank account to pay the life insurance premium.  Shortly thereafter, Mr. Fric’s life insurance policy’s premium increased, and the $436.75 per month Allstate withdrew from Mrs. Fric’s bank account no longer covered the full premium amount.  Due to this deficiency, Allstate notified the Frics by letter that Mr. Fric’s policy went into its grace period and would soon be terminated unless the deficiency was paid.  The deficiency was not paid, and Allstate terminated the contract. Ten months later, Mr. Fric passed away.  When Mrs. Fric initiated the claims process, Allstate denied her claim stating that Mr. Fric’s policy had been terminated. Mrs. Fric filed suit against Allstate.
The Frics signed the automatic withdrawal agreement, known as an “Electronic Funds Transfer Agreement” or “EFTA.”  Under this agreement, Allstate was authorized to automatically debit the policy’s monthly premium payment from the Frics’ bank account.  The EFTA between the Frics and Allstate worked without issue for two years.
In October 2019, Allstate informed Mr. Fric by letter that the premium payments Allstate had received were insufficient to cover the policy.  This resulted from an increased premiums that were due on the policy  As a result of this monetary deficiency, the policy went into its 60-day grace period.  To remedy this deficiency, Mr. Fric was required to make a $1,064.59 payment within the grace period or else the policy would terminate.  When Allstate did not receive this payment within the grace period, it terminated Mr. Fric’s policy on December 17, 2019.  Ten months later, Mr. Fric passed away.
The issue for the Court is whether Allstate breached the EFTA.
In her Complaint, Mrs. Fric asserts that Allstate breached the EFTA because Allstate did not withdraw sufficient funds from her bank account to pay the life insurance premium.  Allstate contends that it did not breach the EFTA because, contrary to Mrs. Fric’s argument, the EFTA only authorizes Allstate to withdraw “$436.75 per month” from Mrs. Fric’s bank account to make payments towards Mr. Fric’s life insurance premium.  The Court holds that the EFTA unambiguously authorized Allstate to withdraw only $436.75 per month without additional authorization from Mrs. Fric.
The EFTA here did not obligate Allstate to pay a possible deficiency in Mr. Fric’s life insurance premiums.  Instead, many sections of the EFTA specifically limit Allstate’s authority to only that which is expressly authorized.  For instance, Section B limits Allstate’s authority to Mrs. Fric’s bank account to the first installment of Mr. Fric’s new policy and future “authorizations” must be “initiated” by Mrs. Fric “in the amounts” she “specifies.”
Section C is an agreement between Mrs. Fric and Allstate allowing Allstate to automatically withdraw $436.75 from Mrs. Fric’s bank account for the purpose of paying the premium on Mr. Fric’s life insurance policy.  The text of Section C reads:

[The Frics] authorize [Allstate] and its affiliates and the financial institution designated to deduct payments from [theFric’s] account through electronic funds transfer. [The Frics] further authorize [Allstate] to make changes to [the Fric’s]draft date; premium amount; mode frequency; and/or initiate or change a loan repayment amount upon [the Fric’s] written, verbal, or electronic request(s). All such requests will be confirmed by [Allstate] in writing.

Recurring Payment Amount: $436.75

Payment Frequency: Monthly
Section C’s text expressly limits Allstate’s authority to $436.75.  Mrs. Fric listed $436.75 as the payment amount.  Mrs. Fric listed the frequency as monthly.  And any change to either the amount or payment frequency had to be requested by Mrs. Fric and “confirmed by [Allstate] in writing” to take effect.”  Therefore, Allstate did not breach Section C of the EFTA by failing to withdraw more than the listed amount of $436.75.
The EFTA’s other provision at issue in this case, Section D, also does not give Allstate the authorization to pay a premium deficiency.  Section D grants an Allstate agent the authority to make certain changes to some of the items listed in the EFTA. The text of Section D provides:
[The Frics] give my acting agent the authorization to make the following EFT changes: draft date; premium amount; mode frequency and initiate or change loan repayment. Any such request will be confirmed by The Company in writing.
While Section D does give Allstate the power, through its agent, to request certain changes to the EFTA, Section D does not give Allstate power to make changes because “any such request” by Mrs. Fric must “be confirmed by [Allstate] in writing.”
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