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Conditional Receipt of Premium with Application for Life Policy Does Not Give Rise to a Policy of Life Insurance When the Applicant Dies before the Policy Issued

By: Harry Thomas

Harry Thomas and Lisa Scoles were successful in obtaining summary judgment for United Insurance Company of America on a claim that the signing of a conditional receipt and the receipt of a premium payment was sufficient to establish a contract between plaintiff and United when the executed application provided that no liability exists until a policy is delivered to and accepted by the owner. 

Plaintiff’s complaint alleged that on April 5, 2006 she applied for a life insurance policy with United on her fifteen-year-old son, Tyler and her 16-year-old son Travis. Plaintiff was designated as the beneficiary in each of the applications. United’s agent assisted with completion of the applications. The applications clearly stated in the paragraph above the applicant’s signature that the agent could not accept any risk, modify policies, waive any rights or requirements of United and that it was agreed that unless otherwise stated in a conditional receipt bearing the date of the application, that no liability exists until: (a) a policy is delivered and accepted by the owner; and (b) the first premium is paid while the health and occupations of the proposed insured are as described in this application. Upon completion of the applications the plaintiff paid the first month’s premium for each son and was issued a conditional temporary receipt which provided that for insurance to be effective the following five conditions must first be fulfilled: (a) All Company Requirements have been completed and received by the Company within 60 days from the date of application; (b) The first premium has been paid in full; (c) All questions in the application have been answered; (d) All answers given in the application are true and complete; and (e) The Proposed Insured is acceptable to the Company under its rules and practices, for the plan and amount applied for, without amendment, at the rate class applied for or at the standard premium, as of the date all the Company Requirements are received by it. Plaintiff testified that upon completion of the application and her payment of the initial premium that the agent told her that her sons were covered.

Upon receipt of the applications, United’s underwriting department notified the agent that additional information regarding the manner of payment by electronic funds transfer and the completion of a field inspection report by the district office was required before processing of the applications could be completed. On May 28, 2006, plaintiff’s son Tyler died from asphyxiation, aspiration of food and dysphasia. At the time of Tyler’s death a field inspection report had not been completed by the district office and the additional information regarding the manner of payment had not been provided by the applicant. While the agent was made aware of his death, United’s underwriting department was not notified of Tyler’s death. Sixty days after receipt of the application, and in accordance with the terms of the Conditional Temporary Receipt, United closed the file for each application and returned the premiums paid with the applications because information required to complete the application process had not been received. No policy was ever issued on the lives of either of plaintiff’s sons. Based on the terms of the application, the conditional receipt, the plaintiff’s failure to provide the required additional information, the lack of a field inspection and the fact that no policy was ever issued, United moved for summary judgment.

During discovery, contrary to complaint allegations, it was learned that a second conditional temporary receipt was issued to the plaintiff on April 11, 2006. While disputed by the agent, the plaintiff testified, contrary to her complaint allegations, that while the application was completed and signed on April 5, she did not pay the first premium until April 11 and that was when she was given the second receipt. The second receipt was different than the first receipt in that it did not contain any of the five conditions listed in the first conditional receipt issued on April 5. Additionally during discovery plaintiff testified that the agent checked the box on the application selecting electronic funds transfer as the method for making future premium payments, that she did not want to pay by electronic funds transfer for at the time she did not have a checking account.

Plaintiff opposed the motion for summary judgment by contending that the application signed by plaintiff along with the second conditional receipt coupled with the agent’s alleged error-laced statements to the applicant at the signing of the application was sufficient to establish the existence of a contract for life insurance. In addition, the plaintiff argued that she signed the applications without reading them, that the agent had checked the wrong box on the application specifying the manner of payment as she did not intend to pay future premiums via electronic funds transfer, and that while she was told that a field inspection had to take place she was never informed of the additional information needed regarding the manner of payment the agent selected. Finally, plaintiff argued that the agent violated United’s operating rules regarding how the application should have been completed and because the agent learned of Tyler’s death on May 29, 2006, United had notice of the death before the sixty-day application period expired.

In its motion for summary judgment United relied on well established Florida law that an insurance policy becomes effective only when the insurance company receives and accepts the offer of the insurance application. Facts showing that an application for life insurance has been submitted, along with an initial payment of premium, are not sufficient to demonstrate that a contract for insurance has been established. United also brought to the attention of the court Florida cases holding that when a conditional receipt specifies the conditions that must be established prior to issuance of the policy and such conditions are not fulfilled in their entirety, no insurance coverage results.

After consideration of the memoranda of law submitted by the parties and extensive argument from counsel, the court on June 5, 2006, entered final judgment for United finding that no contract of insurance ever came into existence because United never accepted the application submitted by plaintiff.

The following are some key points from the findings made by the court:

  • The starting point for the court’s decision was the language from the application signed by the plaintiff which provided that unless otherwise stated in a conditional receipt bearing the date of this application no liability exists until a policy is delivered and accepted by the owner. The court found that while the first premium was paid no policy was issued and delivered and neither of the conditional receipts at issue in the case modified the requirement that a policy be delivered to and accepted by plaintiff prior to becoming effective.
  • Plaintiff had been made aware of the need for a field inspection report to be completed as part of the application process. The court relied on the fact of the uncompleted field inspection report to support the conclusion that the application process was not completed at the time of the applicant’s death. The court expressly stated that “The court’s ruling places a great deal of weight on the lack of a field inspection and plaintiff’s knowledge of the need thereof. The court did not place as much weight on the lack of the additional information needed regarding the manner of payment by electronic funds transfer.”
  • The court accepted plaintiff’s testimony that the agent who took the application told her she was covered. However, the fact of any such statement was over ridden by the language in the application signed by plaintiff which states that “No agent can: a) accept any risks; b) modify policies; or c) waive any rights or requirements of United Insurance Company of America.”

Lakoe Jackson v. United Insurance Company of America, Inc., Case No. 08 1079 CAA, Circuit Court of the Second Judicial Circuit in and for Gadsden County, Florida. Final Judgment, June 5, 2009.