IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

PNC BANK, NATIONAL ASSOCIATION, : CIVIL ACTION

Trustee of the Harold G. Fulmer,:

III Irrevocable Deed of Trust :

Dated 8/21/97 :

 :

v. :

 :

AMERUS LIFE INSURANCE COMPANY : NO. 05-02966-JF

ADJUDICATION

Fullam, Sr. J. July 17, 2006

This case was tried non-jury on June 26 and 27, 2006. 

My findings and conclusions are summarized below. There is,

actually, little or no dispute as to the facts. Counsel for

plaintiff has submitted 180 proposed findings of fact, together

with 151 proposed conclusions of law – a remarkable number, until

one notes that counsel appears to have simply submitted a legal

brief, with each sentence constituting a separate, numbered

paragraph. Defense counsel has submitted a more modest total of

44 proposed findings of fact, and 14 proposed conclusions of law.

The relevant facts can be stated briefly. In 1987, a

gentleman named Harold G. Fulmer, III purchased a $10 million

life insurance policy from the defendant (Policy Number 2535113),

and immediately transferred ownership of the policy to a trustee,

under a life insurance trust created pursuant to an irrevocable

deed of trust dated August 21, 1987. In 1999, plaintiff PNC

Bank, National Association became the successor trustee under

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that arrangement. At all relevant times, plaintiff had a copy of

the life insurance policy in its files, and the defendant had a

copy of the trust agreement in its files. 

Under the terms of the trust agreement, Mr. Fulmer was

solely responsible for paying premiums on the policy, and the

plaintiff, as trustee, did not even have a duty to keep Mr.

Fulmer informed as to premiums due. On the other hand, under the

terms of the insurance policy, the defendant insurance company

did not have any stated obligation to communicate with Mr. Fulmer

either; it was required to send notices to the owner of the

policy, the plaintiff bank. And, since the defendant had a copy

of the trust agreement in its files, defendant was presumably

chargeable with notice that the bank might not be notifying Mr.

Fulmer about premiums due.

These technical problems are not addressed by counsel

in their arguments, presumably because of the way in which the

parties conducted their relationships over the years, and

particularly since plaintiff became the trustee in 1999. The

defendant sent all premium notices, annual statements, and other

documentation relating to the policy to the bank. Most of these

communications were addressed to Mr. Fulmer in care of the bank,

but directed to the attention of specific individuals at the

bank. The Fulmers communicated principally with the bank, rather

than directly with the insurance company, but occasionally dealt

Case 2:05-cv-02966-JF Document 76 Filed 07/17/06 Page 2 of 10
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directly with the insurance company. And the bank endeavored to

keep Mr. Fulmer informed about all premium notices and other

significant events. 

The insurance policy in question was a “variable

premium” policy. The premiums had to be calculated by the

insurance company, and increased over time, as Mr. Fulmer’s age

increased, and as pertinent interest rates changed. The

defendant was solely responsible for calculating the appropriate

premium, which depended heavily upon the “cost of insurance”

factor which varied with age, as noted above. 

Under the terms of the policy, Mr. Fulmer had the right

either to pay premiums periodically, or to cause the cash

surrender value of the policy to be used to pay premiums. In

conformity with this right, the policy included the following

provisions:

“Grace Period. This policy will stay in

force for 60 days after the monthly due date

on which the cash value is not sufficient to

cover the monthly deductions then due....

Lapse. If sufficient premium is not paid by

the end of the grace period, the policy and

any additional benefit riders will end

without value. We will mail you notice of

the amount of premium that will be sufficient

to continue the policy in force at least 30

days before the end of the grace period.”

In 1993, Mr. Fulmer formally notified the defendant

insurance company (and the trustee) that he wished to use the

cash surrender value of the policy, until further notice, to pay

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premiums. He formally requested the insurance company to notify

him if the cash surrender value was insufficient to pay premiums

at any time in the future. From then on, as each quarterly

payment of premium became due, plaintiff would learn ahead of

time from defendant whether premium payments over and above the

cash surrender value would be necessary, and would cause Mr.

Fulmer to make the necessary payments. At times, the policy

would enter the “lapse” condition, the defendant would issue a

lapse notice to plaintiff, and plaintiff would cause Mr. Fulmer

to make the necessary payments.

All inquiries addressed to the defendant insurance

company were handled by its “customer service” representatives. 

The inquirer would telephone a listed number, would provide the

number of the insurance policy, and would thereupon be directed

to a specific customer service representative. The customer

service representatives, in turn, had access to the computer

files of the defendant, and would provide information to the

caller based upon what the computer screen showed.

It should also be noted that the defendant’s computers

caused various notices to be sent out from time to time. 

Specifically, on each yearly anniversary of the policy, the

defendant’s computers would generate and distribute an annual

statement showing the status of the policy. Invariably, these

statements disclosed (in small print at the end) that, during the

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following year, it was likely that the cash surrender value of

the policy would not suffice to pay all premiums due, and that,

unless premiums were duly paid as required, the policy might

lapse. 

By late 2003, premiums on the Fulmer policy were

averaging about $25,000 per quarter, $100,000 per year. By the

end of 2003, some entries in the defendant’s computer records

could give the impression that the cash surrender value of the

Fulmer policy should be sufficient to pay the premiums. 

Actually, however, because cash surrender value was the amount

which would remain after deduction of a “cancellation fee” of

about that amount, there was little or no cash surrender value in

the Fulmer policy by the end of 2003.

One inquiry of the defendant yielded the information

that a payment of $511.04 would suffice to keep the policy in

force for three more months – until on or about March 23, 2004. 

Mrs. Fulmer promptly paid that amount. 

The development which I regard as crucial occurred on

February 11, 2004, when the bank’s representative, Ms. Allen,

telephoned the defendant’s customer service representative, Ms.

Mincks, to clarify the premium situation, and was assured that

the payment which had just been made was “sufficient to pay

premium payments for three months” and that the “current cash

value” was $25,238.67. As was her custom, Ms. Allen made a

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written record of this conversation at the time. Her testimony

on this subject is not contradicted in any way.

It is now clear that Ms. Allen was given incorrect

information, but there can be no doubt that, had the correct

information been furnished, the Fulmers would have made whatever

premium payment was required. The defendant calculated that the

policy entered a lapse period as of February 23, 2004. In March

2004, the defendant sent a “late payment offer” to the bank,

suggesting that a payment of $24,268.51 would be required;

actually, a payment of approximately $16,000 should have been

sufficient.

Representatives of the bank, upon being notified that

the policy had allegedly lapsed, sought clarification from the

defendant, but were told that, since the policy had terminated,

the customer service representatives could no longer obtain the

pertinent information from the computer system. 

Mr. Fulmer availed himself of the right conferred by

the insurance policy to seek reinstatement after the policy had

lapsed. Unfortunately, because he was determined to be then

uninsurable, the defendant refused to reinstate the policy.

During the period from 1987 to the cancellation of the

policy, Mr. Fulmer had paid the defendant approximately $1.5

million in premiums. It is very clear, and undisputed, that

neither the plaintiff nor the Fulmers had any intention of

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allowing the policy to lapse. Mr. Fulmer had ample funds

available with which to pay premiums. His decision to use cash

surrender values to offset premiums was based upon investment

considerations, not lack of funds.

My conclusions of law are straightforward: but for the

incorrect information supplied to plaintiff by the defendant’s

customer service representatives, the premiums would have been

paid and the policy would not have lapsed. The defendant cannot

lawfully cancel the policy for nonpayment of premiums, when the

defendant itself was responsible for the default. Aetna Cas. &

Surety Co. v. Netz, 1993 WL 89766 (E.D. Pa. Mar. 29, 1993);

Amrovcik v. Metro. Life Ins. Co., 180 A. 727 (Pa. Super. Ct.

1935). The defendant was legally obliged to act in good faith. 

Huang v. BP Amoco Corp., 271 F.3d 560 (3d Cir. 2001); Dercoli v.

Pennsylvania Nat’l Mut. Ins. Co., 554 A.2d 906 (Pa. 1989).

Non-Issues

It is appropriate to mention briefly certain additional

contentions made by the parties. Defendant made the remarkable

argument that this court was without subject matter jurisdiction

over the controversy because, some years ago, as the result of a

class action, the defendant was found to have overcharged all of

its customers, and was required to make modest refunds to all

policy-holders who were members of the class, including the

Fulmer policy. A court in California reserved jurisdiction to

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enforce the settlement, and the settlement included providing

defendant a general release. Contrary to defendant’s present

argument, I am satisfied that neither the final judgment, nor the

terms of the releases, could reasonably be interpreted as barring

this court’s jurisdiction, or as barring the imposition of

liability for additional, unrelated wrongs.

Defendant also argues, strenuously, that, under the

express provisions of the insurance policy, only the defendant

Board of Directors and other high officials had the right to

amend the insurance policy. That is, of course, true, but

plaintiff is not seeking to amend the insurance policy, merely to

enforce it according to its terms, and with the implied covenant

of good faith and fair dealing.

An Order follows.

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

PNC BANK, NATIONAL ASSOCIATION, : CIVIL ACTION

Trustee of the Harold G. Fulmer,:

III Irrevocable Deed of Trust :

Dated 8/21/97 :

 :

v. :

 :

AMERUS LIFE INSURANCE COMPANY : NO. 05-02966-JF

ORDER

AND NOW, this 17th day of July 2006, IT IS ORDERED,

ADJUDGED AND DECLARED:

1. That the defendant Amerus Life Insurance

Company wrongfully terminated the life insurance policy involved

in this case.

2. That the insurance policy in question (Policy

Number 2535113, insuring the life of Harold G. Fulmer, III for

$10 million) remains in full force and effect, subject only to

the conditions set forth in the following paragraph:

3. Defendant shall, within 30 days, calculate the

amount of premium, if any, in excess of cash surrender values,

which would have been necessary to keep the policy in force until

the next premium-due date, and shall promptly inform plaintiff

and Mr. Fulmer of the amount due, if any. Such calculation may

take into account interest which would have been earned on such

premiums during the interval.

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4. Within 10 days after notification, Mr. Fulmer

shall cause the requisite payments to be made.

5. This court reserves jurisdiction to resolve any

disputes which may arise concerning the calculation of premiums

and related matters.

BY THE COURT:

/s/ John P. Fullam 

John P. Fullam, Sr. J.

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