IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

Judge Christine M. Arguello

Civil Action No. 11-cv-02398-CMA-KLM

VICTOR RACZ,

Plaintiff,

v.

SBLI USA MUTUAL LIFE INSURANCE COMPANY, INC.,

Defendant.

ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

This matter is before the Court on the Motion for Summary Judgment (Doc. #19)

filed by Defendant SBLI USA Mutual Life Insurance Company, Inc. Jurisdiction is

proper based on 28 U.S.C. § 1332 (diversity jurisdiction). For the reasons discussed

below, Defendant’s motion is granted.

I. BACKGROUND

Plaintiff Victor Racz is the surviving spouse of Sheila B. Racz (“Ms. Racz”). 

(Doc. # 24 at 4.) Since 1991, Ms. Racz had been insured under a life insurance policy

issued by Defendant. (Id.) Plaintiff was the designated beneficiary under this policy. 

(Id. at 5.) As relevant here, the policy provided:

Section 4. DATE YOUR INSURANCE ENDS. Insurance ends on the

earliest of:

A. the 31st day following the date your premium is due and unpaid . . . .

[. . .]

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Section 14. PREMIUM PAYMENT. Each premium is payable to us or

our authorized agency by its due date. Payment of any premium will not

keep your insurance in effect beyond your Grace Period . . . .

[. . .]

Section 15. GRACE PERIOD. After the first premium, if your premium is

not paid by its due date, payment may be made within 31 days of such

date.

[. . .]

 

SECTION 17. REINSTATEMENT. You may reinstate your insurance

within 5 years after your insurance ends for non-payment of premiums by:

B. submitting an application on our form with evidence of insurability

satisfactory to us; and

C. by paying all overdue premiums with 6% interest per annum.

(Doc. # 19-10.)

Ms. Racz’s semi-annual policy premium was due on January 9, 2010, and her

“Premium Notice & Policy Statement” authorized payment by mail. (Doc. # 19-2.) The

notice also stated that “[u]nless the Premium Due shown by this notice is paid to us,

on or before the due date or within the 31 day grace period thereafter, the policy or

certificate will lapse . . . . Acceptance of the premium after lapse does not constitute

reinstatement.” (Id.) Plaintiff alleges that in January 2010, Ms. Racz mailed to

Defendant an instruction to change her method of payment to automatic payment by

debit card, using a form and an envelope provided by Defendant. (Doc. # 2, ¶ 7.) 

Defendant denies this allegation. (Doc. # 24 at 4.) Regardless, Defendant sent

Ms. Racz a “Lapse Notice & Late Payment Offer” in February 2010. (Doc. # 4, ¶ 8,

Doc. # 19-1.) This notice included the policy’s premium amount and due date, and

indicated that “[t]he premium being unpaid, the policy or certificate has terminated . . . .” 

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(Doc. # 19-1.) It also contained a special offer to accept a late payment for an

additional 15 days following the expiration of the grace period provision contained

in Ms. Racz’s policy. (Id.)

Although Plaintiff does not admit that Ms. Racz received this particular notice,

Ms. Racz testified in her sworn deposition that she received “what I had called [a]

crossed-in-the-mail-type statement. You know, your payment was due. We didn’t

receive it. Which I knew I had mailed it, so I kind of ignored that one.” (Doc. # 19-3.) 

Ms. Racz did not call Defendant to inquire about her automatic payment request. (See

id.) Defendant withdrew no money from Plaintiff’s and Ms. Racz’s bank account in

January or February 2010 (Doc. # 19-4), and both Plaintiff and Defendant agree that

the policy lapsed in 2010 (Doc. # 24 at 4). 

In April 2010, Ms. Racz received a reinstatement application and a notice from

Defendant that her insurance had lapsed for non-payment of premiums. (Doc. # 2, ¶ 8;

Doc. # 4, ¶ 8.) Defendant received Ms. Racz’s reinstatement application and the

overdue premium in May 2010. (Doc. # 4, ¶ 8.) Defendant alleges that Ms. Racz did

not comply with the underwriting requirements for reinstatement because she did not

undergo a requested medical examination. (Id.) In July 2010, Ms. Racz’s attorney

informed Defendant that Ms. Racz had been diagnosed with cancer. (Id.) Defendant

asserts that because Ms. Racz had not undergone a medical examination, it therefore

cancelled her reinstatement application and returned her premium. (Id.) Ms. Racz

never negotiated Defendant’s refund check. (Doc. # 2, ¶ 10, Doc. # 4, ¶ 10.) She died

on July 29, 2010. (Doc. # 24.)

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 Plaintiff initiated this action in Colorado state court, claiming negligence, bad

faith, and breach of contract. (Doc. # 2.) Defendant removed the action to this Court. 

(Doc. # 1.) On May 7, 2012, Defendant filed the instant motion for summary judgment. 

(Doc. # 19.) Plaintiff responded on May 28, 2012 (Doc. # 20), and on June 11, 2012,

Defendant replied (Doc. # 21). 

II. DISCUSSION

A. STANDARD OF REVIEW

The purpose of a summary judgment motion is to assess whether trial is

necessary. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Federal Rule

of Civil Procedure 56(a) provides that summary judgment shall be rendered if the

pleadings, discovery, disclosure materials on file, and any affidavits “show[] that there

is no genuine dispute as to any material fact and the movant is entitled to judgment as

a matter of law.” A fact is “material” if it pertains to an element of a claim or defense;

a factual dispute is “genuine” if the evidence is so contradictory that if the matter went

to trial, a reasonable jury could return a verdict for either party. See Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). “The mere existence of a scintilla of evidence in

support of the [non-movant’s] position will be insufficient; there must be evidence on

which the jury could reasonably find for the [non-movant].” Id. at 252.

“The movant bears the initial burden of making a prima facie demonstration of

the absence of a genuine issue of material fact and entitlement to judgment as a matter

of law.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670–71 (10th Cir.1998) (citing

Celotex, 477 U.S. at 323). After the movant has met his initial burden, the burden shifts

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to the non-movant to put forth sufficient evidence for each essential element of the claim

such that a reasonable jury could find in his favor. See Anderson, 477 U.S. at 248;

Simms v. Okla. ex rel. Dep't of Mental Health & Substance Abuse Servs., 165 F.3d

1321, 1326 (10th Cir. 1999). The non-movant must go beyond the allegations and

denials of his pleadings and provide admissible evidence, which the Court views in the

light most favorable to the non-movant. See Adickes v. S. H. Kress & Co., 398 U.S.

144, 157 (1970). “At the summary judgment stage, evidence need not be submitted

‘in a form that would be admissible at trial.’” Argo v. Blue Cross & Blue Shield of Kan.,

Inc., 452 F.3d 1193, 1199 (10th Cir. 2006) (quoting Celotex, 477 U.S. at 324). 

“Nonetheless, ‘the content or substance of the evidence must be admissible.’” 

Id. (quoting Thomas v. Int'l Bus. Machs., 48 F.3d 478, 485 (10th Cir. 1995)). 

B. ANALYSIS

Because the Court has diversity jurisdiction over this case, the Court applies

Colorado law and interprets the insurance policy at issue as a Colorado court would. 

Leprino Foods Co. v. Factory Mut. Ins. Co., 453 F.3d 1281, 1287 (10th Cir. 2006). 

Interpretation of an insurance contract is a matter of law. Id. 

1. Negligence Claim

In opposition to Plaintiff’s claim that Defendant was negligent in failing to

implement Ms. Racz’s automatic premium payments, Defendant argues that summary

judgment is proper because the language of the policy required that Defendant actually

receive payment to prevent a lapse. The Court agrees with Defendant.

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“In well-settled tort jurisprudence, a claimant alleging negligence of another party

must establish the existence of a duty, a breach of that duty, causation, and damages.” 

Redden v. SCI Colo. Funeral Servs., Inc., 38 P.3d 75, 80 (Colo. 2001). In the insurance

context, “[a]bsent an express agreement or a course of dealing to the contrary, the

mailing of a premium or a statement alone is not per se sufficient to constitute delivery

thereof.” Butkovich v. Indus. Comm’n, 690 P.2d 257, 259 (Colo. App. 1984). See also

Thomason v. Schnorr, 587 P.2d 1205, 1206 (Colo. App. 1978) (risk of postal loss was

on insured where no facts indicated that insurer intended the mere mailing of a premium

to be sufficient as payment). But if the party in control of the transaction directs or

permits payment by mail, then it bears the risk of loss and the “deposit payment rule”

dictates that the time of delivery is the time that payment, properly addressed, is put in

the mail. Werne v. Brown, 955 P.2d 1053, 1055 (Colo. App. 1998). Nevertheless, an

insurer can avoid the consequences of the deposit payment rule by specifying clearly

that payment is effective only when actually received. Id. See also Butkovich, 690 P.2d

at 258 (mailing within renewal period not sufficient to avoid cancellation where policy

stated that premium had to be “received at this office” by the due date). Further,

“[p]ayment by check is conditional only and does not discharge the liability for which

payment is given, unless there is an express or implied agreement that the check be

accepted as absolute payment.” Bolz v. Sec. Mut. Life Ins. Co., 721 P.2d 1216, 1218

(Colo. App. 1986).

As a preliminary matter, the Court notes that the parties dispute whether

Defendant received Ms. Racz’s automatic payment instruction. Plaintiff asserts that

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Ms. Racz mailed the instruction to Defendant (see Doc. # 2), but Defendant contends

that it has no record of ever receiving the instruction (see Doc. # 19 at 1). The Court

finds that, given the weight of the evidence favoring Defendant’s position, there is no

genuine dispute over this fact. See Anderson, 477 U.S. at 252. Defendant’s evidence

includes the “Lapse Notice & Late Payment Offer” addressed to Ms. Racz (Doc. # 19-1),

Ms. Racz’s admission that she received a statement informing her that Defendant had

not received her payment (Doc. #19-3), the policy’s lapse (Doc. # 24 at 4), and Ms.

Racz’s attempt to reinstate the policy (id. at 5). Accordingly, the Court finds that a jury

could not reasonably conclude that Defendant received Ms. Racz’s automatic payment

instruction, and thus whether Defendant received this instruction does not present a

genuine dispute of material fact that would preclude summary judgment in Defendant’s

favor.

Next, the Court finds that even if Defendant had received Ms. Racz’s automatic

payment instruction, that alone would not constitute payment under Colorado law. 

Although Defendant authorized payment by mail, neither its Premium Notice & Policy

Statement (Doc. # 19-2), nor its Lapse Notice & Late Payment Offer (Doc. # 19-1),

conveyed that checks or automatic draft instructions would be accepted as absolute

payments. In fact, the Premium Notice & Policy Statement warned that “checks and

drafts [are] accepted subject to collection” and indicated that the policy would lapse

unless the premium was “paid” on or before the due date, or within a subsequent grace

period. (Doc. # 19-2 at 1–2.) The Lapse Notice & Late Payment offer also stated that

“checks and drafts [are] accepted subject to collection,” and clearly stated that “any

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check, credit card or electronic funds transfer will not constitute payment if it should

be dishonored.” (Doc. # 19-1 at 1–2.) Therefore, even if Defendant had received

Ms. Racz’s automatic payment instruction, Defendant’s policy statements did not

contain an express agreement that submission of a conditional form of payment for

a policy premium would constitute payment thereof. Instead, such statements made

clear that the policy was contingent on Defendant’s actual receipt of funds, not merely

the receipt of a check, credit card form, electronic funds transfer, or any other

conditional method of payment. Moreover, Defendant collected no funds at the time

the payment was due or within the subsequent grace period, and Ms. Racz did nothing

to ensure that Defendant actually received her funds within the designated time. She

admittedly ignored Defendant’s notice that it had not received her payment and never

inquired about the status of her automatic payment instruction. 

Accordingly, Ms. Racz did not, as the policy required, pay her premium before

the grace period ended, and so the policy lapsed due to nonpayment. As such, the

Court concludes that summary judgment for Defendant is proper on Plaintiff’s

negligence claim.

2. Bad Faith & Breach of Contract Claims

Plaintiff next contends that Defendant breached its contract with Ms. Racz in bad

faith by unreasonably accepting her premium payment without providing benefits and

by “refusing to investigate or acknowledge its error which caused the policy to lapse.” 

(Doc. # 2 at 2.) Defendant argues that an expert witness is required to support

Plaintiff’s bad faith claim and that, because Plaintiff has not endorsed an expert on

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insurance or insurance claims handling, Plaintiff’s bad faith claim must be dismissed. 

(Id.) The Court disagrees with Defendant, but nonetheless determines that it is entitled

to prevail on Plaintiff’s bad faith claim and breach of contract claim.

“A bad faith insurance claim in Colorado ‘is the affirmative act of the insurer in

unreasonably refusing to pay a claim and failing to act in good faith . . . that forms the

basis for liability in tort.’” Parsons ex rel. Parsons v. Allstate Ins. Co., 165 P.3d 809, 817

(Colo. App. 2006) (quoting Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1142 (Colo.

1984)). “The reasonableness of the insurer’s conduct must be determined objectively,

based on proof of industry standards.” Goodson v. Am. Standard Ins. Co. of Wis., 89

P.3d 409, 415 (Colo. 2004). Although “the aid of expert witnesses is often required

in order to establish objective evidence of industry standards,” id., expert testimony is

unnecessary where the defendant’s standard of care does not require specialized or

technical knowledge, Am. Family Mut. Ins. Co. v. Allen, 102 P.3d 333, 343 (Colo. 2004).

Whether the standard of care exceeds common knowledge is “committed to the

sound discretion of the trial court.” Allen, 102 P.3d 333 at 344. In Allen, the Colorado

Supreme Court addressed whether expert testimony was needed to establish a

reasonable investigation or denial of an insured’s claim. Id. It concluded that “the

reasonableness of an insurer’s investigation into the underlying events of an . . . 

insurance claim is not a technical question and does not require additional professional

training beyond the knowledge of the average juror. Nor does a determination of what

constitutes a reasonable explanation for denying a claim require special knowledge or

training.” Id. at 345. The Court agrees with the reasoning of the Allen court and

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concludes that no special knowledge or training is needed to determine the reasonableness of Defendant’s alleged failure to process Ms. Racz’s automatic payment

form or its alleged failure to pay death benefits upon “accepting the final premium,”

as Plaintiff argues. Nor is special training or knowledge needed to determine the

reasonableness of Defendant’s decision to deny benefits after Ms. Racz’s policy lapsed

due to non-payment, as Defendant argues. Accordingly, the Court concludes (1) that

expert testimony is not required to establish Defendant’s standard of care and (2) that

Plaintiff’s bad faith claim need not be dismissed merely because Plaintiff has failed

to endorse an expert witness on insurance or claims handling. Nevertheless, as

previously mentioned, the Court concludes that Defendant is still entitled to summary

judgment on Plaintiff’s bad faith and breach of contract claims. 

An insurance application is the insurer’s proposal or invitation for an offer, and a

completed application is an offer by the applicant to the insurer, which the insurer may

accept or reject after determining whether the applicant represents a desirable risk. 

Griffin v. State Farm Fire & Cas. Co.,104 P.3d 283, 285–86 (Colo. App. 2004). Where

“the insurer acts prudently pursuant to the reinstatement terms and conditions so as to

provide the insured adequate and reasonable opportunity to perform the conditions

imposed for reinstatement, the general rule is that such performance is a condition

precedent to reinstatement of the lapsed policy.” Volis v. Puritan Life Ins. Co., 548 F.2d

895, 902 (10th Cir. 1977). “Under such circumstances the payment of the delinquent

premium alone . . . would not effect reinstatement of the policy.” Id. Moreover, “in the

absence of an insurance policy issued to [the plaintiff] . . . claims for a breach of

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contract and bad faith must fail as a matter of law.” Myers v. Mid-W. Nat’l Life Ins. Co.,

No. 04-cv-00396, 2008 WL 4002856, at *7 (D. Colo. Aug. 25, 2008) (unpublished).

In the instant case, Defendant argues that Ms. Racz’s policy was never

reinstated because she failed to complete the underwriting process. (Doc. # 19 at 12.) 

Ms. Racz applied for reinstatement of her life insurance policy in April 2010, sending in

the application along with a check for the overdue premium. (Doc. # 2, ¶ 8; Doc. # 4,

¶ 8; Doc. # 19-5.) The application indicated that insurance reinstatement might be

declined if she “present[ed] a greater risk due to adverse medical findings or history,”

and that “[a]ny reinstatement [was] subject to the approval of [Defendant’s] underwriters.” (Doc. # 19-5.) Defendant, through its underwriter Miguel Pedraza, sent

Ms. Racz a letter in June 2010 that confirmed the receipt of her application for

reinstatement, and informed her that “[t]o fairly evaluate your application, it may be

necessary to contact you directly or review your medical history by obtaining medical

requirements. If medical requirements are necessary, a representative of our

paramedical company, ExamOne, will contact you to make an appointment at your

convenience.” (Doc. # 19-7.) A record of ExamOne’s phone calls to Ms. Racz in June

and July 2010 indicate that a medical exam was never scheduled. (Doc. # 19-8.) 

In July 2010, Ms. Racz’s lawyer sent a letter to Mr. Pedraza, stating that Ms. Racz

“will probably not pass new medical underwriting” and that she had been diagnosed

with cancer. (Doc. # 20-2.) Defendant then ceased processing Ms. Racz’s reinstatement application and refunded her premium. (Doc. # 2, ¶ 10.)

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Plaintiff objects to the letter sent by Mr. Pedraza, and to the record of phone calls

made to Ms. Racz by ExamOne, as hearsay. The Court finds that both the letter and

the log fall under the business records exception in F.R.E. 803(6) (records of a regularly

conducted activity are excluded by the rule against hearsay if the record was made at

or near the time by someone with knowledge, the record was kept in the course of a

regularly conducted activity of a business or organization, making the record was a

regular practice of that activity, and there is no indication of a lack of trustworthiness). 

Accordingly, the Court relies on both documents.

Moreover, there is no evidence that the policy was reinstated. As such, the Court

concludes that Ms. Racz’s reinstatement application never completed underwriting and

that, therefore, the policy was never reinstated. Defendant’s temporary holding of the

premium was not sufficient to reinstate Ms. Racz’s insurance absent the completion of

underwriting. See Griffin, 104 P.3d at 285–86. Because there was no policy in place at

the time of Ms. Racz’s death, Plaintiff’s bad faith and breach of contract claims fail as a

matter of law. 

III. CONCLUSION

For the foregoing reasons, it is ORDERED that Defendant’s Motion for Summary

Judgment (Doc. # 19) is GRANTED. It is

FURTHER ORDERED that, while each party shall bear its own attorneys’ fees,

Defendant shall have its costs by the filing of a Bill of Costs with the Clerk of the Court

within ten days of the entry of judgment. It is

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FURTHER ORDERED that the Final Trial Preparation Conference, set for

February 1, 2013, and the three-day Jury Trial, scheduled to begin on February 19,

2013, are VACATED, and this case is DISMISSED.

DATED: November 29 , 2012

BY THE COURT:

_______________________________

CHRISTINE M. ARGUELLO

United States District Judge

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