Case Name: Alice M. REDDICK, Appellant, v. GLOBE LIFE AND ACCIDENT INSURANCE COMPANY, etc., Appellee
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 1990-11-16
Citations: 575 So. 2d 207
Docket Number: No. 90-502
Parties: Alice M. REDDICK, Appellant, v. GLOBE LIFE AND ACCIDENT INSURANCE COMPANY, etc., Appellee.
Judges: NIMMONS, J., concurs.
Reporter: Southern Reporter, Second Series
Volume: 575
Pages: 207–214

Head Matter:
Alice M. REDDICK, Appellant, v. GLOBE LIFE AND ACCIDENT INSURANCE COMPANY, etc., Appellee.
No. 90-502.
District Court of Appeal of Florida, First District.
Nov. 16, 1990.
On Motion for Rehearing and Rehearing En Banc March 7, 1991.
Reginald Luster, of Mathews, Osborne, McNatt & Cobb, Jacksonville, for appellant.
A. Graham Allen and Pamela S. Lynde, of Allen, Brinton & Simmons, P.A., Jacksonville, for appellee.

Opinion:
ERVIN, Judge.
Alice Reddick, policyholder/beneficiary of a life insurance contract issued by appel-lee Globe Life, appeals a summary final judgment entered against her in an action in which she sought damages caused by the insurer's breach of the insurance contract. She argues that the lower court erred in concluding that no coverage was in effect as of the date of the insured's death for the stated reason that coverage had previously lapsed for nonpayment of premium. She contends that notwithstanding the fact that the thirty-one-day grace period had, under the terms of the policy, expired for failure to pay the required premium, Globe thereafter by letter extended the grace period beyond the date of the insured's loss. Alternatively, appellant argues that the terms of the letter are ambiguous and are susceptible to the interpretation that the policy had not lapsed, and that judgment should, as a matter of law, be entered for appellant, or that summary judgment in favor of appellee be reversed and the case remanded for trial by jury. We disagree on all points and affirm.
In November 1987, appellant applied for a life insurance policy insuring the life of her son Alexis D. Reddick in the amount of $12,000. The policy was issued effective December 1, 1987, and covered the period through December 1, 1988. Appellant was named the beneficiary under the policy, which contained the following pertinent provisions regarding payment of premiums:
GRACE PERIOD: A grace period of 31 days after the due date is allowed for payment of a Required Premium. During this time, the insurance provided by the policy continues. If the Insured dies during the grace period, we will deduct the unpaid premium from the proceeds. NONPAYMENT OF REQUIRED PREMIUMS: If a Required Premium is not paid by the end of the grace period, this policy will lapse as of the due date of the overdue premium. All insurance will terminate at the time as of the lapse if the policy has no cash value. If the policy has cash value, insurance will continue only as provided in the Options provision, and any insurance or benefits provided by riders will terminate.
The premium due December 1, 1988 was not paid; accordingly, after the expiration of the thirty-one-day grace period, the coverage, pursuant to the terms of the policy, automatically lapsed as of the due date. Subsequently, on January 5, 1989, Globe sent the following letter to appellant:
Dear Policyholder:
We're sorry, but at this time your Globe Life Insurance Policy is in danger of lapsing. Our records show that we have not received the premium that was due on December 1, 1988.
The reasons for starting this policy must certainly still be the same good reasons for keeping it. And the decision you make now about this past due payment will no doubt affect someone else . someone you love.
PLEASE ACT NOW! Send in your payment, along with the attached notice, and the benefits of your policy will remain in full force. We must receive your payment by January 20, 1989.
The final notice which accompanied this letter stated, "PAYMENT IS NEEDED SO YOUR INSURANCE WILL NOT LAPSE."
Alexis D. Reddick died on January 17, 1989. On January 20, 1989, appellant contacted Globe, advising it of that fact. Globe denied coverage, contending that the policy had lapsed for nonpayment of the requested premium. On January 20, appellant mailed the premium to Globe, which did not receive payment until after the 20th.
Appellant's argument that the grace period was extended through January 20, 1989, after the date of the loss, is based upon the language of the letter which advised that the policy was "in danger of lapsing," and stated "[s]end in your payment, along with the attached notice, and the benefits of your policy will remain in full force." It is appellant's contention that these statements constitute an extension of the grace period permitted by the policy and were therefore inconsistent with any theory that coverage had previously lapsed. We do not agree either that the letter extended the period of grace, which had expired before the letter was written, or that the letter was ambiguous and susceptible to an interpretation that the grace period was extended. The critical language which appellant places little emphasis on is that the extension was expressly conditioned upon receipt of the premium's payment by January 20, 1989. Because appellant failed to comply with this condition, the offer to extend insurance was never accepted. Accordingly, the policy expired pursuant to its provisions.
In reaching our conclusion, we consider that Globe's letter dated January 5, 1989, was only an offer to extend the time for paying the premium, rather than an extension of the grace period. Because different consequences apply to grace periods and to offers to extend the time for payment, we think it necessary to examine in some detail the distinguishing attributes of each.
Turning first to the characteristics peculiar to a grace period, the Court of Appeals of Kansas has summarized its purpose in the following terms:
Our examination of the authorities reveals that the sole purpose of a grace period is to prevent immediate lapse upon failure to pay a premium. Although the effect is to continue the policy in full force during the grace period, the clause does not change the due date of the premium, it merely provides a period within which the default may be cured without lapse of the policy. It is in essence a waiver of the default provision.
Bennett v. Colonial Life & Accident Ins. Co., 7 Kan.App.2d 441, 443, 643 P.2d 1133, 1136 (Ct.App.1982). Because the default provision is waived during the grace period, the failure of the policyholder to pay the premium within such period is, according to the majority of the jurisdictions considering the question, immaterial insofar as such person's right to recover any loss which may have occurred during the period. See Gulf Guar. Life Ins. Co. v. Thompson, 363 So.2d 297 (Miss.1978); Bensinger v. California Life Ins. Co., 459 S.W.2d 511 (Mo.Ct.App.1970); Iowa State Travelers Mut. Ass'n v. Cadwell, 113 Ga.App. 128, 129, 147 S.E.2d 461, 463 (Ct.App.1966) ("Where the liability attaches under the contract of insurance during the grace period, the fact that the premium is not paid or tendered until after the grace period expires is no defense to an action on the policy for a loss sustained while it was in full force."); 14 J. Appleman, Insurance Law and Practice § 7961, at 343 (1985).
On the other hand,
[a]n extension of time [to pay a premium] simply amounts to an agreement not to enforce a forfeiture if the premium is paid within the extended time; it postpones payment for that period, and does not constitute a waiver of forfeiture, or excuse payment, and if default is made at the expiration of the extension, the policy lapses where the agreement so provides.
6 G. Couch, Couch Cyclopedia on Insurance Law § 32:114, at 396 (rev. 2d ed. 1985) (footnotes omitted). See, e.g., State Farm Mut. Auto. Ins. Co. v. Robison, 11 Ariz.App. 41, 461 P.2d 520 (Ct.App.1969) (provision in expiration notice from insurer that payment received within ten days after due date would reinstate policy as of policy's due date was not a grace period, but was an offer by the insurer which required acceptance within the ten-day period). Therefore, because an offer of an extension of time to pay a premium simply gives an insured or policyholder the right to avoid forfeiture by paying the premium within the extended term, it necessarily follows that if the offer is not accepted due to such person's failure to pay the premium within the period specified, and a loss occurs while the extension is still open, the loss is not covered. 6 G. Couch, supra, § 32:136.
Unlike the general rule applicable to grace periods allowing coverage of losses occurring during such periods even if the premium is not paid, losses which happen while an offer is extended for paying an overdue premium are not automatically covered. This is so because the granting of an extension of time for the payment of overdue premiums is discretionary with the insurer; consequently, the insurer is free to impose such conditions precedent to the extension as it sees fit. Schick v. Equitable Life Assurance Soc'y of United States, 15 Cal.App.2d 28, 33, 59 P.2d 163, 166 (Ct.App.1936); 14 J. Appleman, Insurance Law and Practice § 7962 (1985). If an insurer chooses to impose a condition precedent to the extension it offers, a policyholder's failure to comply strictly with the terms of the offer can be deemed a failure by such person to accept the offer. See Servoss v. Western Mut. Aid Soc'y, 67 Iowa 86, 24 N.W. 604 (1885) (a company's offer to a defaulting policyholder to restore his policy if he sent the annual dues at once is not a continuing offer; therefore, sending in his dues twenty-three days after receipt of the offer did not comply with the offer); McClure v. State Farm Mut. Auto. Ins. Co., 113 Ga.App. 467, 148 S.E.2d 475 (Ct.App.1966) (insured's failure to buy and pay for insurance protection within ten days following the due date, as offered by the insurance company, placed no obligation on the company to pay the loss); Sawyer v. North Carolina Farm Bureau Mut. Ins. Co., 71 N.C.App. 803, 323 S.E.2d 450 (Ct.App.1984) (an insured's failure to pay the insurer the premium within the seventeen-day period extended gave the insurer the right not to renew the policy retroactively to the date of its expiration).
The above rule is well exemplified by a decision of the Second District Court of Appeal in State Farm Mut. Auto. Ins. Co. v. Green, 500 So.2d 563 (Fla. 2d DCA 1986), review denied, 508 So.2d 14 (Fla.1987), in which an insured brought a suit for declaratory judgment to establish coverage for an accident occurring after the expiration date of the policy but within the twenty-two-day period extended by the insurer to the insured in an expiration notice, which the court considered to be an "offer to contract." The court held that because the insured did not strictly comply with the terms of the insurer's offer, due to her failure to pay the overdue premium within the twenty-two-day period, the offer was not accepted, and there could be no coverage for any loss which occurred during such time. This was so despite the fact that the twenty-second day fell on Sunday, and the premium payment was tendered the following Monday.
To conclude: The letter of January 5 was an additional extension, over and above the already expired grace period, which allowed the policyholder an avenue to avoid the automatic forfeiture of the policy caused by nonpayment of the premium. The letter and accompanying notice, in our judgment, clearly placed the policyholder on notice that no insurance would be available if payment was not received by January 20, and that the addressee bore the risk of nonpayment. The policy moreover did not contemplate free insurance even during the grace period, as is reflected in the provision of the policy stating that if death occurred during the grace period, any unpaid premium would be deducted from the proceeds payable to the beneficiary under the policy.
Nor do we consider that the policyholder's placement of the overdue premium in the mail on January 20th — the final date to which the offer of extended protection pertained — strictly complied with the insurer's condition that payment must be received by it on such date. In its summary final judgment, the lower court correctly stated that the deposit acceptance rule is inapplicable if the offerer has expressly-conditioned the offer upon actual receipt of the acceptance. See generally Maloney v. Atlantique Condominium Complex, Inc., 399 So.2d 1111, 1113 (Fla. 5th DCA 1981).
The lower court's ruling that actual receipt of payment by the insurer was required is supported by an opinion of the Washington Court of Appeals in Safeco Ins. Co. v. Irish, 37 Wash.App. 554, 681 P.2d 1294 (Ct.App.1984). There, after the insured had failed to pay his automobile liability insurance premium by the due date, the company notified him that he would have until 12:01 a.m. on February 17, 1979 to make payment, thereby extending the period of time that his coverage would continue, provided that the company receive the renewal premium by the extended date. Because the premium was not paid within the extended time, the court ruled that the lapse of coverage, which occurred on December 29, 1978, could not be rectified.
In so holding, the court rejected the insured's argument urging that although he never made the premium payment at issue, he intended to mail the premium the evening of February 16, and, while he was proceeding to do so, discovered that his car had been stolen and subsequently wrecked by a thief during a high-speed chase with the police. In an important footnote to the opinion, the court observed that even if the insured had posted the payment in the mail on February 16, such action would not have complied with the insurer's condition that actual receipt by it of the payment was essential: "A deposit in the mails would not have been sufficient; the policy provision requiring receipt of the premium controls, unless changed by the course of dealing between the parties. There was no evidence of such a course of dealing." Id., 37 Wash.App. at 557 n. 3, 681 P.2d at 1296 n. 3 (citation omitted).
AFFIRMED.
NIMMONS, J., concurs.
ALLEN, J., dissents with written opinion.
. The deposit acceptance rule provides that an acceptance of an offer is deemed effective as of the date of its deposit in the mail. See Brake v. State of Fla., Unemployment Appeals Comm'n, 473 So.2d 774 (Fla. 3d DCA 1985).