Opinion ID: 178744
Heading Depth: 2
Heading Rank: 1

Heading: The Insurance Policies: Issuance, Payments and Terminations

Text: On May 29, 2004, Northwestern issued two life insurance policies to Kenneth: a whole life policy (Whole Life Policy) with a face amount of $150,000 and a term life policy (Term Life Policy) with a face amount of $350,000. At that time, Kenneth was thirty-five years old, a husband and father of two, and had been a Bank Officer at JP Morgan for the past eleven years. At Kenneth's request, Northwestern set up an Insurance Service Account (ISA) whereby the premiums on the two policies would be paid on a monthly basis and funded through electronic fund transfers (EFT) from Kenneth's bank account. Each of the policies contained the following Grace Period provision: Grace Period. A grace period of 31 days will be allowed to pay a premium that is not paid on its due date. The policy will be in full force during this period. If the insured dies during the grace period, any overdue premium will be paid from the proceeds of the policy. If the premium is not paid within the grace period, the policy will terminate as of the due date unless it continues as extended term or paid-up insurance under Sections 7.2 or 7.3. Each policy further provided for reinstatement more than thirty-one days after the end of the grace period upon submission of evidence of insurability and payment with interest of unpaid premiums. The reinstatement option would be open to the policyholder for five and three years after termination of the Whole Life and Term Life Policies, respectively. Kenneth did not always pay on time. On three different occasions between August 2004 and early 2005, Kenneth's EFT payments to the ISA were rejected by the bank for insufficient funds, resulting in the closing of the ISA each time. Following each of the first two closings that took place on September 24, 2004, and January 11, 2005, Kenneth made subsequent EFT payments to reopen the ISA and satisfy his premiums. Following the third missed payment and the resulting ISA closing on March 15, 2005, the ISA was reopened once again on April 5, 2005, with an EFT payment of $224.85. Since that amount was insufficient to satisfy Kenneth's premium obligations beyond February 28, 2005, the ISA was closed yet again on April 12, 2005. On April 27, 2005, instead of paying the delinquent payments as he had done in the past, Kenneth called Northwestern and spoke with Melissa Nowak in the Policyowner Services Department. Kenneth asked to have his ISA reopened for the Term Life Policy only and to have the premium for that policy be paid through December 28, 2005. The premium for the Whole Life Policy having been paid through February 28, 2005, and no premium payment having been made within the thirty-one-day grace period, the Whole Life Policy terminated on February 28, 2005. Kenneth provided the necessary banking information so that a one-time draft could be issued to cover the premiums for the Term Life Policy. On April 28, 2005, the ISA was reactivated for the Term Life Policy only, and on April 29, 2005, Kenneth made an EFT payment of $215.60 to his ISA, which satisfied the premiums for March through December. As a result of this transaction, Kenneth's ISA supposedly had a zero balance as of April 29, 2005. On May 23, 2005, however, Kenneth telephoned Northwestern to inquire about a negative balance reported in his ISA and spoke with Diane Knueppel (Knueppel), a Senior Customer Service Representative. From her, he learned that the negative balance resulted from a $35.00 premium adjustment fee. According to Knueppel, the fee could not be waived because Kenneth's Term Life Policy was no longer a companion policy to the terminated Whole Life Policy. Knueppel's notes from her conversation with Kenneth, contemporaneously created that day in Northwestern's Casetracker system, revealed that she [s]poke with client; [i]nformed him that the $35 is a policy fee that ... is no longer waived; and that [c]lient is now asking to be refund[ed] his last payment and let the policy lapse. After Knueppel consulted Daniel Stein, Kenneth's Northwestern Field Representative, Knueppel telephoned Kenneth and stated that she was working on refunding the last draft that was done on the ISA. The record does not reveal any response from Kenneth. In her affidavit in support of Northwestern's motion for summary judgment, Knueppel noted that [t]he last draft for the term life policy was received on April 29, 2005 and was in the amount of $215.60. Based on her conversation with Kenneth, Knueppel credited the premium payments for May through December 2005. Knueppel also closed the ISA, effective May 29, 2005. Northwestern then sent Kenneth notice that his Term Policy was paid to May 20, 2005, and that the grace period would expire June 29, 2005. Knueppel claims that, on May 24, 2005, she asked Joyce Barrack, Northwestern's Senior Analyst for authorization to credit the payments made by Kenneth for the months of March, April, and May 2005. Authorization was given, and on May 31, 2005, Northwestern sent two refund checks to Kenneth: (1) $154.07 for the months of June, July, August, September, October, November, and December, and (2) $81.03 for the months of March, April, and May 2005. Although the later-sent refunds purportedly resulted in the Term Life Policy being paid only through February 2005 (with a grace period thirty-one days later), Northwestern never rescinded the letter dated May 23, 2005, which, as noted above, stated that Kenneth's Term Life Policy was paid to May 29, 2005, and that the grace period would expire on June 29, 2005. Kenneth died on June 6, 2005. After Kenneth's death, Wilson, Kenneth's wife, received the first refund check for $154.07, dated May 31, 2005. Wilson never received the second refund check. However, Northwestern's issuance of the second refund check in the amount of $81.03, payable to Kenneth, is recorded in its check registry. Northwestern's records show that the check for $81.03 was never deposited or returned. In June 2005, Wilson submitted a claim for payment on both the Whole Life and Term Life Policies. On July 21, 2006, Northwestern denied Wilson's claims on the ground that both policies were terminated as of February 28, 2005.