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

Heading: Termination of Term Life Policy

Text: Wilson argues that the reversal of Kenneth's payments and the imposition of an additional $35 fee constituted a prohibited oral change to the express terms of the Term Life Policy that was required to be in writing to be effective. Wilson cites to N.Y. General Obligations Law § 15-301(1) (rule against oral modifications where contract expressly forbids such modifications), N.Y. GEN. OBLIG. LAW § 15-301(1) (McKinney 2010), and N.Y. Insurance Law § 3204(a)(3) (Such [life] policy or contract cannot be modified, nor can any rights or requirements be waived, except in a writing signed by a person specified by the insurer in such policy or contract.), N.Y. INS. LAW § 3204(a)(3) (McKinney 2006), and to the policy provision that states that [a] change in the policy is valid only if it is approved in writing by an officer of the Company, to support her claim that notice had to be in writing for any change to the terms of the policy. [1] Wilson's argument is without merit because there were no modifications, oral or otherwise, of the written terms of the Term Life Policy. Wilson does not refer to anything in Northwestern's handling of Kenneth's cancellation request that violated the express terms of the Term Life Policy. The record in this matter established that Kenneth: (1) telephoned Northwestern Mutual on May 23, 2005, to question why there was a $35 shortage in his ISA, the account through which the Term Life Policy premiums were paid; (2) was informed that he was required to pay the $35 charge because he no longer had multiple Northwestern policies; and (3) requested that the last payment he made for the Term Life Policy be reversed and that he be refunded his last premium payment. Northwestern contends that Kenneth was requesting a refund of the last ten months of payments, which would mean that the policy was only paid up through February 28, 2005. The thirty-one-day grace period therefore would expire on March 31, 2005, and, in accordance with the terms of the policy, the Term Life Policy would have lapsed as of February 28, 2005. Thus, there appears to be no modifi[cation] or change that would implicate the Term Life Policy under N.Y. Insurance Law § 3204(a)(3). See Loper v. O'Rourke, 86 Misc.2d 441, 382 N.Y.S.2d 663, 665 (N.Y.Dist.Ct.1976) (General Obligations Law Section 15-301 . . ., in referring to oral `changes' in executory contracts, ha[s] been interpreted to relate to actual changes of terms as opposed to waivers of a condition that has the sole effect of keeping the contract viable to the mutual benefit of both parties. (Emphasis added) (citing Jiffy Sew Corp. v. Paar, 29 A.D.2d 643, 286 N.Y.S.2d 865, 866 (1968); Chem. Bank v. Wasserman, 45 A.D.2d 703, 357 N.Y.S.2d 13, 13 (1974); Young v. Bohling, 202 N.Y.S.2d 826, 828 (1960))). Wilson further argues that, because General Obligations Law § 15-301 precluded any modification of the policy, the method of termination was itself invalid. General Obligations Law § 15-301, however, addresses those contracts containing provisions that the contract cannot be changed orally and/or cannot be terminated orally. N.Y. GEN. OBLIG. LAW § 15-301(1) (McKinney 2010). In this regard, Kenneth's Term Life Policy contains only the following provision: ENTIRE CONTRACT; CHANGES This policy with the attached application is the entire contract. Statements in the application are representations and not warranties. A change in the policy is valid only if it is approved by an officer of the Company. The Company may require that the policy be sent to it for endorsement to show a change. No agent has the authority to change the policy or to waive any of its terms. The Policy does not contain a provision forbidding oral termination by either party, and Wilson fails to identify any action by Northwestern which would constitute a change in the Policy. Although Wilson alleges that Northwestern's act of orally backdating termination-cancellation dates and discontinuing insurance policies is both against public policy and a violation of the General Obligations Law, Appellant's Br. at 27, there is no legal basis for this claim. She does not cite any public policy that has been violated, and there can be no violation of the General Obligations Law found in Northwestern Mutual's action since the Term Life Policy states that [i]f the premium is not paid within the grace period, the policy will terminate as of the due date. Since there was no deviation from the written terms of the Term Life Policy, there are no grounds for alleging violation of the General Obligations Law in regard to the method of termination. See Loper, 382 N.Y.S.2d at 665. The cases cited by Wilson do not support her position. For example, the dispute in Jaffe v. Paramount Communications, Inc., 222 A.D.2d 17, 644 N.Y.S.2d 43 (1996), centered on a termination clause in an employment agreement. This provision expressly required that the employment agreement may only be terminated by written notice. Id. at 45. The employee argued that he could waive that requirement. Id. at 47. The First Department dismissed this argument, relying upon General Obligations Law § 15-301(4), which expressly provides that if a written agreement contains a provision for termination or discharge on written notice, this requirement cannot be waived. Id. In Bank of N.Y. v. Kranis, 189 A.D.2d 741, 592 N.Y.S.2d 67 (1993), the Second Department reaffirmed the well-accepted principle that a continuing guarantee with a no-oral-modification clause is not amenable to oral termination. Id. at 68. These cases have no bearing on this matter, where there was no change or modification to any provision of the policy. Also without merit is Wilson's reference to Policy Cancellation Form 18-1680. Although Northwestern uses Form 18-1680 for cancellations of policies, that form is not referred to in the Term Life Policy as a necessary condition to terminate a policy. Although Northwestern's explanation for the form is self-serving, [2] the existence of the form does not bear in any way on the issue of whether the Term Life Policy was modified. Accordingly, because no modifications to the Term Life Policy were made, the District Court properly concluded that a writing was not required to effect Kenneth's cancellation of the Term Life Policy.
Addressing Wilson's argument that Northwestern's termination of the policy retroactive to February 2005 was not in accordance with Kenneth's instructions or understanding, the District Court concluded that no reasonable jury could find that Kenneth's request in May 2005 that Northwestern refund his last premium payment and let the policy lapse could be construed as terminating the Term Life Policy as of May 2005. See Wilson, 603 F.Supp.2d at 712. This conclusion is primarily based on the fact that Kenneth made one payment of $215.60 on April 29, 2005, to cover ten months' premiums. Id. at 708. Although the months of February, March, and April had passed at the time of Kenneth's request, the District Court found that a refund of the last premium payment was for the entire $215.60, since a payment in that amount was the last transaction in Kenneth's ISA account. See id. at 708, 712. There is evidence, however, that Kenneth did not intend or expect that the premium refund he requested would include premiums already earned by Northwestern for the coverage provided for February, March, and April. Indeed, it seems unusual that an insurance company would make such a refund. That Kenneth did not contemplate a refund for those months may be derived from the language of his request: to refund premium and let the policy lapse. See id. at 709. The use of such language would not be entirely logical unless Kenneth meant to cancel his policy as of May 2005, when there was time left for the policy to lapse. Had Kenneth intended to receive a retroactive refund for his entire payment, there would have been no grace period at all. In other words, if Kenneth requested a retroactive cancellation more than thirty days after the effective termination date, both the policy coverage and the grace period would have been long expired in May, and there would have been nothing that could still have lapse[d] as of the date of his phone call. But if Kenneth meant to simply end his policy coverage as of the date of the beginning of the next monthly cycle, the grace period would have remained in effect for thirty days after that date, meaning some time remained before the policy coverage could lapse. The words let the policy lapse would have no meaning if Kenneth intended his refund to be retroactive. Although the word lapsehere referring to the end of a grace period that endures following the cancellation of an insurance policymay be a term of art in insurance policies, there is no reason to believe that Kenneth was unaware of its meaning when he used the term. His occupation was listed as Bank Officer and his employer as J.P. Morgan Chase on his life insurance application, and it can be assumed that he was a sophisticated, or at least a well-informed, consumer of life insurance products and well understood what he meant when he directed that the policy lapse. Kenneth may well have had in mind the option to renew the policy during the grace period before the policy lapsed. In any event, he had the option to do so. There is also evidence in the record that Northwestern did not regard the cancellation as retroactive so as to oblige it to return premiums already earned. At least initially, Northwestern appeared to agree with the position here taken by Wilson. On May 23, 2005, Knueppel reversed the premiums only for the months of May onward, closed the ISA as of May 29, 2005, and refunded the balance for those months in the amount of $154.07 by check dated May 31, 2005. In a Notice prepared on May 23, 2005, and sent shortly thereafter, Northwestern advised Kenneth that his Term Life Policy was paid to May 29, 2005, and that the grace period would expire on June 29, 2005. It was not until after this never-rescinded notice that Northwestern mailed the never-received check for $81.03 to refund the already-earned premiums for February, March, and April. Supposedly, Knueppel required further authorization before she could issue that second check in response to Kenneth's request. It is noteworthy that the retroactive refund was treated as an additional step that was not possible without further authorization, suggesting that the ordinary practice is against retroactive refunds and terminations. Since Wilson never received the second refund check, although she did receive the first after her husband's death, neither she nor her late husband could have been aware that Kenneth's coverage could be shortened by a retroactive refund of premiums. A reasonable jury could find that the retroactive refund was a self-serving afterthought by Northwestern, designed to reduce the length of Kenneth's policy coverage.