Opinion ID: 3024936
Heading Depth: 3
Heading Rank: 2

Heading: Under the Law of the Reasonable

Text: Expectations of the Insured Mrs. West argues, however, that her expectation that coverage would exist upon submission of the application and temporary insurance may arise when an application for reinstatement rather than a new policy is pending. None of the cases cited by the majority or the dissent in Collister speak to reinstatement. Commentators discuss contracts for temporary insurance coverage in the context of new policies only. Compare Russ & Segalla, supra, § 13.1 and Peter Nash Swisher, Insurance Binders Revisited, 39 Tort Trial & Ins. Prac. L.J. 1011, 1024-25 (2004) with Best, supra, § 13.7 and Russ & Segalla, supra, §§ 33:1-33:119. An entirely different legal structure applies to applications for reinstatement. Neither commentators nor courts conflate the two. The clear difference is that statutory and contractual obligations, described supra, govern an application for reinstatement and simply do not apply to an application for a new policy. Upon lapse of an insurance policy, the contractual provisions governing reinstatement remain in force until the allotted time to apply for reinstatement has passed. Rothschild, 162 A. at 466. Thus, any action taken toward reinstatement must comply with the contractual or statutory terms that continue to be in effect. Id.; see § 510(k); Best, supra, § 13.7; Russ & Segalla, supra, § 33.8 (whether the insured has a right to reinstate a policy “is determined from the contract of insurance” or pertinent statute). 23 payment should control the outcome.5 Under the reasonable expectations analysis, Mrs. West “may not complain that [her] reasonable expectations were frustrated by policy limitations which are clear and unambiguous.” See Frain, 640 A.2d at 1354. The reinstatement provision, described above, is clear and unambiguous as to the conditions precedent to reinstatement. It is also clear that those conditions were not met. Yet even the most clearly-written policy limitation will not bind Mrs. West if Lincoln Benefit misrepresented the terms and conditions under which reinstatement would be effected and created a reasonable expectation that coverage would be immediate. The only communication from Lincoln Benefit to the Wests on the topic of reinstatement was by letter. If Lincoln Benefit, in those letters, created a reasonable expectation that Mr. West would be insured immediately upon payment of the 5 We have very little direct information as to what the insured, Mr. West, expected regarding reinstatement or whether he expected anything at all. It is unknown whether he read the Policy. All correspondence from Lincoln Benefit was addressed to him, which he then gave to his wife to handle. Pennsylvania courts appear to have allowed the beneficiary’s expectations to inform the court’s decision on what the insured expected, see Bierer, 461 A.2d 216, and it appears that Mr. and Mrs. West spoke about the matters herein discussed. We will allow Mrs. West’s perspective to inform our decision on what Mr. West expected. 24 past-due premium, Lincoln Benefit would be required to pay benefits.6 In the reasonable expectations analysis, the insurer must demonstrate that the insured did not have a reasonable expectation of coverage. Tonkovic, 521 A.2d at 922, 925; Bensalem Twp., 38 F.3d at 1311. Although Collister requires this showing by clear and convincing evidence, 388 A.2d at 1355, Tonkovic expressly approved a jury charge instructing that the insurer must show a mere preponderance, 521 A.2d at 922, 925. Because it is the heavier burden, we will proceed under the 6 Mrs. West argues that she and Mr. West expected coverage to start immediately upon submitting payment for the overdue premium because there was no reason to believe that his application would be denied. The Wests knew that Mr. West disclosed both his high blood pressure and the medicine he was taking to control it on his initial application for life insurance. He received a physical exam within six to eight months before the Wests filed the application for reinstatement and his blood pressure was fine. According to Mrs. West, “I just assumed that since I sent the money that [the Policy] would have been reinstated because nothing had changed as far as his health . . . .” (West Dep. 55:18-56:3.) This subjective belief is not pertinent to our evaluation of their expectations of insurance coverage, however. Pennsylvania courts look only to whether the insurer created in the insured a reasonable expectation of coverage, not whether the insured came to an independent conclusion that coverage existed or would exist. Matcon Diamond, Inc., 815 A.2d at 1115. 25 Collister evidentiary standard. When the party moving for summary judgment bears the burden of proving certain facts by clear and convincing evidence, we must evaluate the facts in support of the motion in light of that evidentiary burden. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Accordingly, we must determine, here, whether Lincoln Benefit has shown with convincing clarity that the Wests did not have a reasonable expectation that insurance coverage would restart immediately upon remittance of payment or whether Mrs. West has come forward with sufficient evidence to defeat that showing. See id.; El v. Southeastern Pa. Transp. Auth., 479 F.3d 232, 237-38 (3d Cir. 2007). Evidence that is merely colorable or not significantly probative is insufficient to create a genuine issue of material fact for trial. See Anderson, 477 U.S. at 248; El, 479 F.3d at 238. The chronology of correspondence between Lincoln Benefit and Mr. West demonstrates that the Wests did not have a reasonable expectation of immediate coverage upon submission of the application for reinstatement and payment of the overdue premium. Lincoln Benefit sent Mr. West notices of payment approximately one month before each premium was due. On eleven occasions, when the premium was not received by its due date, Lincoln Benefit sent follow-up letters stating that his policy value was insufficient to cover the costs of his insurance. These letters requested payment of the overdue premium as soon as possible. They noted that without the premium payment, his Policy would terminate. On six occasions, when the Wests still did not remit payment, Lincoln Benefit sent a second notice of payment due. Each second notice asked again for payment of the premium. Because the 26 Policy was in grace period, the only necessary action to keep the Policy in effect was to pay the overdue premium. On April 1, 2004, Lincoln Benefit sent Mr. West a notice of payment due informing him that his quarterly premium payment was due on May 1, 2004. The premium was not paid by that date. On May 3, 2004, Lincoln Benefit sent a follow-up letter like the ones described above, informing him that his Policy would terminate on July 3, 2004, if his premium was not paid. It asked him to submit payment as soon as possible, preferably within ten days. On May 11, 2004, Lincoln Benefit sent Mr. West a second notice of premium due. On July 5, 2004, Lincoln Benefit sent Mr. West a letter stating that “[t]he grace period for premium payment on your policy has expired.” (R. at 183a.) It advised that Mr. West could apply for reinstatement. The letter stated, “[t]o continue your valuable coverage, complete the Application for Reinstatement form on the back and return it with your payment of $228.51. Upon underwriting approval, and receipt of the sufficient payment, coverage will continue uninterrupted.” (Id.) Mr. West showed Mrs. West the document. Mrs. West read only the first sentence of the excerpt quoted and interpreted the language “to continue your valuable coverage” to mean “to continue [uninterrupted] your valuable coverage” rather than “to [restart after cessation] your valuable coverage.” (West Dep. 43:24-44:2); see Webster’s 3d New Int’l Dictionary 493 (1981). She thought that if she “filled out the form and sent in the money, the policy would continue.” (West Dep. 45:2-4.) Mrs. West did not read, or does not remember reading, the language 27 in the letter clearly stating that underwriting approval of the application was a condition precedent to reinstatement. Mrs. West then turned to the application on the reverse of the letter. She filled out the blanks at the top for the policy number and the name of the insured. She then read and answered questions below regarding Mr. West’s health. She did not read the paragraph immediately below the blanks for the policy number and the name of the insured that she filled out, and immediately above the questions that she read and answered, which stated, “I (each undersigned) request that the Company reinstate this policy. . . . Coverage will not start again until this request is approved by the company and all required premiums and interest are paid. If this request is not approved, any amount tendered will be returned.” (R. at 187a.) Lincoln Benefit did not misrepresent the conditions precedent to reinstatement. The text of the letter and of the application clearly state that underwriting approval by Lincoln Benefit was required before coverage would begin again. This statement is entirely consistent with the clear language of the Policy itself and the statute, supra, governing applications for reinstatement. Mrs. West may not avoid these conditions with the mere assertion that she expected coverage to begin immediately because of a single sentence in the letter and application for reinstatement. Moreover, the record of the previous correspondence from Lincoln Benefit to Mr. West regarding payment of overdue premiums demonstrates that it was unreasonable to expect that submission of payment and a completed application would result 28 in immediate reinstatement. When the Wests were late in paying their premium but still within the grace period, immediate payment was, in fact, all that was required for Mr. West’s Policy to remain in effect. Each notice from Lincoln Benefit stated exactly that. The reinstatement letter was different, however. It was accompanied by an application with questions about Mr. West’s health – something Lincoln Benefit had never before required to keep the Policy in force. Thus, simply by the nature of the transaction, the Wests were on notice that this time, there was at least one additional level of review that would take place before the Policy would be effective. Further, Mrs. West’s testimony indicates that she did not believe that the application would be denied. This demonstrates an understanding that the application was something that Lincoln Benefit had the power to accept or deny, and not simply a ministerial exercise that effected reinstatement immediately. In light of the totality of these circumstances, the evidence is clear and convincing: it was unreasonable for the Wests to expect the Policy to be in force at the time they mailed the overdue premium and application for reinstatement. Thus, even under the reasonable expectations analysis, Lincoln Benefit has no obligation to pay benefits on James West, Jr.’s lapsed policy of life insurance.