Clarin Corp. v. MASSACHUSETTS GENERAL LIFE INS.
| Decision Date | 19 January 1994 |
| Docket Number | No. 91 C 8198.,91 C 8198. |
| Citation | 842 F. Supp. 328 |
| Parties | CLARIN CORPORATION, an Illinois Corporation, Plaintiff, v. MASSACHUSETTS GENERAL LIFE INSURANCE COMPANY, a Massachusetts insurance company, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Stuart Smith, Gordon & Glickson, P.C., Gregory John Bueche, Huff & Gaines, Chicago, IL, for plaintiff.
Joseph J. Hasman, Ernest W. Irons, Sherri Lee Giffin, Peterson & Ross, Chicago, IL, for defendant.
Before the court is Magistrate Judge Guzman's Report and Recommendation that the parties' cross motions for summary judgment be denied. Objections having been filed by both plaintiff Clarin Corporation and defendant Massachusetts General Life Insurance Company, the court reviews the recommendations de novo. 28 U.S.C. § 636(b)(1).
In its objections to Magistrate Judge Guzman's Report and Recommendation, Massachusetts General states that "this case has been from the outset simple and straightforward with no material facts in dispute," a statement with which Clarin agrees. No material facts in dispute, yes; simple and straightforward, no.
Clarin Corporation purchased a life insurance policy in the amount of $450,000 from Massachusetts General Life Insurance Company insuring the life of the late Carl Hammond, an employee of Clarin.1 Clarin was the owner and beneficiary of the policy. Clarin purchased the policy to meet its contractual obligation to Hammond under Hammond's employment contract, which required Clarin to insure the life of Hammond, and to pay the proceeds to Hammond's beneficiaries in the event of Hammond's death. Question 8a of the insurance application asked, "To whom shall premium notices be mailed?" Three options were included on the application: proposed insured, owner, or other. The box marked "Owner" was checked. Question 8b asked, "Where shall premium notices be mailed?" Once again three options were provided: residence, business, and other. The box marked "Business" was checked. The application was signed by both the president of Clarin and Carl Hammond.
On or about April 7, 1991, Massachusetts General sent Clarin a Notice of Life Premium Due on April 26, 1991. Clarin did not pay the April 26, 1991, premium on or before the due date, or within the thirty-day grace period of the policy.2 On or about May 26, 1991, Massachusetts General sent a lapse notice to Clarin for failure to pay premiums for the quarterly period ending April 26, 1991. The lapse notice stated that the policy terminated at the end of the grace period on May 25, 1991, with a sixty-one day reinstatement option, which Clarin did not exercise. Hammond, the insured, was not sent a lapse notice. On July 9, 1991, Hammond died. On July 17, 1991, Clarin made the late quarterly payment and filed a claim on the policy. Massachusetts General denied the claim and refunded the payment.
Clarin argues that Section 234(1) of the Illinois Insurance Code, 215 ILCS 5/234(1),3 prevented Massachusetts General from declaring the policy lapsed until the end of six months after default because Massachusetts General did not send a lapse notice to the insured, Hammond, as required by the statute. Section 234(1) provides:
Notice of Premium Required. (1) No life company doing business in this State shall declare any policy forfeited or lapsed within six months after default in payment of any premium installment or interest or any portion thereof, nor shall any such policy be forfeited or lapsed by reason of nonpayment when due of any premium, installment or interest, or any portion thereof, required by the terms of the policy to be paid, within six months from the default in payment of such premium, installment or interest, unless a written or printed notice stating the amount of such premium, installment, interest or portion thereof due on such policy, the place where it shall be paid and the person to whom the same is payable, shall have been duly addressed and mailed with the required postage affixed, to the person whose life is insured, or the assignee of the policy, (if notice of the assignment has been given to the company) at his last known post office address, at least fifteen days and not more than forty-five days prior to the day when the same is due and payable, before the beginning of the period of grace, except that in any case in which a parent insures the life of his minor child, the company may send notice of premium due to the parent. Such notice shall also state that unless such premium or other sums due shall be paid to the company or its agents the policy and all payments thereon will become forfeited and void, except as to the right to a surrender value or paid-up policy as provided for by the policy. The affidavit of any officer, clerk or agent of the company or of any one authorized to mail such notice that the notice required by this section bearing the required postage has been duly addressed and mailed shall be presumptive evidence that such notice has been duly given.
215 ILCS 5/234(1). Massachusetts General contends that under one of the following theories Section 234(1) does not prevent a declaration of lapse: (1) Section 234(1) is inapplicable to the facts of this case; (2) Clarin was Hammond's agent for the purpose of notice, or (3) Hammond waived his statutory right of notice by checking the "Owner" box on the application.
A. The Applicability of Section 234(1)
As correctly pointed out by Magistrate Judge Guzman in his Report and Recommendation, Section 234(1) appears intended to protect insureds and, by extension, their beneficiaries. Report and Recommendation at 10. However, Magistrate Judge Guzman's conclusion that "Clarin is not in the class of persons to be protected by the statute, and thus may not seek its assistance in funding its contractual obligation," id. at 10-11, is a broad holding not necessary to the resolution of this case. Nonetheless, having examined the language of the statute and its interpretive case law the court concludes that here Section 234(1) does not void Massachusetts General's declaration of lapse.
Undoubtedly, application of Section 234(1) to this case appears anomalous. After all, common sense asks, why should Clarin, whose own admitted bookkeeping errors created this pickle, benefit from the operation of a statute that does not appear to have been enacted for its benefit? Clarin had obligations under its employment agreement with Hammond, obligations it used the policy with Massachusetts General to fulfill. Hammond was not responsible for payments on the policy at the time of his death. Therefore, why can Clarin now cite the statute's requirement of notice to Hammond in order to cure its failure to heed the notice it received?
One short answer is because the statute says so. Section 234 appears unambiguously to direct that notice be sent "to the person whose life is insured," making no provision for substituting notice to the owner where the owner and insured are different persons. This plain language argument urges that, for whatever reasons, the Illinois legislature thought that it was necessary for the insured always to receive notice, and that it would be quite a leap for this court to ignore the legislature's prescription. See, e.g., Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 495 n. 13, 105 S.Ct. 3275, 3284 n. 13, 87 L.Ed.2d 346 (1985). (directing that courts reject the implications of the plain language of a statute).
Any hesitance to in effect graft an exception onto Section 234(1) is reinforced by an examination of other states' statutes that are similar to Section 234(1), but avoid the anomalous result in this case. Kansas has a lifeinsurance notice statute that prevents forfeiture "without first giving notice in writing to the policyowner of such policy of its intention to forfeit or cancel the same." KAN.STAT. ANN. § 40-410 (emphasis added). The Kansas statute continues: "When the policyowner is other than the insured, the company, upon specific written request by the insured to the company ... shall thereafter furnish the insured a duplicate of any notice required to be sent to the policyowner hereunder." Id. (emphasis added). New York's notice statute has evolved from a provision almost identical to Section 234(1) to one that in all likelihood would release the life insurance company under these facts. New York's old law directed: "`No life insurance corporation doing business in this State shall within one year after the default in payment of any premium ... declare forfeited or lapsed, any policy, ... nor shall any such policy be forfeited, or lapsed, by reason of nonpayment when due of any premium ... unless a written or printed notice stating the amount of such premium ... due on such policy, the place where it shall be paid, and the person to whom the same is payable, shall have been duly addressed and mailed to the person whose life is insured ... at his or her last known post-office address in this State, postage paid by the corporation ... at least fifteen and not more than forty-five days prior to the day when the same is payable.'" Wolarsky v. New York Life Ins. Co., 120 App.Div. 99, 100, 104 N.Y.S. 1047, 1048 (1907) (quoting New York Ins. Law § 92, 1892 N.Y.Laws 1930, ch. 690, 1897 Laws 91, ch. 218). The present version still requires notice, but stipulates that "the notice required ... be duly mailed to the last known address of the person insured, or if any other person shall have been designated in writing to receive such notice, then to such other person." N.Y.Ins.Law § 3211(b) (emphasis added). These other states' statutes magnify the fact that the Illinois Legislature's choice of wording is just that — a choice, and one that, absent contrary guidance from Illinois state law, the court must respect.
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Clarin Corp. v. Massachusetts General Life Ins. Co.
...of the Illinois Insurance Code. The district court rejected Clarin's claim, ruling that notice to the owner was sufficient in this case, 842 F.Supp. 328. For the reasons below, we reverse and On December 22, 1986, Clarin entered into a written employment agreement with Carl Hammond ("Hammon......