Counties Contracting and Const. Co. v. Constitution Life Ins. Co.
| Citation | 855 F.2d 1054 |
| Decision Date | 31 August 1988 |
| Docket Number | No. 88-1030,88-1030 |
| Parties | , 57 USLW 2155, 18 Bankr.Ct.Dec. 489, Bankr. L. Rep. P 72,452 COUNTIES CONTRACTING AND CONSTRUCTION COMPANY, Debtor-in-Possession, Appellant, v. CONSTITUTION LIFE INSURANCE COMPANY. |
| Court | United States Courts of Appeals. United States Court of Appeals (3rd Circuit) |
Raymond C. Schlegel (argued), Roland & Schlegel, P.C., Reading, Pa., for appellant.
Thomas G. Parisi (argued), O'Pake, Malsnee & Orwig, Reading, Pa., for appellee.
Gordon G. Busdicker, Gordon B. Conn, Jr., Clark Whitmore, Faegre & Benson, Minneapolis, Minn., John E. DeWald, Asst. Counsel, The Prudential Ins. Co. of America, Dresher, Pa., for The Prudential Ins. Co. of America as amicus curiae.
Before MANSMANN, SCIRICA and COWEN, Circuit Judges.
We are asked to decide whether a life insurance policy remained in effect beyond the extended period allowed for payment of premiums when, prior to the grace period's expiration, the policyholder commenced voluntary bankruptcy proceedings under Chapter 11 of the Bankruptcy Code.
The policyholder, Counties Contracting and Construction Company, appeals from an order granting summary judgment in favor of Constitution Life Insurance Company affirming the insurance company's refusal to make payment of insurance proceeds to Counties, 81 B.R. 306. Counties, now a Chapter 11 debtor, argued that certain provisions of the Bankruptcy Code, in addition to principles of waiver and estoppel, precluded Constitution Life from denying the payment of the proceeds. We conclude that although Counties was afforded a degree of relief by one rehabilitative provision of the Code, other provisions were either inapplicable by law or because Counties did not act in conformity with the statutory requirements necessary for entitlement to the relief afforded by the section. We also determine that Constitution Life did not, by reason of language utilized by it in certain letters to Counties, waive its right to cancel the policy for non-payment of amounts owing to it. We will affirm the decision of the district court.
The facts were stipulated to by the parties and are as follows: On March 25, 1969, a life insurance policy was issued to Counties insuring the life of one of its employees, James Cleary. The annual premium for the policy was due in advance on March 25 of each year. In conformity with Pennsylvania law 1 the policy provided a 31-day grace period for the payment of the premium.
From 1969 through 1983, the advance premium was always paid by Counties. In March 1984, however, Counties did not pay the premium nor the interest due on various loans which had been taken out against the value of the policy.
On April 11, 1984, within the policy grace period, Counties filed for voluntary bankruptcy. Two days later Constitution Life mailed a late premium notice to Counties and then, on June 26, sent an additional letter:
The yearly interest for the present loan on your life insurance policy and the annual premium are due. Your policy says this interest and premium must be paid within 31 days. Otherwise the insurance would end without further notice. Then you would no longer have your protection....
I'm sure that you want to keep your insurance in force.... [W]e urge you to pay the premium and repay the loan. Then you'll once again have the full protection and cash value of your policy.
The insured, James Cleary, died on July 26, 1984. On July 30, 1984, without knowledge of either the insured's death or Counties' bankruptcy, Constitution Life mailed another letter to Counties: This was Constitution Life's final communication with Counties concerning the payment of the amounts due. It is undisputed that Counties did not reply nor did it tender any premium payment or explanation to Constitution Life.
On or about September 25, 1984, Counties informed Constitution Life of Cleary's death and demanded payment under the policy. Payment was refused by Constitution Life.
Counties filed a complaint against Constitution Life in the United States Bankruptcy Court to compel turnover of the policy proceeds. After Constitution Life filed its answer, denying that the proceeds were due, the parties entered into a stipulation to withdraw reference from the bankruptcy court and proceeded in the district court. Counties and Constitution Life then filed a stipulation of uncontested facts and cross-motions for summary judgment.
On December 21, 1987, the district court denied Counties' motion for summary judgment and granted Constitution Life's similar motion. The district court found that filing the voluntary bankruptcy petition during the statutory grace period extended the grace period for 60 days under 11 U.S.C. Sec. 108(b) (1978) (amended 1984). After this period, the policy expired. The district court then held that Counties' position that the automatic stay provision of 11 U.S.C. Sec. 362(a) precluded Constitution Life from denying it the benefits of the policy would be alien to basic concepts of insurance law since it would permit Counties to "retain indefinitely the option to make a retroactive decision to carry insurance."
The district court also concluded that the letters sent by Constitution Life to Counties concerning Counties' obligations did not constitute a waiver of the policy provisions regarding lapse of the policy for nonpayment of premiums at the end of the grace period. The court found that doctrines of waiver and estoppel do not apply in the absence of a contract between the parties.
Finally, the district court rejected Counties' argument that Constitution Life was required to take affirmative action to cancel the policy for nonpayment of interest due for the loan taken against the policy. The district court first found that the policy contained no requirement of notice in this regard and then noted additionally that the policy was also cancelled for nonpayment of the premium. Thus, failure to give notice of cancellation for non-payment of the interest due would not alter the result of the case. 2
Counties has appealed the grant of summary judgment in favor of Constitution Life pursuant to 28 U.S.C. Sec. 1291.
Our scope of review of the grant of summary judgment mirrors the test which the district court was to apply initially in determining the merits of the motion. In this case, given the stipulation as to the facts, we must decide whether Constitution Life, based upon these facts, was entitled to judgment as a matter of law. Jackson v. University of Pittsburgh, 826 F.2d 230 (3d Cir.1987).
We must first determine at what point, if any, Counties' failure to pay the premium extinguished its right to the proceeds of the policy. When Counties filed its petition, in accord with the fundamental principle of bankruptcy enunciated in Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), any property rights accruing under the insurance policy became property of the debtor's estate. 3 There appears to be no disagreement that the grace period of the policy was properly a part of the property of the debtor's estate.
The question that concerns us is when, and if, the grace period expired and ceased being classified as property of the estate. Constitution Life asserted and the district court agreed that 11 U.S.C. Sec. 108(b) extends the statutory grace period of the policy for 60 days from the commencement of the bankruptcy proceedings. 4 Counties, on the other hand, argues that the automatic stay provision of 11 U.S.C. Sec. 362(a), specifically, the prohibition of Sec. 362(a)(3) 5 against acts to obtain possession of property of the estate, tolls indefinitely the running of the grace period.
In relevant part, Sec. 108(b) of the Code states:
(b) Except as provided in subsection (a) of this section, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor ... may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, before the later of--
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 60 days after the order for relief.
We cannot find in the legislative history of Sec. 108(b) any discussion that statutory grace periods of insurance policies were specifically contemplated by this section. However, in delineating an example of a proof of a claim or loss entitled to an extension of time, reference to an insurance claim is noted. H.R.Rep. 595, 95th Cong., 1st Sess. 318 (1977), reprinted in L. King, Collier on Bankruptcy App. 2 (1987). We can consider this as some indication that issues arising under insurance policies were considered by Congress in enacting this section.
Application of Sec. 108(b) to a statutory grace period appears to be one of first impression in this circuit, although the question was addressed in dicta in In Re Roach, 824 F.2d 1370, 1372 n. 1 (3d Cir.1987). In Roach, in addressing the application of 11 U.S.C. Sec. 1322(b) to a mortgage default during the running of a state-created redemption period, we stated that Sec. 108(b) simply extends the state law period of redemption and that Sec. 362 did not otherwise toll the running of the period. This language was an adoption of the views of the other circuits who had addressed the issue. E.g. Johnson v. First National Bank of Montevideo, Minn., 719 F.2d 270 (8th Cir.1983) cert. denied, 465 U.S. 1012, 104 S.Ct. 1015, 79 L.Ed.2d 245 (1984); In Re Tynan, 773 F.2d 177 (7th Cir.1985). 6
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