R & F Micro Tool Co., Inc. v. General American Life Ins. Co.

• Decision Date: 26 March 1987
• Citation: 23 Mass.App.Ct. 694,505 N.E.2d 539
• Parties: R & F MICRO TOOL CO., INC. v. GENERAL AMERICAN LIFE INSURANCE COMPANY. 1
• Court: Appeals Court of Massachusetts

Page 539

505 N.E.2d 539

23 Mass.App.Ct. 694

R & F MICRO TOOL CO., INC. v. GENERAL AMERICAN LIFE INSURANCE COMPANY. ¹

Appeals Court of Massachusetts Plymouth.

Argued Jan. 16, 1987.

Decided March 26, 1987.

Joseph H. Skerry, III, Boston, for defendant.

Kathleen W. Meaney, Boston, for plaintiff.

Before GREANEY, C.J., and KAPLAN and ARMSTRONG, JJ.

KAPLAN, Justice.

Howard Dow, an employee of R & F Micro Tool Co., Inc. (hereafter "employer"), died on August 5, 1982. His widow, Pamela Dow, sued the employer for benefits under a group life, accidental death, and medical care insurance policy issued to the employer by General American Life Insurance Co. ("insurer"), alleging breach of contract and violation of G.L. c. 93A (the Consumer Protection Act). The employer impleaded the insurer, claiming indemnification on contract grounds and also alleging violation of c. 93A. Upon motions for summary judgment by Pamela Dow against the employer, by the employer against the insurer, and by the insurer against the employer, a judge of the Superior Court allowed Pamela Dow's motion and the employer's motion and impliedly denied the insurer's motion, all, apparently, on the contract ground. The insurer appeals from the allowance of summary judgment in the employer's favor and from the denial of its own motion.

We reserve a procedural matter to the end, and speak to the merits as disclosed in the materials submitted on the summary judgment motions. The group policy called for premium payments by the employer in advance on the first day of each month, with a grace period of thirty-one days meaning that if payment of a defaulted premium was made within the grace period, the policy continued in force, otherwise it lapsed at the end of that period. The employer habitually failed to pay the monthly premiums when due, and on several occasions failed to make the premiums good within the grace period. The insurer wrote to the employer on three of these occasions confirming that the policy had lapsed, but saying that "[r]einstatement of the policy will be considered upon receipt of all premiums due to date, if payment is received within the next fifteen days." The employer paid up and the policy was reinstated.

There was a change in the summer of 1982. On June 3, 1982, the insurer wrote to the employer noting that the policy had lapsed at the end of a grace period on April 30, 1982, and again offered reinstatement if payment was made within fifteen days. On July 21, 1982, the insurer wrote to the employer acknowledging receipt of the overdue April premium and reinstating the policy as of April 30. The letter concluded, however, with the following: "Also, be informed that our records show a past history of delinquent premiums. Therefore should it again be necessary to terminate, because of delinquent premiums, we will not be able to offer reinstatement and the termination will be final."

The employer failed to pay the premium due on July 1, 1982, on time or during the grace period. Similarly the employer failed with respect to the August 1 premium. On September 23, 1982, the insurer wrote to the employer's president (previous correspondence had been addressed to the office manager) stating that the policy had lapsed on July 31, 1982. There was no offer to reinstate the policy.

An aftermath is to be noted. In early October, 1982, the employer sent the insurer a check for $12,419.07, the amount due for the July and August premiums. This check was deposited on October 12. On October 21, the insurer sent the employer's president a letter enclosing a refund of $6,091.41 (the difference between $12,419.07 and the amount of the premium covering the period July 1-July 31) ² and observing that the letter of September 23 had not offered a possibility of reinstatement and that final lapse had occurred on July 31. Meanwhile, another branch of the insurer had been processing the Dow death claim. The employer submitted the claim on August 18. The insurer's "claim specialists" began routine investigation, and on August 31 and October 6, 1982, requested information about the amount of Dow's salary. Sometime in October the claims people noted the policy lapse and a check that had been made out to Pamela Dow, but not sent, was voided.

There is nothing suspect about a contract term that causes a policy to lapse where a premium remains unpaid at the expiration of a stated grace period. Such policy provisions have been duly enforced. See Shurdut v. John Hancock Mut. Life Ins. Co., 320 Mass. 728, 730, 71 N.E.2d 391 (1947); 6 Couch, Insurance § 32:132, at 415-416 (2d ed. rev 1985). The employer grants thatthere was a lapse on July 31, 1982, but it contends that by "waiver" on the part of the insurer, or an "estoppel" against the insurer, the policy should be considered reinstated, presumably for the month of August, 1982. Had the insurer given no warning to the employer that its practice of offering reinstatement of a lapsed policy was at an end, a claim of estoppel based on the past practice might have been upheld, even though the employer continued in its delinquency of payment until October. See Crowley v. A.O.H. Widows' and Orphans' Fund, 222 Mass. 228, 232, 110 N.E. 276 (1915); Rozen v. Cohen, 350 Mass. 231, 236, 214 N.E.2d 451 (1966). See also Kukuruza v. John Hancock Mut. Life Ins. Co., 276 Mass. 146, 150-151, 176 N.E. 788 (1931); Couch, supra, §§ 32:295, 32:336. Here, however, a warning was given by the letter of July 21 that reinstatement would no longer be offered after a policy lapse. The insurer was acting in the ordinary course of business before the death ³ and left the employer with time to save the policy from the lapse which was in prospect for July 31. That the warning should be given the effect of denying the employer any claim to reliance on earlier practice and of remitting it to the terms of the policy governing lapse, is the teaching of Rozen v. Cohen, supra. ⁴ See also Hagin v. Firemen's Fund Ins. Co., 88 Ariz. 158, 161-163, 353 P.2d 1029 (1960); Peterson v. Allstate Ins. Co., 164 Cal.App.2d 517, 520-521, 330 P.2d 843 (1958); Schwer v. Benefit Assn. of R.R. Employees, Inc., 153 Ohio St. 312, 321-323, 91 N.E.2d 523 (1950); 3A Corbin, Contracts § 722, at 381 (1960); Couch, supra, §§ 32:374, 32:375. If further leeway were to be allowed the employer, it is not easy to say how it might be defined.

The employer argues that the insurer's receipt or deposit of the check for $12,419.07 should be given the effect of overcoming the lapse and reinstating the policy, presumably for August, so that the claim arising from the death on August 5 would be covered. First, it is only an unconditional acceptance of late payment that could work an estoppel and produce any such result. See Paloeian v. Day, 299 Mass. 586, 590, 13 N.E.2d 398 (1938); Bogosian v. New York Life Ins. Co., 315 Mass. 375, 382, 53 N.E.2d 217 (1944); Dolan v. Utica Mut. Ins. Co., 650 F.Supp. 851, 852 (D.Mass., Dec. 31, 1986). Cf. Bousquet v. Transportation Ins. Co., 354 Mass. 152, 235 N.E.2d 807 (1968). Here there was no such acceptance; in line with the earlier warning, the insurer, after deducting the amount due it for the period through July 31, returned the balance to the employer. Second, any conceivable estoppel would not extend to a casualty that occurred following the lapse and before the employer's tender of payment to secure reinstatement: the employer could not assert that it justifiably relied on a so-called "acceptance" as covering a death claim that had already accrued before the tender. See Dolan v. Utica Mut. Ins. Co., supra 650 F.Supp. at 854; Schifalacqua v. CNA Ins. Co., 567 F.2d 1255, 1258 (3d Cir.1977); ⁵ Brazil v Giuffrida, 763 F.2d 1072, 1075-1076 (9th Cir.1985); Couch, supra, § 32:85, at 362-364. See also, by way of analogy, G.L. c. 175, § 108(3)(a)(4), second sentence. Compare Paloeian v. Day, 299 Mass. at 589, 13 N.E.2d 398 (policy reinstated before accident). ⁶

We conclude that the employer deserved to fail in its motion for summary judgment, and the insurer to succeed on its contrary motion.

To turn to procedure,...