Insurer Failed to Provide Sufficient Notice of Non-Payment

The United States District Court for the Northern District of Illinois, in an opinion written by Judge Matthew Kennelly, applying Illinois law, granted Ryan and Sean Harwick’s (“Plaintiffs”) motion for summary judgment in a lawsuit against AXA Equitable Life Insurance Company (“AXA”) finding that the nonpayment notice provided by AXA did not meet Illinois Insurance Code requirements and therefore, AXA was not permitted to declare the life insurance policy to be forfeited or lapsed as of the time of the death or claims at issue.

The Plaintiffs filed a state court action against AXA seeking to recover death benefits as beneficiaries under their father Douglas’ life insurance policy. The face value of the policy was $250,000. Quarterly payments were made from 1993 to December 2018 totaling $23,797.50. AXA sent a February 21, 2019 “Notice of Payment Due” to Douglas Harwick, informing Harwick that payment was due on March 15, 2019. Douglas Harwick died from cancer on April 19, 2019 before making the March payment. The Plaintiffs tendered claims for payment under the policy to AXA. AXA refused, contending that the policy had lapsed due to non-payment. AXA removed to federal court and both parties filed motions for summary judgment.

The question before the district court was whether AXA’s “Notice of Payment Due” complied with the requirements of the Illinois Insurance Code. The Plaintiffs contended that AXA wrongly denied payment of the insurance policy’s death benefits, relying on a section of the Illinois Insurance Code that “prohibits a life insurance company from declaring a policy forfeited or lapsed within six months of an unpaid premium unless the issuer has sent notice to the insured stating, among other things, that in the event of nonpayment…the policy and all payments thereon will become forfeited and void….” The district court held that the relevant portions of the Illinois Insurance Code would be “meaningless” unless it required an insurer to clearly convey “the consequences of nonpayment of a premium.” The “Notice of Payment Due” stated the following: “If a premium is not paid by the end of the grace period the policy will terminate except for any continuing insurance benefits that may be provided by any cash value under the policy or by law.” (emphasis added).  According to the district court, AXA’s “Notice of Payment Due” was ambiguous because the word “terminates” conveys a different message than “forfeited” or “void.” Moreover, the “negative consequences” connoted by “terminate” “was tempered, if not taken away, by the language that followed: the policy would ‘terminate except for any continuing insurance benefits that may be provided…by law.’” The district court found the policy language at issue was circular and materially different from the policy language AXA relied upon for analogy. Harwick et al v. AXA Equitable Life Insurance Company, Case No. 19 C 8305 (N.D. Ill. Dec. 27, 2020).