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Beneficiary's Agreement with Insurer's Agent Did Not Prevent Lapse of Life Policy

Fidelity & Guaranty Life Ins. Co. v. Thomas, 559 F. App'x 803 (11th Cir. Mar. 11, 2014)

ERISA and Life Insurance News
(August 29, 2014)

Carol Thomas was the beneficiary of a policy insuring the life of her husband, Stillman Cook.  The policy provided that it would terminate if a premium was not paid within 31 days of its due date.  For three months, premiums were not received because the funds in Thomas’s bank account were too low.

After several letters from Fidelity warning of lapse, a notice of lapse was mailed to Cook, stating that the policy had lapsed in November 2010.  An application for reinstatement was enclosed.  In December 2010, Fidelity informed Cook that the reinstatement process was closed because no application (or the missing payments) had been received.

In February 2011,  Thomas and her insurance broker had a telephone conversation with an unidentified agent of Fidelity who, according to Thomas, stated that the policy would not lapse if Thomas paid the January and February premiums, along with a six-month advance payment, by the end of March.  The agent also advised Thomas to send in the reinstatement application in case her premium check did not arrive by the end of March.

In mid-March, Thomas forwarded the premium payments, plus a completed reinstatement application which denied any diagnosis of cancer in the last five years.  Fidelity reinstated the policy.  In fact, the reinstatement application contained a misrepresentation because Cook had been diagnosed with lung cancer in December 2010.  He died shortly after the policy was reinstated.

Fidelity brought an action to rescind the policy after an investigation revealed the misrepresentation.  Thomas argued that the misrepresentation was not material because the policy had never lapsed, based on assurances by the agent which, she said, resulted in a waiver of the right to terminate the policy based on the missed payments.

In that regard, the policy provided:  “Only the President, the Secretary, or a Vice President in our Home Office can agree to change or waive any provisions which are part of the entire contract.  The change or waiver must be in writing.”  

The district court granted summary judgment to Fidelity, concluding that the policy had lapsed and that Thomas had not shown that the Fidelity agent had authority to waive the lapse.

On appeal, the Eleventh Circuit affirmed.  In Georgia, the court wrote, “oral statements by an agent of an insurance company generally cannot bind the insurance company.” Moreover, Thomas did not show that the agent was “one of those executives from the home office who had authority to change or waive the terms of the general policy.  Nor did she present any evidence that the agent’s offer was reduced to writing.”

As a result, the telephone conversation with the agent did not waive the termination provision of the policy, and Thomas failed to raise a genuine issue as to whether the policy had lapsed.

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