Johnston & Johnston v. Conseco Life Insurance Co. , 732 F.3d 555 ( 2013 )

Case: 13-30010 Document: 00512412127 Page: 1 Date Filed: 10/17/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 17, 2013
No. 13-30010 Lyle W. Cayce
Clerk
JOHNSTON & JOHNSTON,
Plaintiff - Appellee
v.
CONSECO LIFE INSURANCE COMPANY,
Defendant - Appellant
Appeal from the United States District Court
for the Western District of Louisiana
Before STEWART, Chief Judge, and KING and PRADO, Circuit Judges.
CAROLYN DINEEN KING, Circuit Judge:
Conseco Life Insurance Company’s predecessor issued a flexible premium
life insurance policy to Johnston & Johnston on the life of Mary Ann D. Johnston
in 1988. The Policy’s cash surrender value dropped below zero dollars in
December 2010, causing it to enter a sixty-one-day grace period. The Policy
terminated in February 2011, after Johnston & Johnston failed to make any
payments on the Policy during the grace period. Ms. Johnston died in August
2012. The key question is whether any of the several notices Conseco Life
Insurance Company sent to Johnston & Johnston satisfied the requirements of
Louisiana Revised Statutes § 22:905, which outlines notice requirements for
lapsing life insurance policies. The district court held that the notices did not.
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Conseco Life Insurance Company timely appealed. For the following reasons,
we REVERSE and REMAND for entry of judgment in favor of Conseco Life
Insurance Company.
I. FACTUAL AND PROCEDURAL BACKGROUND
On April 12, 1988, Plaintiff-Appellee Johnston & Johnston (“J&J”)
purchased an insurance policy from Philadelphia Life Insurance Company on the
life of Mary Ann D. Johnston (“Policy”). The Policy insured Ms. Johnston’s life
for $1 million. A Life Insurance Protection Rider provided an additional $1
million death benefit, for a total death benefit of $2 million. Ms. Johnston was
sixty-eight years old at the time of issuance. Defendant-Appellant Conseco Life
Insurance Company (“Conseco”) merged with Philadelphia Life Insurance
Company in 1996 and subsequently assumed the Policy.
The Policy was a “flexible premium adjustable life insurance plan.” Unlike
a term or whole life insurance policy, which requires periodic premium payments
to maintain coverage, a flexible premium policy does not have scheduled
premium due dates. Rather, the policyholder can change both the amount and
the frequency of premium payments. See, e.g., La. Admin. Code tit. 37, § 8503
(2013) (defining “Flexible Premium Universal Life Insurance Policy” as a
“universal life insurance policy which permits the policyowner to vary,
independently of each other, the amount or timing of one or more premium
payments or the amount of insurance”).
Under the terms of the Policy, J&J chose the amount and frequency of its
premium payments.1 J&J elected to receive annual notices in the amount of
$32,451.00, for the so-called “planned periodic premium.” However, because the
cost of insurance increased each year, a single annual payment of $32,451.00
1
The Policy provided: “The owner may change the amount of planned periodic
premium. . . . The frequency of premium payment shown on a Policy Data Page will serve only
as an indication of the owner’s preference as to probable future frequency of payment.”
2
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became insufficient to cover the cost of insurance and maintain the Policy,
requiring J&J to make more frequent payments by the mid-2000s.
The Policy had a cash value.2 It provided that it would remain in effect so
long as its cash surrender value—the amount of money the insured could receive
by surrendering or redeeming the Policy3—remained sufficient to cover the
Policy’s costs for the next month.4 These costs, which Conseco deducted from the
2
See 29 Appleman on Insurance § 179.07 (“Cash value can be thought of as a
by-product of the interplay between level annual premiums and the increasing actuarial cost
of pure insurance over the life of a policy. In the early years of a whole life insurance policy,
the insured pays higher premiums than those paid by a term insurance policyholder. The
excess funds accumulated in the initial policy years are used to finance the later years of the
policy when the level whole life premium is lower than a term policy premium would be.”).
3
See Black’s Law Dictionary 1691 (9th ed. 2009) (defining “cash surrender value” as
“[t]he amount of money payable when an insurance policy having cash value, such as a
whole-life policy, is redeemed before maturity or death.”); 28 Appleman on Insurance § 173.05
(“Cash surrender value is the sum that the insured can get simply by surrendering, or
releasing, the policy to the insurance company. . . . Usually, the cash surrender value is less
than the total premiums paid in on an ordinary life insurance policy, since the term (death
protection) portion of the premium is used up each year. In later years, however, depending
on dividends and on interest rates used in reserve calculations, cash value may exceed actual
cash paid in.”).
4
The Policy defined “cash value” and “cash surrender value” as follows:
CASH VALUE
The cash value of this policy is the value of the accumulation account less the
surrender charge. The accumulation account on the date of issue will be the
initial net premium. Net premium is the gross premium paid less the
percentage of premium expense charge shown on a Policy Data Page.
The accumulation account on a monthly anniversary day will be calculated as
(a) plus (b) plus (c) minus (d) minus (e) minus (f) where:
(a) is the accumulation account on the preceding monthly anniversary day;
(b) is one month’s interest on item (a);
(c) is the premium paid (less the percentage of premium expense charge
during the first policy year) plus interest credited to any premium received
since the preceding monthly anniversary day;
(d) is the monthly deduction for the month preceding the monthly
anniversary day;
(e) is one month’s interest on item (d);
(f) is the amount of any partial withdrawals.
3
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Policy’s cash value on a monthly basis, included the cost of insurance, the cost
of any other benefits provided for under the Policy, and the monthly expense
charges.5
With J&J paying premiums only on an intermittent basis, but deductions
coming on a monthly basis, it was possible that, at some point, the Policy’s cash
value might not be sufficient to cover deductions for the next month. The Policy
addressed such a scenario:
At some future time, the policy cash value less indebtedness may
not cover the next monthly deduction. In such a situation, the policy
will enter the grace period and will terminate at the end of that
period if sufficient premium to cover the monthly deduction is not
paid.
The Policy’s grace period section provided, in relevant part:
If the cash surrender value on a monthly anniversary day will not
cover the next monthly deduction, a grace period of 61 days from
such monthly anniversary day will be allowed to pay a premium
that will cover the monthly deduction. The Company will send
written notice that the policy will lapse 30 days before the end of the
grace period to the owner’s last address shown in the Company’s
On any day other than a monthly anniversary day, the accumulation account
will be calculated as (a) plus (c) minus (d) minus (f) using the definitions above.
....
CASH SURRENDER VALUE
At any time, the cash surrender value of this policy is:
1. the accumulation account;
2. less any indebtedness on this policy; and
3. less a surrender charge, if any[.]
5
According to the last policyholder statement for the Policy, covering the year between
April 12, 2009, and April 13, 2010, the annual cost of insurance for that year was $115,748.42
(or approximately $9,645.70 per month), rider and benefit charges were $323.80 per month,
and the expense charge was $7.50 per month. According to the earliest policyholder statement
in the record, covering the year between April 12, 1998, and April 13, 1999, the annual cost
of insurance for that year was $31,899.12 (or approximately $2,658.26 per month), rider and
benefit charges were $328.40 per month, and the expense charge was $7.50 per month.
4
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rec[or]ds and to any assignee of record if the premium is not paid.
. . . If the insured dies during the grace period, any past due
monthly deductions will be deducted from the proceeds. The policy
will remain in force during the grace period, unless surrendered.
As per the grace period provision, failure to pay the planned periodic
premium—the $32,451.00 that J&J elected to pay annually—would not affect
coverage unless, on a monthly anniversary day,6 the cash surrender value of the
Policy was so low that the next monthly deduction would cause the value to drop
below zero dollars. For example, if the cash surrender value of a policy was
$10,000 on April 5, and the monthly costs totaled $8,000 and would be deducted
from the policy on April 12, then as of April 12, the cash surrender value would
no longer be sufficient to cover the monthly costs for the next month, May, and
the policy would enter a sixty-one-day grace period.
Conseco sent J&J annual planned periodic payment notices. In addition,
Conseco sent J&J annual policyholder statements that outlined the cash
surrender value, the amount of each monthly deduction, and the date that the
cash surrender value was projected to drop below zero dollars if J&J made no
contributions.
Separately, J&J was a class member in a class action settlement of a case
against Conseco in federal district court in California. Pursuant to J&J’s rights
as a class member, if the Policy terminated, J&J was entitled to a “death benefit
extension period” after the grace period ended. This period would provide
coverage to J&J for the Policy’s $1 million face amount for an additional 183
days following termination of the Policy.7 Once the death benefit extension
6
Since the Policy was issued on April 12, 1988, the Policy’s anniversary day is April 12,
and the “monthly anniversary day” is the 12th of each month.
7
According to the Stipulation of Settlement, the “In-Force Death Benefit Extension”
period is triggered by the Policy’s Termination Date, which is defined as “the date when a
Policy Terminates and the grace period would otherwise expire in accordance with the Policy
terms absent the In-Force Benefit Extension.” As used in the settlement, “terminate” means
5
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period began, J&J would not be able to make any premium payments on the
Policy, since the Policy would no longer be in effect at that point.
The April 13, 2010 annual policyholder statement, the last available,
informed J&J that the Policy would terminate on June 12, 2010, if J&J made no
further contribution. J&J made a payment sufficient to maintain the Policy.
However, the Policy entered a grace period a few months later, on September 12,
2010. Conseco notified J&J that the grace period would expire if J&J did not
pay $38,778.46 before November 12, 2010. J&J paid this amount on October 6,
2010, preventing the Policy from reentering a grace period until December 12,
2010.8
Separate from the September 12 grace period notification, on September
21, 2010, Conseco sent J&J a planned periodic premium notice, informing J&J
that a premium of $32,451.00 would be due on October 12, 2010.9
On December 12, 2010, Conseco sent J&J a notice that the Policy had
again entered a grace period as of that date. According to the December 12, 2010
grace notice, J&J was required to pay $28,794.14 by February 11, 2011, to avoid
termination of coverage. Thus, the notice set out a specific amount necessary to
maintain the Policy, rather than the planned periodic payment amount of
$32,451.00. On January 6, 2011—thirty-six days before February 11—Conseco
a policy “has lapsed, been surrendered or has otherwise terminated for a reason other than the
death of the insured and has not been reinstated as of the Eligibility Date.”
8
The Policy appears not to have entered a grace period on November 12, 2010, because
the cash surrender value of the Policy at that time was sufficient to cover the cost of the
December deduction.
9
In the past, J&J had made at least one planned periodic payment of $32,451.00 on the
October 12 monthly anniversary day, in 2008. It appears from the record that J&J also paid
this amount on October 13, 2009, but Conseco suggests this payment was “the minimum grace
amount to keep the Policy in force,” explaining that “[s]ince October 2004, Plaintiff had
consistently paid the minimum grace amount to keep the Policy in force and had not made any
additional payments under the Policy. The only exception occurred on October 9, 2008, at
which time Plaintiff paid the annual billed amount due on October 12, 2008.”
6
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sent J&J a second grace notice, again stating that J&J would need to pay
$28,794.14 by February 11, 2011, in order to avoid termination of coverage.
J&J did not make a payment on the Policy during this period of time. The
grace period expired on February 11, 2011, at which time the Policy
terminated.10 Conseco sent J&J a notice dated February 13, 2011, to this effect,
which also informed J&J that the death benefit extension period began on
February 11, 2011, and would expire on September 12, 2011 (183 days later).
J&J’s accountant, Ralph Speirs, Jr., was out of the office due to illness
during the grace notice periods, and he did not review the grace notices until
February 13, 2011, a Sunday. He called Conseco on February 14, seeking to pay
the amount set out in the notices. A Conseco representative informed Mr. Speirs
that “it was too late to pay the premiums,” but that J&J could apply for
reinstatement of the Policy.
J&J applied for reinstatement of the Policy on August 25, 2011. Conseco
sent a notice on September 12, 2011, to inform J&J that the death benefit
extension period had terminated as of that date. Conseco refused J&J’s
reinstatement application on September 15, 2011, “[d]ue to the evaluation of our
underwriting department” and “due to Ms. Johnston’s medical history.”
Between the Policy’s inception in 1988 and its termination in 2011, J&J
paid $1,233,195.97 in policy contributions. The Policy entered the grace period
a total of twenty-two times over the course of its life.
J&J filed suit in federal district court on June 7, 2012, seeking declaratory
relief and specific performance. J&J argued that Conseco’s notices violated
Louisiana Revised Statutes § 22:905, which requires an insurer to provide notice
to the insured fifteen to forty-five days before a “premium” is “payable” before
the insurer can declare a policy forfeited for nonpayment of premiums. As
10
We use the term “terminate,” rather than “lapse,” because of the technical definition
of “lapse” employed by Regulation 36. La. Admin. Code tit. 37, § 8511(A)(6)(b).
7
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detailed below, § 22:905 also requires that the notice set out the correct premium
amount. J&J contended that the “due date” for § 22:905 purposes was October
12, 2010—the date on which the planned periodic premium was scheduled to be
paid—and that the September 21 planned periodic premium notice listed the
incorrect amount necessary to maintain the Policy, in violation of § 22:905. J&J
further contended that the December 12, 2010 and January 6, 2011 grace notices
were deficient because they were sent after the October 12, 2010 premium due
date. J&J sought a declaration that Conseco’s termination of the Policy was
void, and an order requiring Conseco to accept premium payments sufficient to
continue coverage under the Policy. On October 8, 2012, J&J amended its
complaint to reflect that Mary Ann D. Johnston died on August 15, 2012, and to
correct its pleadings for diversity jurisdiction purposes.
Conseco moved to dismiss the complaint or, in the alternative, for
summary judgment. It principally argued that the relevant date under § 22:905
was February 11, 2011, since that was when J&J needed to pay its premiums to
avoid the Policy terminating. Conseco contended that because the January 6,
2011 grace notice fell within the fifteen- to forty-five-day window prescribed by
§ 22:905, it did not violate § 22:905. J&J also filed a motion for summary
judgment, reasserting the arguments and allegations in its complaint.
On October 11, 2012, the district court: (1) denied Conseco’s motion to
dismiss the complaint or, in the alternative, for summary judgment; (2) granted
J&J’s motion for summary judgment; and (3) entered judgment in favor of J&J.
Departing from both parties’ arguments, the court held that the operative due
date for § 22:905 purposes was December 12, 2010, the first day of the grace
period. Conseco did not send any notices to J&J during the fifteen- to forty-five-
day period before December 12, 2010. As a result, the court concluded that
Conseco failed to comply with § 22:905’s notice requirement, and therefore, the
Policy should have remained in effect for an additional year. The court held that
8
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Conseco’s refusal to accept premium payments from J&J during that year, and
to reinstate the Policy, was improper.
Subsequently, Conseco filed a Rule 59(e) motion to alter or amend the
judgment, arguing that the district court erred in construing December 12, 2010,
as the operative due date for § 22:905 purposes. Conseco asserted that “no
premium was due on December 12, 2010, nor was any premium past due
between December 12, 2010 and February 11, 2011.” Conseco further argued
that construing December 12, 2010, as the due date would lead to absurd
consequences. As Conseco explained, a policy owner could withdraw funds from
her policy less than fifteen days before a payment is due—too late for the insurer
to provide fifteen to forty-five days of notice, as required under § 22:905—and
thereby receive free insurance for a year, since that is the penalty for an
insurer’s failure to comply with § 22:905’s notice requirements. Finally, Conseco
contended that using the December 12, 2010 date renders meaningless
§ 22:905(B), which prohibits any policy from being declared forfeited until at
least thirty days after a compliant notice has been mailed.
The district court denied Conseco’s motion, concluding, inter alia, that
Conseco was simply reasserting arguments it had made in its motion to dismiss.
The court further stated that if the due date had been February 11, 2011, as
Conseco contended, then Conseco still would not prevail because Conseco failed
to provide an additional thirty-day grace period, as required by Regulation 36,
promulgated by the Louisiana Insurance Commissioner. La. Admin. Code tit.
37, § 8511. Regulation 36 requires flexible premium policies to “provide for a
grace period of at least thirty days (or as required by state statute) after lapse,”
and defines “lapse” as follows: “Unless otherwise defined in the policy, lapse
shall occur on that date on which the net cash surrender value first equals zero.”
Id. § 8511(A)(6)(b).
9
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The court reasoned that one of the Policy’s clauses, “The Company will
send written notice that the policy will lapse 30 days before the end of the grace
period,” redefined “lapse” as the end of the grace period, rather than when the
cash value equals zero dollars. Because lapse was the end of the grace period,
the court reasoned that Regulation 36 required Conseco to provide an additional
thirty-day grace period after the sixty-one-day grace period ended.
Conseco timely appealed to this court, seeking review of both the district
court’s grant of summary judgment to J&J and the court’s denial of Conseco’s
Rule 59(e) motion.11
II. STANDARD OF REVIEW
We review de novo a grant of summary judgment, applying the same
standard as the district court. First Am. Title Ins. Co. v. Cont’l Cas. Co., 709
F.3d 1170, 1173 (5th Cir. 2013). Summary judgment is appropriate “if the
movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The
court “view[s] all evidence in the light most favorable to the nonmoving party
and draw[s] all reasonable inferences in that party’s favor.” In re Katrina Canal
Breaches Litig., 495 F.3d 191, 205–06 (5th Cir. 2007).
We review for abuse of discretion a district court’s decision on a Rule 59(e)
motion to alter or amend judgment. Ross v. Marshall, 426 F.3d 745, 763 (5th
Cir. 2005). “A district court abuses its discretion if it bases its decision on an
erroneous view of the law or on a clearly erroneous assessment of the evidence.”
Id. (internal quotation marks and citation omitted). However, “[i]ssues that are
purely questions of law are . . . reviewed de novo.” Tyler v. Union Oil Co. of Cal.,
304 F.3d 379, 405 (5th Cir. 2002).
11
The American Council of Life Insurers filed a persuasive amicus brief.
10
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“A federal court sitting in diversity applies the substantive law of the
forum state. A district court’s determination of state law is reviewed de novo.”
Learmonth v. Sears, Roebuck & Co., 710 F.3d 249, 258 (5th Cir. 2013) (internal
citations omitted). “If a state’s high court has not spoken on a state-law issue,
we defer to intermediate state appellate court decisions, unless convinced by
other persuasive data that the higher court of the state would decide otherwise.”
Id. (citation and quotation marks omitted). “In making an Erie-guess in the
absence of explicit guidance from the state courts, we must attempt to predict
state law, not to create or modify it.” Id. (citation and quotation marks omitted).
Under Louisiana law, “[t]he fundamental question in all cases of statutory
construction is legislative intent and the reasons that prompted the legislature
to enact the law.” SWAT 24 Shreveport Bossier, Inc. v. Bond, 808 So. 2d 294, 302
(La. 2001). “When a law is clear and unambiguous and its application does not
lead to absurd consequences, it shall be applied as written, with no further
interpretation made in search of the legislative intent.” Id. (citing La. Civ. Code
art. 9).
Section 22:905 is a forfeiture statute, since it concerns the forfeiture of
insurance benefits, and under Louisiana law, forfeiture statutes are strictly
construed. First Am. Bank & Trust of La. v. Tex. Life Ins. Co., 10 F.3d 332, 335
& n.6 (5th Cir. 1994) (citing Lemoine v. Sec. Indus. Ins., 569 So. 2d 1092, 1096
(La. Ct. App. 1990)). Insurance policy provisions are also subject to strict
construction: “If after applying the other general rules of construction an
ambiguity remains, the ambiguous contractual provision is to be construed
against the drafter, or, as originating in the insurance context, in favor of the
insured.” La. Ins. Guar. Ass’n v. Interstate Fire & Cas. Co., 630 So. 2d 759, 764
(La. 1994).
11
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III. APPLICABLE LAW
The parties’ dispute centers on a provision of the Louisiana Insurance
Code, § 22:905, which provides, in relevant part:
A. No life insurer shall within one year after default in payment of
any premium . . . declare forfeited or lapsed any policy issued or
renewed, and not issued upon the payment of monthly or weekly
premiums or for a term of one year or less, for nonpayment when
due of any premium . . . or any portion thereof required by the
terms of the policy to be paid, unless a written or printed notice
shall have been duly addressed and mailed to the owner of the
policy . . . at least fifteen and not more than forty-five days prior to
the date when the same is payable. Such notice shall state both of
the following:
(1) The amount of such premium . . . or portion thereof due on such
policy.
(2) The place where it shall be paid and the person to whom the
same is payable.
B. No policy shall be forfeited or declared forfeited or lapsed until
the expiration of thirty days after the mailing of such notice. Any
payment demanded by the notice and made within the time limit
shall be fully compliant with the requirements of the policy in
respect to the time of the payment.
La. Rev. Stat. Ann. § 22:905 (2012).12 The parties’ arguments focus, to a large
extent, on when a “premium” is “payable” in the context of a flexible premium
policy.
Section 22:905’s purpose “is to protect the insured from losing coverage
due to mere inadvertence and to give the insured a ‘fair chance to meet the
payments when due.’” Turner v. OM Fin. Life Ins. Co., 822 F. Supp. 2d 633, 637
(W.D. La. 2011) (quoting Vining v. State Farm Life Ins. Co., 409 So. 2d 1306,
12
Section 22:905’s predecessor, La. Rev. Stat. § 22:177, was recodified as § 22:905 in
2008. See 2008 La. Acts 415 at 22 (S.B. 335). The substance of the statute has remained
essentially unchanged for more than a century. See Boring v. La. State Ins. Co., 97 So. 856,
858 (La. 1923) (reproducing “Act 68 of 1906”).
12
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1309–10 (La. Ct. App. 1982)); accord Ochsner v. IdeaLife Ins. Co., 945 So. 2d 128,
131 (La. Ct. App. 2006).
Under Louisiana law, a “premium” means:
[A]ll sums charged, received, or deposited as consideration for the
purchase or continuance of insurance for a definitely stated term,
and shall include any assessment, membership, policy, survey,
inspection, service or similar fee or charge made by an insurer as a
part of the consideration for the purchase or continuance of
insurance.
La. Rev. Stat. Ann. § 22:46(13). This definition applies “unless the context
otherwise requires.” Id. § 22:46.
Regulation 36, codified in Title 37 of the Louisiana Administrative Code,
§§ 8501–8517, “supplement[s] existing regulations on life insurance policies in
order to accommodate the development and issuance of universal life insurance
plans,” id. § 8501, flexible premium policies among them, id. § 8503. Regulation
36 further states:
a. The policy shall provide for written notice to be sent to the
policyowner’s last known address at least thirty days prior to
termination of coverage.
b. A flexible premium policy shall provide for a grace period of at
least thirty days (or as required by state statute) after lapse. Unless
otherwise defined in the policy, lapse shall occur on that date on
which the net cash surrender value first equals zero.
Id. § 8511(A)(6).
The provider of a flexible premium policy must give the policyholder
annual reports on the policy’s status. Id. §§ 8511(A)(1)–(2), 8513, 8515. The
insurer’s report must inform the policyholder if “the policy’s net cash surrender
value will not maintain insurance in force until the end of the next reporting
period unless further premium payments are made.” Id. § 8515(A)(2)(h).
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IV. DISCUSSION
The critical question in this case is when the insurance premium necessary
to maintain the Policy was “payable” under § 22:905, since that date determines
whether or not Conseco’s notices satisfied § 22:905’s timing requirements. If the
notices did not satisfy § 22:905’s requirements, then J&J was entitled to an
additional year of coverage under the Policy.13 Ochsner, 945 So. 2d at 132–34;
First Am. Bank & Trust, 10 F.3d at 335–36.
We conclude that the district court erred in finding that December 12,
2010, is the operative date for § 22:905 purposes, and therefore abused its
discretion in denying Conseco’s motion to alter or amend the judgment. Instead,
February 11, 2011, is the date on which the premium became “payable,” since
that is when J&J was required to make its premium payment in order to
maintain the Policy.14 As a result, notice requirements should be calculated from
February 11, 2011.
Conseco’s January 6, 2011 notice satisfied the requirements of § 22:905 in
its timing and its contents. The notice fell within the fifteen- to forty-five-day
period, since Conseco sent it thirty-six days before February 11, 2011, and stated
the correct amount “due” in order to maintain coverage under the Policy. The
Policy terminated on February 11, 2011, at the close of the sixty-one-day grace
period provided for under the terms of the Policy. There was no second grace
period. The death benefit extension expired on September 12, 2011, and all
13
Because we conclude that Conseco’s notices satisfied § 22:905, we need not address
whether the additional year of coverage J&J might have received from a § 22:905 violation
would have expired by the time the insured died in August 2012. We likewise need not
address how the additional year of coverage might have interacted with the 183-day death
benefit extension period.
14
Because J&J no longer argues that October 12, 2010, is the premium due date, as
it argued below, we do not address this issue.
14
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rights under the Policy had terminated nearly a year before the insured’s death
in August 2012.
The language of § 22:905 and Regulation 36 lead us to our conclusion that
February 11, 2011, is the operative date for calculating notice. This conclusion
is consistent with § 22:905’s purpose and the relevant caselaw.
The parties do not dispute that § 22:905 applies, since the Policy was “not
issued upon the payment of monthly or weekly premiums or for a term of one
year or less.” La. Rev. Stat. Ann. § 22:905(A); see First Am. Bank & Trust, 10
F.3d at 335 n.6. We note, however, that the mechanics of applying § 22:905 in
the flexible premium policy context are far from clear, since, as our analysis
demonstrates, “due dates” and “premiums” are not straightforward when it
comes to flexible premium policies.15
Nonetheless, the language of § 22:905 points to the conclusion that
February 11, 2011, is the operative date because the premium was “payable” and
“due,” meaning that it was required to be paid, by that date. As noted earlier,
§ 22:905 addresses an insurer’s right to declare a policy “forfeited or lapsed . . .
for nonpayment when due of any premium . . . or any portion thereof.” La. Rev.
Stat. Ann. § 22:905(A). Section 22:905 requires notice fifteen to forty-five days
before the date when “any premium . . . required by the terms of the policy to be
paid” is “payable.” Id. A “premium” is “all sums charged, received, or deposited
as consideration for the purchase or continuance of insurance . . . .” Id.
§ 22:46(13).
15
In fact, the various states’ insurance commissioners have roundly rejected the
applicability of “due dates,” as they are commonly understood, to flexible premium policies.
See Variable Life Insurance Model Regulations § 4(D) cmt. at 270-48 (Nat’l Ass’n Ins. Comm’rs
1996) (“[T]he concepts of a discrete, identifiable premium due date and of a premium in
default—which are readily defined and easily applied in the context of fixed life insurance and
traditional variable products—are inadaptable to flexible premium products.”).
15
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The terms “payable” and “due” are not defined in § 22:905. Additionally,
“payable” is susceptible to multiple meanings when used in the context of a
premium being “payable,” principally required to be paid or capable of being
paid.16 When the terms “payable” and “due” are used in reference to a particular
date—“payable” or “due” by a certain date—they are best understood, both in the
context of other provisions of the Insurance Code and in general parlance, as
meaning required to be paid.17 See La. Civ. Code art. 11 (“The words of a law
must be given their generally prevailing meaning.”); id. art. 12 (“When the words
of a law are ambiguous, their meaning must be sought by examining the context
in which they occur and the text of the law as a whole.”).
We must next determine if, in the flexible premium context, required to be
paid means the date the policyholder was required to pay in order to maintain
a positive cash value for a policy (i.e., December 12, 2010), or the date the
policyholder was required to pay in order to avoid a policy’s termination (i.e.,
February 11, 2011). This inquiry is likewise complicated by the inapplicability
of the concept of due dates in the context of flexible premiums. With a flexible
16
See Black’s Law Dictionary 1243 (9th ed. 2009) (defining “payable” as follows: “[T]hat
is to be paid. An amount may be payable without being due.”); 11 Oxford English Dictionary
378 (2d ed. 1989) (1.a. “Of a sum of money, bill, tax, etc.: that is to be paid; due, owing; falling
due (at or on a specified date, or to a specified person).”; 1.b. “That can be paid; capable of
being paid . . . .”).
17
For example, see the following uses of the term “payable” in the Insurance Code with
respect to an amount being “payable” by a specific time:
In the event of withdrawal of a foreign or alien insurer, as provided in [La. Rev.
Stat. Ann. §] 22:341, at year end, the tax for the preceding year shall be due and
payable within sixty days.
La. Rev. Stat. Ann. § 22:844(C).
The fee for the catastrophe or emergency registration shall be as set forth in
[La. Rev. Stat. Ann. §] 22:821 and shall be payable to the commissioner of
insurance within ten days of the submission of the registration.
Id. § 22:1667(D). See also 11 Oxford English Dictionary 378 (2d ed. 1989) (“Of a sum of money
. . . falling due (at or on a specified date . . . ).”).
16
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premium policy, an insured might make a payment once every year, or even once
every several years, which would be acceptable so long as the cash value
remained sufficient to maintain the policy.18
The language of § 22:905 supports the conclusion that the payment that
is “due,” “payable,” and required to be paid is the payment at the end of the grace
period, on February 11, 2011. Section 22:905 addresses “default in payment of
any premium” that is “required by the terms of the policy to be paid.” In the
flexible premium context, the only payments required are those that are
sufficient to maintain the policy. Therefore, the payment “required by the terms
of the policy to be paid” is the payment necessary to prevent the Policy from
terminating. Here, that is the payment on February 11, 2011, at the conclusion
of the grace period. The insured’s failure to make a payment on December 12,
2010, only resulted in the Policy entering a sixty-one-day grace period. The
Policy was capable of being paid on December 12, 2010, but it was not required
to be paid at that point. Thus, payment was “due” and “payable” on February
11, 2011.
J&J argues that premiums were due on December 12, 2010, because that
is when “the policy lacked sufficient value to maintain coverage and lapsed.” To
keep a policy in force, J&J contends, a payment must be made at the time the
cash surrender value drops below zero dollars.19 We disagree. The Policy merely
entered a grace period on December 12, 2010—as it had done more than twenty
18
In fact, the record here demonstrates that J&J made no payments during the year
between April 12, 2003, and April 13, 2004, yet the Policy continued because the cash value
remained sufficient to cover the Policy costs.
19
J&J cites the following statement from Conseco’s motion for summary judgment in
support of its argument: “A flexible premium policy will remain in force only as long as there
is sufficient cash value in the policy to cover the monthly cost of insurance and expense charge
deductions.”
17
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times before. The Policy did not terminate for nonpayment of premiums until
February 11, 2011. Therefore, the premiums were “payable” on that date.
J&J contends that because an insurer sends a grace notice during a grace
period, and a grace period by definition only begins after a premium is past due,
then the premiums here were “due” on December 12, 2010. To the contrary,
Turner, which we find compelling, indicates that a grace notice, sent during a
grace period, can satisfy § 22:905 with respect to a policy termination that will
come at the conclusion of the grace period.20 Further, the Policy’s grace period
provision makes clear that the grace period is triggered not by a past due
premium payment, but by “the cash surrender value on a monthly anniversary
day . . . not cover[ing] the next monthly deduction.”
J&J cites Boring to support the proposition that “payable,” as used in
§ 22:905, should be defined as “due,” such that the premium was “due” on
December 12, 2010.21 In particular, J&J quotes the following language from the
case: “It is clear from the language of [§ 22:905’s predecessor] that this notice to
20
In Turner, the insured took out a flexible premium policy and elected to make $5,000
annual payments. 822 F. Supp. 2d at 635. The insurer sent the insured a grace notice when
the cash surrender value of the policy dropped too low to cover the next monthly deduction.
Id. The insurer sent this notice sixty-one days prior to the policy’s termination, and did not
send another notice. Id. The district court concluded that the notice did not satisfy § 22:905’s
requirements because it was not sent during the fifteen- to forty-five-day window. Id. at 638.
Thus, the court held that the insurer’s notice failed not because the notice was sent after the
grace period began, but because the notice was not sent during § 22:905’s window.
21
In Boring, the policyholder made semi-annual payments on a life insurance policy.
97 So. at 857. On July 25, 1918, he sent a check to the insurer paying just under half of the
semi-annual premium, and enclosed a promissory note to the insurer for the remainder of the
premium, “payable” on September 25, 1918. Id. The insurer responded on July 26, 1918,
enclosing a note for the policyholder to sign and return to the insurer. Id. The insurer did not
send any subsequent letter or notice to the policyholder regarding the September 25, 1918
premium due date. Id. The insurer sent a letter on October 22, 1918, declaring the policy
forfeited. Id. The policyholder died on October 23, 1918. Id. at 856. The court concluded that
the insurer’s July 26 letter did not satisfy the notice requirements of § 22:905’s predecessor,
both because it was sent more than forty-five days before September 25, 1918, and because it
did not contain information required by the statute. Id. at 857.
18
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the insured is necessary where the premium, interest, installment or portion
thereof, is due on the policy.” 97 So. at 857 (emphasis added).
This argument is unpersuasive, and Boring is inapplicable. The policy in
Boring called for semi-annual premiums with set due dates, whereas the Policy
at issue is a flexible premium policy with no premium due dates. As such,
Boring offers no guidance on how to interpret the “due dates” here. Additionally,
we find it more persuasive to consider the “premium” “payable” and “due” on
February 11, 2011, when the Policy would terminate without another payment,
rather than December 12, 2010.
We find Time Ins. Co. v. Vick, 620 N.E.2d 1309, 1315–17 (Ill. App. Ct.
1993), on which the district court relied, likewise distinguishable.22 The district
court cited Vick to support the proposition that notice must be given at least
fifteen days before a premium due date, as opposed to “after the premium is
overdue, such as with a grace period.” However, Vick is inapposite. First, the
policy in Vick was for term life insurance, meaning the insurance policy called
for specific monthly or quarterly premium due dates. Here, the Policy was a
flexible premium policy, and as such, had no defined “due dates.” As a result,
22
In Vick, the policyholder took out a term life insurance policy with premiums due on
a monthly, and later a quarterly, basis. Id. at 1310. The insurer sent the policyholder a
premium notice on March 8, 1986, regarding a premium due on April 1, 1986. Id. at 1317.
The policyholder did not send the April 1 premium until June 10, 1986, by which point the
policy had lapsed. Id. at 1311. The insurer reinstated the policy on July 29, 1986, after the
policyholder sent in a reinstatement application. Id. The policyholder died on that same date
from self-induced alcohol and thioridazine overdose. Id. The insurer sought a judicial
rescission of the policy reinstatement due to misrepresentations in the reinstatement
application about the policyholder’s medical history and prior hospitalizations for alcoholism.
Id. The policyholder’s beneficiary contended that the insurer’s March 8 notice did not satisfy
the relevant notice provision of Illinois’s Code, which provided than an insurer could not
declare a policy forfeited or lapsed within six months after default unless notice was sent “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 . . . .” Id. at 1316 (quotation marks and
citation omitted). The court concluded that the insurer’s March 8 notice satisfied the statute’s
requirement. Id. at 1317.
19
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Vick is not instructive in determining on which date the Policy “premium” was
“payable.” Second, the statute in Vick expressly provided that an insurer must
send notice “before the beginning of the period of grace.” Section 22:905 contains
no such requirement. To the contrary, we find that in the context of flexible
premium policies, a notice sent during a grace period can satisfy § 22:905.
Regulation 36 also supports our conclusion. By promulgating Regulation
36, which outlines notice requirements for flexible premium policies, the
Louisiana Insurance Commissioner provided guidance on applying § 22:905 in
the context of flexible premium policies, and offered additional protection for
policyholders. Regulation 36 extends the notice period to at least thirty days,
La. Admin. Code tit. 37, § 8511(A)(6)(a), makes the notice period and grace
period contemporaneous, id. § 8511(A)(6)(a)–(b), and further requires flexible
premium insurers to provide annual reports setting out a policy’s status,
including whether the policy will terminate before the end of the reporting
period if no further premium payments are made, id. §§ 8511(A)(1)–(2), 8513,
8515.
There is no question that Conseco complied with these requirements. J&J
was afforded each of these protections. Unfortunately, J&J missed each
opportunity to pay the premium necessary to maintain the Policy. Given
Conseco’s compliance with the notice requirements, J&J cannot convincingly
claim that Conseco failed to provide it with fair notice.
Thus, our conclusion is consistent with the Louisiana Legislature’s intent
in enacting § 22:905—“to protect the insured from losing coverage due to mere
inadvertence and to give the insured a fair chance to meet the payments when
due.” Turner, 822 F. Supp. 2d at 637 (quotation marks omitted). As a result, our
conclusion remains faithful to the core concern of Louisiana’s statutory
interpretation rules. See SWAT 24, 808 So. 2d at 302.
20
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We note that providing legally adequate notice before the beginning of a
grace period is a practical impossibility if a policyholder makes a withdrawal
from a policy less than fifteen days before a monthly anniversary day. Although
a policyholder seeking to defraud an insurer in this way might not benefit from
§ 22:905’s penalty for violating the notice requirement due to equitable reasons,
the consequences of this scenario highlight the unworkability of the “due date”
concept in flexible premium policies.
Further, requiring the insurer to give yet another notice, prior to the grace
period, is unnecessary when the grace notice itself is sufficient to put the insured
on notice that the policy will terminate without further payments. The grace
notice comes in addition to annual policy reports, as required under Regulation
36, that inform the insured of the policy’s net cash surrender value and alert the
insured if that value “will not maintain insurance in force until the end of the
next reporting period unless further premium payments are made.” La. Admin.
Code tit. 37, § 8515(A)(2)(h). The Policy at issue entered the grace period
twenty-two times, and J&J made the necessary payment to maintain coverage
twenty-one times. The fact that J&J failed to do so once is not reason enough to
graft an additional reporting requirement onto § 22:905 and Regulation 36.
Additionally, we consider the reasoning of the New York State Insurance
Department (NYSID) in reconciling nearly identical statutory and regulatory
notice requirements in the flexible premium context, because we find it the type
of “persuasive data” that the Louisiana Supreme Court might consider.23
23
The district court did not consider this argument because it concluded that Conseco
could have made the argument during the summary judgment stage, but failed to do so. We
are doubtful whether Conseco’s mere citation to a new authority constitutes a new argument.
Nonetheless, we conclude that Conseco properly presented the NYSID argument to the district
court for the first time in its motion to alter or amend the judgment, because Conseco was
supporting its contention that the district court had made a legal error in ruling that
December 12, 2010, was the correct date for the purposes of § 22:905—a date that neither
party had argued for at the summary judgment stage. As such, the district court could (and
should) consider the argument and we, on appeal, may also consider it.
21
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Learmonth, 710 F.3d at 258. NYSID determined that an insurer could satisfy
the requirements of New York’s equivalent of both § 22:905 and Regulation 36
by sending a single notification after a flexible premium policy’s grace period
begins, and fifteen to forty-five days before it ends. N.Y. Ins. Dep’t Circular
Letter No. 7, “Statutory Reference: Insurance Law Section 3211, Regulation 77”
(Apr. 10, 2008), superseded by N.Y. Ins. Dep’t Circular Letter No. 21, “Statutory
Reference: Insurance Law Sections 3203, 3211 and 4510” (Oct. 6, 2008).24
Finally, we conclude that the Policy did not enter a second grace period
following the February 11, 2011 termination date, contrary to the district court’s
suggestion in its ruling on Conseco’s Rule 59(e) motion. Regulation 36 does
require flexible premium policies to provide a thirty-day grace period after lapse,
where “lapse,” “[u]nless otherwise defined in the policy, . . . occur[s] on that date
on which the net cash surrender value first equals zero.” La. Admin. Code tit.
37, § 8511(A)(6)(b). However, we find unpersuasive any argument that the
Policy redefined the term “lapse” such that it “lapsed,” for Regulation 36’s
purposes, on February 11, 2011, rather than on December 12, 2010, and thereby
triggered Regulation 36’s thirty-day grace period. For Regulation 36’s purposes,
the Policy lapsed on December 12, 2010, the “date on which the net cash
surrender value first equal[ed] zero.” Conseco satisfied Regulation 36 by
providing a grace period of sixty-one days.
24
New York subsequently amended its insurance laws to harmonize the statutory and
regulatory notice requirements along the lines recommended in the circular letter. See 2008
N.Y. Sess. Laws 887 (McKinney). The revised notice statute contains separate timing
provisions for “scheduled premium policies” and for “life insurance policies in which the
amount and frequency of premiums may vary,” i.e., flexible premium policies. N.Y. Ins. Law
§ 3211(a)(1) (McKinney 2008). Under these amended laws—also “persuasive data”—in the
flexible premium context, an insurer must send notice within thirty days “after the day when
the insurer determines that the net cash surrender value under the policy is insufficient to pay
the total charges that are necessary to keep the policy in force.” Id. Conseco would have
satisfied this requirement, since it sent the grace notice on January 6, 2011, within thirty days
of December 12, 2010, the day Conseco determined that the Policy’s net cash surrender value
would be insufficient to keep the Policy in force.
22
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V. CONCLUSION
For the aforementioned reasons, we REVERSE the judgment against
Conseco and REMAND for entry of judgment in its favor.
23