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Lynch v. North American Company for Life and Health Insurance

United States District Court, D. Idaho

January 10, 2018

KRISTI LYNCH, Plaintiff,
KRISTI LYNCH, Counterdefendant.




         Before the Court is North American Company for Life and Health Insurance's motion for summary judgment (Dkt. 48), and Kristi Lynch's motion to strike the Affidavit of John Robbins (Dkt. 64).[1] Lynch was the owner and beneficiary of a life insurance policy she claims was prematurely terminated without proper notice. North American seeks summary judgment on Lynch's claims, and its counterclaim for declaratory relief on the grounds that the life insurance policy it had issued was properly terminated. The Court conducted a hearing on the motions on December 12, 2017. After hearing oral argument, reviewing the parties' memoranda, and researching relevant authorities, the Court will deny North American's motion for summary judgment, and sustain, in part, Lynch's evidentiary objection to the affidavit.[2]


         Kathleen Kelly Sharpe (the “Insured”) applied for a $750, 000 life insurance policy on or around September 13, 1989, listing Kristi Lynch, the Insured's stepdaughter, as owner and beneficiary. John Cookman, then a broker at MCN Insurance Brokers, Inc., helped the Insured complete the application. Cookman submitted the application to CPS Insurance Services, that in turn submitted the application to North American. A flexible premium adjustable life insurance policy, policy number LW00006377, was issued to Lynch, on or around November 7, 1989 (the “Policy”). The Policy has a Specified Amount of $750, 000 and, per the Application, names Lynch as owner and beneficiary. The Policy's planned periodic premium was $9, 625 annually.

         The Policy's terms provide that, after November 7, 2004, the Policy will lapse when the surrender value is insufficient to cover the next monthly deduction. Upon a lapse, the Policy will enter a 61-day grace period during which the owner may make a premium payment to keep the Policy in force and avoid termination. The Policy further provides:

Notice of the premium required to keep the policy in force is mailed to your last known address at least 30 days prior to termination. Such premium is due on such Monthly Anniversary Day and if not paid within the grace period, all coverage under this policy terminates without value at the end of the 61 day period.

         Lynch's mailing address has been the same post office box in Picabo, Idaho, since late 2011. Lynch made regular premium payments from November 1989 to November 2006, but did not make any payments from December 2006 to December 2009. Lynch also tendered a partial surrender of $14, 716 on or around September 24, 2009, to receive a check in that amount. The Policy then entered a grace period on December 7, 2009, and North American sent Lynch a grace notice informing her she had to remit either the planned periodic premium or at least $626.88 to prevent the Policy from terminating. The grace notice also informed Lynch that sending the $626.88 “minimum payment will provide coverage for this month only and will not prevent your policy from entering the 61 day grace period again next month, perhaps for a different amount. This minimum payment will not provide for the planned long term performance of your policy.” The grace notice further instructed Lynch to contact North American if she had questions about her premiums or the Policy's performance. Lynch did not contact North American but instead made the minimum $626.88 payment on or around January 5, 2010.

         Lynch did call North American on at least two occasions. On September 2, 2010, she called North American inquiring about a personal “note” she found that discussed premium payments. Lynch also called North American on August 12, 2011, because she had misscheduled a payment and was afraid the policy had lapsed. The North American representative suggested that Lynch set up automatic payments. Although North American sent Lynch paperwork to do so, Lynch did not follow through on the suggestion. Lynch instead continued to make either a minimum payment or a payment in an amount not indicated in the Policy or any grace notice, causing the Policy to enter a grace period on numerous occasions.

         North American sent Lynch 36 grace notices between December of 2009 and May of 2015.[4] Each grace notice contained the same or similar information as the December 7, 2009 grace notice. The Policy entered another grace period on June 7, 2015, because the monthly deduction exceeded the Policy's surrender value. North American asserts it mailed a grace notice to Lynch on June 8, 2015, following its standard mail room procedures.

         John Robbins, Associate Vice President for Life and Variable Services for North American's parent company, Sammons Financial Group Member Companies, submitted an affidavit describing North American's mail room procedures. As Associate Vice President, Robbins oversees the Policy Billing and Accounting Team. The Policy Billing and Accounting Team is responsible for all billing procedures and matters, including the generating, issuing, and mailing of grace notices and termination of policies. Accordingly, Robbins testified he has “firsthand knowledge of the policies, procedures, and processes for generating, issuing, and mailing grace notices North American had in effect before, during, and after June of 2015.” Robbins Aff. ¶ 4. (Dkt. 50 at 3.)

         In his affidavit, Robbins explains that, “[p]er North American's policies and procedures, June 7, 2015, was a Sunday so North American's computer system (“LifeComm”) reviewed the Policy on June 8, 2015, and determined the Policy had entered a grace period.” Robbins Aff. ¶ 19. Robbins explained that LifeComm then printed three grace notices - the Owner Grace Notice to send to Lynch (the “Lynch Grace Notice”), the Agent Grace Notice to send to CPS Insurance Services, Inc. (the “CPS Grace Notice”), and the File Copy Grace Notice for North American to retain (collectively, the “Grace Notices”) - in the computer room. Id. ¶ 21.

         The addresses of record for Lynch and CPS Insurance Services at the time were the post office box in Picabo, Idaho, and 4400 MacArthur Blvd 8th Floor, Newport Beach, CA 92660, respectively. The computer room routed all grace notices printed on June 8, 2015, including the Grace Notices, to Policy Billing and Accounting, which sorted the grace notices and delivered them to the Advanced Processing Support team (“APS”). Id. ¶ 26.

         Robbins indicated the grace notices would have then been placed in the outgoing mail bin, which the mail room picked up and delivered to North American's mailing vendor. North American's mailing vendor next would have used a folding machine to place the grace notices in envelopes, with the addresses printed on the grace notices visible through the envelope's window. The envelopes containing the Lynch and CPS Grace Notices were then run through a postage reader for postage and sent out as first class mail on June 9, 2015. Id. at 31.

         Neither the Lynch nor CPS Grace Notices were returned as undeliverable. Id. at 32. CPS Insurance Services received the CPS Grace Notice. The June 8, 2015 Grace Notice informed Lynch (and CPS) that a $2, 000 premium payment was received on May 19, 2015, but that a $935.18 “minimum additional premium” was required by August 7, 2015, to avoid termination of coverage. The grace notice also stated that:

Payment of the minimum additional premium reflected above to avoid termination of coverage will not prevent the Policy from entering another grace period on its next monthly deduction day. Also, please note that payment of any regularly scheduled planned premiums for which you may receive premium notices or which may be automatically paid from your bank account may no longer be sufficient to prevent your coverage from terminating. We strongly encourage you to contact your agent or our office at (877) 872-0757 to obtain additional information to assist you in determining a planned premium payment amount and schedule that reflects your current goals for the Policy.

         During their depositions, both Kristi Lynch and her husband, Philip Lynch, testified they did not know whether the June 8, 2015 Grace Notice was delivered to their post office box. More specifically, Kristi Lynch testified that:

Q. So going back to this big packet of grace notices.
A. Okay.
Q. From May 7th, if you could turn the page to June 8, 2015.
So the second to last page A. Oh, ok. Thank you.
Q. Uh-huh.
A. June 8th. Okay.
Q. Have you ever seen this grace notice before?
A. No, I have not.
Q. All right. Let's see. It's addressed to PO Box [] in Picabo, Idaho 83348. Is that correct?
A. That's correct.
Q. And it's dated June 8, 2015. Is that correct?
A. Yes.
Q. And so, to the best of your knowledge, is that an accurate address - mailing address, PO Box [] - A. Yes.
Q. - for you on or around June 8, 2015?
A. Yes.
Q. Do you know if this grace notice was received in the mail?
A. I have no idea.
Q. So maybe it was and maybe it ...

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