Failure of Proposed Insured Stay Alive Until Policy Delivered Costs Fiance Almost $5 Million

Barry Zalma
Jun 20, 2023

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On January 27, 2021, Dr. Travis Richardson completed an application for an individual life insurance policy with Pacific Life seeking $4,816,949.00 in coverage. Blevins was Dr. Richardson’s fiancé and was listed as the primary beneficiary of the policy. Lamar Breshears was the insurance agent for Pacific Life. Champion Agency (“Champion”) handled details. Dr. Richardson died unexpectedly before the policy was delivered and the insurer refused to pay.

In Pacific Life Insurance Company v. Katie Blevins, No. 3:21-CV-00143 JM, United States District Court, E.D. Arkansas, Northern Division (June 15, 2023} the USDC resolved the claim of the beneficiary.

FACTS

On February 1, 2021, Champion transmitted Dr. Richardson’s application to Pacific Life with the instructions to process the application and to mail the policy to Champion at its office in Albuquerque, New Mexico. Pacific Life received Dr. Richardson’s application on February 2, 2021. On March 11, 2021, Pacific Life’s underwriting department approved Dr. Richardson for Policy and the initial monthly premium of $16,668.68 was paid. The same day that the policy was approved, Pacific Life uploaded an electronic copy of the policy to its Planned Performance Tracking portal (the “PPT portal”).

On March 12, 2021, Dr. Richardson emailed Breshears and asked him when the policy was active. Breshears responded the same day, stating, “Today. If you were to die today, the policy would pay out a death benefit.” Breshears was wrong because Dr. Richardson died unexpectedly on March 14, 2021.

The physical policy was received by Champion March 15, 2021. Pacific Life refunded the initial premium payment on March 25, 2021, taking the position that the policy was not “in force” at the time of Dr. Richardson’s death because it had not been “delivered” as required by the application and policy.

ANALYSIS

It was undisputed that delivery of the policy was a valid condition precedent to Blevins being entitled to receive payment under the policy. The application states that: “[c]overage will take effect when the Policy is delivered and the entire first premium is paid only if at that time each Proposed Insured is alive, and all answers in this Application are still true and complete.” (emphasis added.).

The policy, which incorporates the application, states that a Policy is in effect and provides a Death Benefit on the Insured on the date the Policy and associated riders become effective. The Policy Date for this policy was March 11, 2021 a date before Dr. Richardson died.

Pacific Life claimed that delivery of the policy required Dr. Richardson to have received and accepted a physical copy of the policy. It is undisputed that this did not happen, and Pacific Life sought summary judgment. The Court found that there were no material facts in dispute and agreed that the policy was not delivered.

The fact that the challenged terms are not defined does not make them vague and ambiguous.

Importantly, the USDC noted that the policy must be read as a whole, and effect given to all provisions. Construction that neutralizes any provision of a contract should never be adopted if the contract can be construed to give effect to all provisions. The policy in question unambiguously state that it is in force (defined as meaning in effect and paying death benefits), “subject to your acceptance of the delivered policy and payment of the initial premium.” (emphasis added).

While the term “policy date” clearly was confusing even to Breshears, it did not neutralize the delivery and acceptance requirements.

In addition to the delivery requirement, the application stated that coverage under the policy would take effect when it was delivered “only if at that time” the proposed insured was alive and “all answers in this Application are still true and complete.” Under Arkansas law, “if the policy was mailed [to the agent] unconditionally for the sole purpose of delivery to the assured,” the mailing of the policy from the insurance company to the agent would constitute constructive delivery. The burden of proof to show that the policy was unconditionally delivered to the agent for delivery to the insured is on the plaintiff.

Breshears testified that he understood delivery of the policy to mean “physically sending the policy to the client,” and that a “hundred percent of his policies have been delivered by paper.” Pacific Life has established that it physically mailed the policy to Champion pursuant to the instructions it received with the transmittal of Dr. Richardson’s application. Included with the mailed policy were a delivery receipt and an amendment to the application to correct minor inaccuracies. Blevins did not establish that there is a genuine issue of material fact on the issue of constructive delivery of the policy.

Since at that time the outstanding delivery requirements had not been communicated to Breshears or Champion at that time, she argues that those delivery requirements were waived. However, that does not support her claim that the precondition of delivery itself was waived.

The Court has no doubt that Dr. Richardson, Breshears, and Blevins believed that Dr. Richardson was covered under the policy as of March 11, 2021. However, Pacific Life’s motion for summary judgment was granted.

ZALMA OPINION

People buy life insurance because they recognize that life is a disease from which all humans suffer. We all, eventually, die. Dr. Richardson wanted to protect his fiance and applied for a life insurance policy that he expected to have for many years only to die before the policy was delivered to him. Insurance policies must be read as a whole. In this case, the policy never came into effect because he was not alive when the policy was delivered. A sad result but on its face a correct decision.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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