Consequences of Payment After Grace Period for Insurance Premium
An insured's failure to pay premiums when they come due causes the insurance policy to lapse and become ineffective. See Walker v. Federal Kemper Life Assurance Co., 828 S.W.2d 442, 447 (Tex. App.-San Antonio 1992, writ denied).
When a grace period on a policy passes without payment of the defaulted premium, the policy lapses and terminates. See P.M. Baker v. Penn Mutual Life Ins. Co., 617 S.W.2d 814, 815 (Tex. Civ. App.-Houston [14th Dist.] 1981, no writ).
This court has held that an insurance company need not advise an insured that his policy has lapsed. See Cantu v. Southern Life & Health Ins. Co., 360 S.W.2d 812, 813 (Tex. Civ. App.-San Antonio 1962, no writ). the Cantu court left open the possibility, however, that waiver or estoppel might prevent a lapse and keep the policy in force. See id.
"Waiver by custom and estoppel are the same concept." Blanton v. John Hancock Mut. Life Ins. Co., 345 F. Supp. 168, 170 (N.D. Tex. 1971), aff'd per curiam, 463 F.2d 421 (5th Cir. 1972).
"In the absence of any agreement to that effect," waiver results "from negotiations or transactions with the insured, after knowledge of the forfeiture, by which the insurer recognizes the continued validity of the policy or does acts based thereon." See Equitable Life Assurance Society v. Ellis, 105 Tex. 526, 536-37, 147 S.W. 1152, 1156 (1912).
An insurer's acceptance of premium payments "beyond the grace period does not constitute a waiver of the provisions of the forfeiture clause for nonpayment of premiums, and a company who accepts late premiums does not waive the forfeiture clause in any future situation." Blanton, 345 F. Supp. at 170 (citing Great Southern Life Insurance Company v. Peddy, 139 Tex. 245, 162 S.W.2d 652 (1942)).
In P.M. Baker, the insured defaulted on his 1979 premium. See P.M. Baker, 617 S.W.2d at 814.
The carrier sent a notice of default and an offer to reinstate the policy to the insured. See id. the offer expired on April 6, 1979. See P.M. Baker, 617 S.W.2d at 815.
The insured died on March 30, 1979, "after the end of the grace period for premiums in default and before any action was taken by the insured." Id.
The court explained that the reinstatement offer did not keep the policy in force after the lapse; "it only gave the insured an opportunity to reinstate coverage without penalty." P.M. Baker, 617 S.W.2d at 816.
When the insured died prior to the beneficiary's attempt to reinstate the policy, the doctrine of estoppel could not be used "to create a contract which terminated before the acts were committed." Id.
Similarly, an insurance company that cashed a late payment check "after the expiration of the late payment offer but before the insured's death" could not waive termination by such acts after the insured died. See Allstate Ins. Co. v. Mooney, 562 S.W.2d 950 (Tex. Civ. App.-Amarillo 1978, writ ref'd n.r.e.)).