Tuesday, January 10, 2017

Insurer not liable under life insurance policy when premium was not paid and grace period for reinstatement had expired


Whether an alleged agreement constitutes an enforceable contract is generally a question of law. Searcy v. DDA, Inc., 201 S.W.3d 319, 322 (Tex. App."Dallas 2006, no pet.). The elements of a valid and enforceable contract are: (1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution and delivery of the contract with the intent that it be mutual and binding. Id.


Insurance policies are contracts and are controlled by the same general rules that govern contract construction. See Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987)Columbia Cas. Co. v. CP Nat'l., Inc., 175 S.W.3d 339, 343 (Tex. App.-Houston [1st Dist.] 2004, no pet.). The elements of a valid contract are (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. See Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.-Houston [1st Dist.] 2002, pet. denied). To establish a valid contract, a plaintiff must prove that the parties agreed on all of the essential terms of the contract and the essential terms were sufficiently certain so as to define the parties' legal obligations. See Nickerson v. E.I.L. Instruments, Inc., 874 S.W.2d 936, 939 (Tex. App.-Houston [1st Dist.] 1994, writ denied). To establish a claim for breach of contract, a plaintiff must prove (1) the existence of a valid contract between the plaintiff and the defendant, (2) the plaintiff's performance or tender of performance, (3) the defendant's breach of the contract, and (4) the plaintiff's damages as a result of the breach. See Prime Products, 97 S.W.3d at 636.

SOURCE: HOUSTON COURT OF APPEALS - No. 01-12-00168-CV. - 2/27/2014 


As a matter of law, the insurance provided by the Policy "end[ed]" and was not "in force" after the end of the grace period. See MacIntire v. Armed Forces Benefit Ass'n, 27 S.W.3d 85, 89 (Tex. App.-San Antonio 2000, no pet.) (stating that when grace period passes without payment of defaulted premium, insurance policy lapses and terminates); P.M. Baker v. Penn. Mut. Life Ins. Co., 617 S.W.2d 814, 816 (Tex. Civ. App.-Houston [14th Dist.] 1981, no writ). Moreover, by its express terms, the lapsed Policy terminated upon the death of Dr. Lombana.

An insurance policy constitutes a contract for the period of time that is covered in the contract. See Hartland v. Progressive Cnty. Mut. Ins. Co., 290 S.W.3d 318, 322 (Tex. App.-Houston [14th Dist.] 2009, no pet.)Zuniga v. Allstate Ins. Co., 693 S.W.2d 735, 738 (Tex. App.-San Antonio 1985, no writ)Harrington v. Aetna Cas. & Sur. Co., 489 S.W.2d 171, 176 (Tex. App.-Waco 1972, writ. ref'd n.r.e.). Thus, the Policy insured Dr. Lombana's life only during the policy period. And, for an insurance contract to be renewed, the insurer's renewal offer must be accepted by the insured completely and unequivocally. Hartland, 290 S.W.3d at 322.

It is well settled that the payment of premiums is a condition for acceptance of an insurance contract, necessary for contract formation. See id. Thus, under Texas law, the payment of premiums is a condition precedent to the existence of liability of the insurer. See id.; Walker v. Federal Kemper Life Assur. Co., 828 S.W.2d 442, 449 (Tex. App.-San Antonio 1992, writ denied). If an insured fails to meet the condition of premium payment, the policy expires. Southland Life Ins. Co. v. Hopkins, 244 S.W. 989, 990 (Tex. Comm'n App. 1922, judgm't adopted) (holding that failure to pay premium "would ipso facto terminate all liability" under insurance policy); Hartland, 290 S.W.3d at 322Walker, 828 S.W.2d at 447Zuniga, 693 S.W.2d at 738. Here, Lombana presented no evidence that she paid the premium due on April 28, 2008 or at any time during the thirty-one day grace period that followed. In fact, Lombana admitted that she did not pay the premium and acknowledged that the Policy had lapsed for nonpayment of the premium as of April 28, 2008.

Because Lombana did not pay the Policy premium, the condition for acceptance of the contract was not met. See Walker, 828 S.W.2d at 447Viking Cnty. Mut. Ins. Co. v. Jones, No. 05-91-01815-CV, 1992 WL 211068, at *3 (Tex. App.-Dallas Aug. 31, 1992, no writ) (mem. op., not designated for publication) (offer by insurer to renew insurance contract must be accepted completely and unequivocally by insured to constitute new contract); Zuniga, 693 S.W.2d at 738 (renewal policy never came into existence because insured did not make payments in accordance with policy terms); So. Farm Bureau Cas. Ins. Co. v. Davis, 503 S.W.2d 373, 377 (Tex. App.-Amarillo 1973, writ ref'd n.r.e.) (offer for renewal of auto insurance could not come to fruition until premium was paid); Trinity Universal Ins. Co. v. Rogers, 215 S.W.2d 349, 352 (Tex. App.-Dallas 1948, no writ)(contract not completed when insured did not indicate acceptance of renewal policy). Thus, by its own terms, the Policy lapsed and the insurance "end[ed]" when Lombana failed to pay the premiums by the end of the thirty-one day grace period. See Hopkins,244 S.W. at 990Hartland, 290 S.W.3d at 322Walker, 828 S.W.2d at 447Zuniga, 693 S.W.2d at 738.

In sum, because Lombana failed to pay the requisite premiums as per the terms of the Policy, the Policy lapsed, the insurance ended, and the Policy terminated upon the death of Dr. Lombana on April 30, 2009. Dr. Lombana's life had not been insured since April 29, 2008, for just over twelve months prior to his date of death. Therefore, Lombana cannot establish an essential element of her breach of contract claim, i.e., the existence of a valid contract. Accordingly, we hold that the trial court did not err in granting AIG summary judgment on Lombana's claim for breach of contract.

We overrule Lombana's second issue.

SOURCE: HOUSTON COURT OF APPEALS - No. 01-12-00168-CV. - 2/27/2014 

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