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

CONTRACT FORMATION GENERALLY 

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 POLICY IS A CONTRACT 

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 

INSURANCE COVERAGE TERMINATED BECAUSE PREMIUMS WAS NOT PAID 

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 322; Walker, 828 S.W.2d at 447; Zuniga, 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 447; Viking 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 990; Hartland, 290 S.W.3d at 322; Walker, 828 S.W.2d at 447; Zuniga, 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 

Interpretation of insurance policies (contract construction) (Tex. 2015)

       

CONTRACT CONSTRUCTION - INSURANCE POLICY

    

An insurance policy is a contract, generally governed by the same rules of construction as all other contracts. Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010). When construing a contract, our primary concern is to ascertain the intentions of the parties as expressed in the document. Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 514 (Tex. 2014). We begin our analysis with the language of the contract because it is the best representation of what the parties mutually intended. Gilbert Tex. Constr., 327 S.W.3d at 126; see also Anglo-Dutch Petroleum Int’l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 445, 451 (Tex. 2011). Unless the policy dictates otherwise, we give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage. See Gilbert Tex. Constr., 327 S.W.3d at 126; Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). We strive to give effect to all of the words and provisions so that none is rendered meaningless. See Gilbert Tex. Constr., 327 S.W.3d at 126; Forbau, 876 S.W.2d at 133. “No one phrase, sentence, or section [of a contract] should be isolated from its setting and considered apart from the other provisions.” Forbau, 876 S.W.2d at 134 (quoting Guardian Trust Co. v. Bauereisen, 121 S.W.2d 579, 583 (Tex. 1938)).

     

When construing an insurance policy, we are mindful of other courts’ interpretations of policy language that is identical or very similar to the policy language at issue. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 824 (Tex. 1997). “Courts usually strive for uniformity in construing insurance provisions, especially where . . . the contract provisions at issue are identical across the jurisdictions.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 522 (Tex. 1995); see also Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 496–97 (Tex. 2008) (“We have repeatedly stressed the importance of uniformity ‘when identical insurance provisions will necessarily be interpreted in various jurisdictions.’”) (quoting Cowan, 945 S.W.2d at 824).

   

RSUI and Lynd offer conflicting constructions of the Scheduled Limit of Liability endorsement. If only one party’s construction is reasonable, the policy is unambiguous and we will adopt that party’s construction. See Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 459 (Tex. 1997). But if both constructions present reasonable interpretations of the policy’s language, we must conclude that the policy is ambiguous. See id. at 458; Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998). In that event, “we must resolve the uncertainty by adopting the construction that most favors the insured,” and because we are construing a limitation on  

coverage, we must do so “even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties’ intent.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991). “This widely followed rule is an outgrowth of the general principle that uncertain contractual language is construed against the party selecting that language,” and is “justified by the special relationship between insurers and insureds arising from the parties’ unequal bargaining power.” Balandran, 972 S.W.2d at 741 n.1 (citing STEVEN PLITT, ET AL., 2 COUCH ON INSURANCE § 22.14 (3d ed. 1997); Arnold v. Nat’l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987)).

In contract law, the terms “ambiguous” and “ambiguity” have a more specific meaning than merely denoting a lack of clarity in language. Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951). “An ambiguity does not arise simply because the parties offer conflicting interpretations.” Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003). Instead, “a contract is ambiguous only when the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.” Daniel, 243 S.W.2d at 157; see Balandran, 972 S.W.2d at 741. Thus, a contract is ambiguous only if, after applying the rules of construction, it remains “subject to two or more reasonable interpretations.” Balandran, 972 S.W.2d at 741. Our task in this case is to determine whether Lynd’s construction of the RSUI policy is reasonable. If it is, we must enforce that construction, even if RSUI’s construction is also reasonable. 

SOURCE: Texas Supreme Court – No. 13-0080 - 5/8/2015  

Conclusion

We hold that the Scheduled Limit of Liability endorsement at issue in this case is reasonably subject to both parties’ proposed constructions and that the endorsement is therefore ambiguous. Because our rules require us to construe an insurance policy’s ambiguous coverage limitation in favor of coverage for the insured, we affirm the court of appeals’ judgment adopting Lynd’s proposed construction. 

SOURCE: RSUI Indemnity Company v The Lynd Company, No. 13-0080 (Tex. May 8, 2015)

(Opinion by Boyd)(Hecht wrote a dissenting opinion)