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Waldschmidt v. Reassure America Life Insurance Co.

Citations: 271 S.W.3d 173; 2008 Tenn. LEXIS 872; 2008 WL 4966717Docket: M2008-01133-SC-R23-CQ

Court: Tennessee Supreme Court; November 24, 2008; Tennessee; State Supreme Court

Original Court Document: View Document

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The Supreme Court of Tennessee addressed a certified question regarding the interpretation of Tenn. Code Ann. § 56-7-2303, specifically concerning the notice requirements for lapsed life insurance policies. The United States Bankruptcy Court for the Middle District of Tennessee sought clarification on whether the issuer of a deceased debtor's life insurance policy was exempt from these notice requirements because the premiums were paid monthly. The Court concluded that under Tenn. Code Ann. § 56-7-2303(d), policies with monthly or more frequent premium payments are exempt from the notice requirements outlined in § 56-7-2303(a). Since the debtor’s policy premiums were indeed payable monthly, the life insurance issuer was not obligated to notify the debtor or the trustee of any lapse in coverage. Consequently, the policy lapsed as per its terms before the debtor's death.

The case background includes that Robert W. McLean applied for a term life insurance policy with Allied Life Insurance Company in 1995, specifying monthly premium payments. Reassure America, the successor to Allied, notified McLean of an increased premium in 2006, which he continued to pay until July 2007. On July 19, 2007, creditors filed for McLean's involuntary bankruptcy, leading to the appointment of Robert H. Waldschmidt as trustee. Following the appointment, McLean’s bank accounts were frozen, resulting in a failure to pay the August premium. Reassure America informed McLean of this issue, warning that failure to pay could lead to a lapse in coverage. Waldschmidt subsequently requested a change of address for the policy correspondence.

Reassure America confirmed that a change of address would take effect on August 21, 2007. On September 5, 2007, the company notified Mr. McLean, through Mr. Waldschmidt, that his policy had lapsed due to non-payment of the premium due on August 5, 2007. The notice included instructions for reinstating the policy without evidence of insurability. Mr. McLean died on September 25, 2007, and there was no evidence that either Mr. Waldschmidt or Mr. McLean attempted to reinstate the policy. At the time of death, premiums for both August and September 2007 were unpaid.

On November 15, 2007, Mr. Waldschmidt filed a complaint against Reassure America in bankruptcy court, arguing that the company failed to provide the necessary notice under Tenn. Code Ann. § 56-7-2303(a) before declaring the policy forfeited. Reassure America contended that it was exempt from this requirement under § 56-7-2303(d) because Mr. McLean had opted for monthly premium payments and argued that its letters provided the requisite information.

The bankruptcy court certified two legal questions regarding the interpretation of the statute: (1) whether the company was exempt from the notice requirement based on the monthly payment option, and (2) if notice was required, whether Reassure America complied with the statute and whether the policy lapsed before Mr. McLean's death. The Tennessee Supreme Court accepted this certification, noting that the statute has not been previously interpreted by Tennessee appellate courts.

The court emphasized its responsibility to ascertain the statute's meaning and intent, following established principles of statutory construction, which include giving words their natural meaning, considering the statute's context, and ensuring each word is given effect.

Clear and unambiguous statutory language must be enforced as written without further interpretation. Tennessee Code Annotated § 56-7-2303(a) prohibits insurance companies from declaring certain policies, including life insurance, forfeited or lapsed within six months of a premium payment default unless they provide the insured with specific written notice. However, § 56-7-2303(d) exempts certain policy types from this notice requirement, including policies with premiums payable monthly. Reassure America argues that Mr. McLean’s life insurance policy falls under this exemption due to its monthly premium payment structure. In contrast, Mr. Waldschmidt contends that the statute is ambiguous and should be interpreted in favor of Mr. McLean, asserting that the premiums were annual despite the monthly payment option. The court confirms that § 56-7-2303(d) is clear in exempting policies with premiums that are "payable monthly," which includes policies where payment can be made monthly. The court distinguishes the case from Francis v. Universal Life Insurance Co., noting differences in statutory language and policy terms, and concludes that Mr. McLean’s premiums were indeed "payable monthly" as he opted for monthly bank drafts, supported by the policy’s documentation. Therefore, the exemption applies, and the notice requirement does not.

Mr. Waldschmidt argues against the interpretation of Tenn. Code Ann. 56-7-2303, claiming it undermines the statutory right to notice before forfeiture or default for life insurance policyholders who pay premiums monthly. He contends such a legislative intent would be poor policy and asserts that this issue should be directed to the General Assembly rather than the courts, which are not tasked with evaluating legislative wisdom. The court concluded that since Mr. McLean's life insurance premiums were "payable monthly," Tenn. Code Ann. 56-7-2303(d) exempted Reassure America from the notice requirement outlined in Tenn. Code Ann. 56-7-2303(a). Consequently, Mr. McLean’s policy lapsed before his death on September 25, 2007. The court deemed it unnecessary to address a second certified question, and the costs of the appeal were assigned to Robert H. Waldschmidt, trustee. The discussion also noted that Tenn. Code Ann. 56-7-2303(d) has a broader scope than Louisiana's equivalent statute regarding premium payment frequency. The relevant documents related to Mr. McLean's policy referenced "premiums" but did not specify "installments," regardless of the payment frequency chosen by the policyholder.