Johnston & Johnston v. Conseco Life Insurance Co

Filing 27

MEMORANDUM RULING GRANTING 11 MOTION for Summary Judgment filed by Johnston & Johnston and DENYING 6 MOTION to Dismiss, MOTION for Summary Judgment in the Alternative filed by Conseco Life Insurance Co,. Signed by Chief Judge Robert G James on 10/11/12. (crt,Crawford, A)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
MONROE DIVISION

JOHNSTON & JOHNSTON

CIVIL ACTION NO. 12-1552

VERSUS

JUDGE ROBERT G. JAMES

CONSECO LIFE INSURANCE COMPANY

MAG. JUDGE KAREN L. HAYES

RULING

Pending before the Court are two Motions: a Motion for Summary Judgment filed by
Plaintiff Johnston & Johnston [Doc. No. 11] and a Motion to Dismiss, or, in the alternative,
Motion for Summary Judgment, filed by Defendant Conseco Life Insurance Company [Doc. No.
6]. For the following reasons, Plaintiff’s Motion is GRANTED, and Defendant’s Motion is
DENIED.
I.

FACTUAL AND PROCEDURAL HISTORY
This action arises out of a “flexible premium adjustable life insurance policy” purchased

by Plaintiff Johnston & Johnston and insuring the life of Mary Ann D. Johnston. The policy was
purchased from Defendant’s predecessor-in-interest on April 12, 1988, when Ms. Johnston was 68
years old. [Doc. No. 11-1, p. 2.] Unlike a fixed premium policy, a flexible premium policy does
not have scheduled premium due dates. [Doc. No. 6-1, p. 2.] Instead, the policyholder designates
the amount and frequency with which he or she wishes to receive billing notices. Here, Plaintiff
elected to receive annual billing notices in the amount of $32,451.00. [Doc. No. 6-2, p. 2.]
On September 12, 2010, Defendant sent a “grace notice” to Plaintiff, with a due date of

November 12, 2010, and an amount due of $38,778.46. On September 21, 2010, Defendant sent a
“Notice of Premium Due.” [Doc. No. 11-2, p. 1.] That notice stated the annual premium due date
was October 12, 2010, and the amount due was $32,451.00. On October 6, 2010, Plaintiff paid
the grace amount of $38,778.46, which kept the policy current through December 12, 2010.
On December 12, 2010, Defendant sent a “grace notice” to Plaintiff. [Doc. No. 11-2, p. 2.]
Pursuant to the grace period, Plaintiff was allowed 61 days from December 12, 2010, to pay the
overdue premiums. On January 6, 2011, Defendant sent a second “grace notice.” [Doc. No. 11-2,
p. 4.] However, Plaintiff made no additional payments. The grace period ended on February 11,
2011, and the policy lapsed. At that time, the death benefit extension period began and ran until
September 12, 2011. [Doc. No. 6-13.]
Plaintiff alleges that Ralph Speirs, Plaintiff’s accountant, had been out of the office with
illness, but returned on February 13 and discovered the grace notices. He contacted Defendant by
telephone the following day and attempted to pay the overdue premiums, but those efforts were
refused. [Doc. No. 11-2, p. 6.] He then applied for reinstatement on behalf of Plaintiff on August
25, 2011, but Defendant denied that application on September 15, 2011. [Doc. No. 11-2, p. 6.]
II.

LAW AND ANALYSIS
A.

Standard of Review
1.

Summary Judgment

Summary judgment “should be rendered if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law.” FED . R. CIV . P. 56(c)(2). The moving
party bears the initial burden of informing the court of the basis for its motion by identifying
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portions of the record which highlight the absence of genuine issues of material fact. Topalian v.
Ehrmann, 954 F.2d 1125, 1132 (5th Cir. 1992). A fact is “material” if proof of its existence or
nonexistence would affect the outcome of the lawsuit under applicable law in the case. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute about a material fact is “genuine” if
the evidence is such that a reasonable fact finder could render a verdict for the nonmoving party.
Id.
If the moving party can meet the initial burden, the burden then shifts to the nonmoving
party to establish the existence of a genuine issue of material fact for trial. Norman v. Apache
Corp., 19 F.3d 1017, 1023 (5th Cir. 1994). The nonmoving party must show more than “some
metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986). In evaluating the evidence tendered by the parties, the Court
must accept the evidence of the nonmovant as credible and draw all justifiable inferences in its
favor. Anderson, 477 U.S. at 255.
2.

Motion To Dismiss

Defendant filed a Motion to Dismiss, or in the alternative, Motion for Summary Judgment.
[Doc. No. 6.] Federal Rule of Civil Procedure 12(b)(6) allows for dismissal of an action “for
failure to state a claim upon which relief can be granted.” The “court accepts ‘all well-pleaded
facts as true, viewing them in the light most favorable to the plaintiff.’” Martin K. Eby Constr.
Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004) (quoting Jones v. Greninger,
188 F.3d 322, 324 (5th Cir. 1999)). While a complaint attacked by a Rule 12(b)(6) motion does
not need detailed factual allegations, in order to avoid dismissal, the plaintiff's factual allegations
“must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v.
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Twombly, 550 U.S. 544, 555 (2007); see also Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir.
2007).
In deciding a Rule 12(b)(6) motion to dismiss, the “analysis is generally confined to a
review of the complaint and its proper attachments.” Lane v. Halliburton, 529 F.3d 548, 557 (5th
Cir. 2008). “If, on a motion filed pursuant to Rule 12(b)(6) . . . matters outside the pleadings are
presented to and not excluded by the Court, the motion must be treated as one for summary
judgment under Rule 56.” FED . R. CIV . P. 12(d). A court has discretion pursuant to Rule 12(b)(6)
whether to accept and consider such materials on a motion to dismiss. Isquith v. Middle S. Utils.,
Inc., 847 F.2d 186, 194 n. 3 (5th Cir. 1988); 2 James Wm. Moore, Moore's Federal Practice §
12.34, at 12–72 (3d ed. 2002). In such cases, Rule 12(d) provides that “[a]ll parties must be given
a reasonable opportunity to present all the material that is pertinent to the motion.”
Here, Plaintiff’s Motion for Summary Judgment has been fully briefed and the parties
agree that the material facts are not in dispute. In addition, no matters outside the pleadings have
been excluded by the Court. As such, the parties have had a reasonable opportunity to present all
pertinent materials to the Court. Therefore, the Court will construe Defendant’s Motion as one for
summary judgment.
B.

Analysis Under Louisiana Revised Statute Section 22:905

The parties agree that the material facts are not in dispute, and the sole issue before this
Court is whether the notices sent by Defendant to Plaintiff in advance of its policy cancellation
satisfied the requirements of LA . REV . STAT . § 22:905.
LA . REV . STAT . § 22:905 requires that an insurer provide written notice no less than 15
and no more than 45 days prior to the date the premium is payable. Failure to provide sufficient
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notice prevents an insurer from cancelling a policy for one year following default. Plaintiff argues
the operative date is the premium due date, while Defendant argues the operative date is the date
upon which the grace period expires.
Section 22:905 “embodies a state policy of Louisiana against forfeiture by its citizens of
insurance benefits without notice.” Lester v. Aetna Life Ins. Co., 433 F.2d 884, 890 (5th Cir.
1970). The purpose is to protect the insured “from losing coverage due to mere inadvertence and
to give the insured a fair chance to meet the payments when due.” Turner v. OM Financial Life
Ins. Co., 822 F. Supp. 2d 633, 637 (W.D. La. 2011). Because LA . REV . STAT . § 22:905 is a
forfeiture statute, it is to be strictly construed in favor of the insured. First Am. Bank & Trust v.
Texas Life Ins. Co., 10 F.3d 332, 335 (5th Cir. 1994).
The parties agree that neither the September 21, 2010 “Notice of Premium Due” nor the
December 12, 2010 grace notice satisfied LA . REV . STAT . § 22:905. The Notice of Premium Due
stated the incorrect amount due. See Turner, 822 F. Supp. 2d at 637-38. The December 12 grace
notice was untimely, although the parties disagree as to the reason. Plaintiff contends it was
untimely because it was mailed after the October 12, 2010 due date. Defendant contends the
notice was premature because it was mailed on December 12, 2010, before the 15-to-45-day
window prior to the end of the grace period.
The bulk of the dispute centers on the January 6, 2011 grace notice. Plaintiff contends the
notice was untimely because grace notices, by definition, are mailed after the premium due date.
Accordingly, a grace notice could never satisfy LA . REV . STAT . § 22:905 because notice must be
received before the premium due date to comply with the statute’s requirements. Defendant
contends the operative date was the date the grace period would expire and not when the

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premiums were due. Thus, Defendant argues the January 6, 2011 notice was timely because it
was mailed 15 to 45 days before the end of the grace period on February 11, 2011.
The Court concludes that Plaintiff’s reading of the statute is correct. Section 22:905
provides that notice must be given “at least fifteen and not more than forty-five days prior to the
date when the same is payable.” (emphasis added). A strict reading of the statute, construed in
Plaintiff’s favor, leads to the conclusion that “the date when the same is payable” is the premium
due date, not the date the policy will be cancelled. The language preceding this segment,
including “in payment of any premium” and “nonpayment when due of any premium,” supports
this interpretation. Further support is found by the drafters’ use of “lapse” and “forfeit” when
discussing termination of the policy, terms they abandon when discussing the notice date. Such a
reading also conforms with the policy of ensuring that the insured has reasonable notice of
premium due dates and opportunity to avoid policy termination.
Although Louisiana case law on this issue is sparse, an Illinois appellate court decision
lends persuasive support to this conclusion. See Time Ins. Co. v. Vick, 620 N.E.2d 1309 (Ill. App.
Ct. 1993). Illinois enacted a notice statute very similar to LA . REV . STAT . § 22:905. Section 234(1)
of the Illinois Insurance Code provides that notice must be given “at least fifteen days and not
more than forty-five days prior to the day when the same is due and payable . . . .” 215 ILL. COMP .
STAT . 5 / 234 (1985). This language is nearly identical to the Louisiana statute, although it adds
the phrase, “before the beginning of the period of grace, . . . .” The Vick court stated that notice
must be given at least 15 days before the premium due date, not after the premium is overdue,
such as with a grace period. Vick, 620 N.E.2d at 1316. Admittedly, the Louisiana statute does not
include the phrase referring to “the period of grace,” but this inclusion in the Illinois statute

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merely helps to clarify the meaning. The statute remains analogous to LA . REV . STAT . § 22:905.
Grace periods are simply an additional form of protection provided by a policy. They
cannot act to dilute or supplant the protections provided by LA . REV . STAT . § 22:905. While
Defendant was not required to include grace periods as a provision of Plaintiff’s policy, its
decision to do so did not relieve it of its obligations under LA . REV . STAT . § 22:905.
Because Defendant failed to provide notice to Plaintiff at least 15 and no more than 45
days before the December 12, 2010 due date, the termination of Plaintiff’s policy was “illegal and
of no effect.” Boring v. Louisiana State Ins. Co., 97 So. 856 (La. 1923). Plaintiff’s policy should
have remained in full effect for one year following Plaintiff’s nonpayment on December 12, 2010.
Defendant’s refusal to accept Plaintiff’s premium payments during the interim and reinstate the
policy was improper, as Plaintiff should have been given opportunity to bring its payments up-todate.
III.

CONCLUSION
For the foregoing reasons, Plaintiff’s Motion for Summary Judgment [Doc. No. 11] is

GRANTED. Defendant’s Motion to Dismiss, or, in the alternative, Motion for Summary
Judgment [Doc. No. 6] is DENIED.
MONROE, LOUISIANA, this 11th day of October, 2012.

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