FEBRUARY 2008 BAD FAITH CASES: NO BAD FAITH IN DENYING DEATH BENEFITS UNDER LAPSED POLICY WHERE CLAIMS REPRESENTATIVE INITIALLY INDICATED THAT CLAIM WOULD BE PAID (Middle District)
The Plaintiff filed breach of contract and bad faith claims against Defendant based on Defendant’s denial of Plaintiff’s demand for the death benefit of her husband under his Prudential term life insurance policy. Defendant denied Plaintiff’s demand for the death benefits and asserted that the policy had lapsed. Plaintiff admitted that the policy had lapsed, but argued that she was entitled to the benefits because Defendant agreed to pay the claim and therefore the Court should enforce the agreement despite the fact that the policy had lapsed.
The insured argued that the carrier breached the insurance contract and acted in bad faith when it denied the payment of death benefits after first stating that the claim would be paid. The court held that there was no breach of the insurance contract and no bad faith in denying the claim since the policy had clearly lapsed because of failure to make timely premium payments.
The court held that the policy language clearly and unambiguously did not permit an oral modification of the contract by a claims representative. Therefore, the claims representatives’ statement that the claim would be paid did not create a new agreement. Since the policy had lapsed and was not reinstated prior to the insured’s death, the company properly denied the death benefit claim.