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KLOTZ v. OLD LINE LIFE INS. CO. OF AMERICA

December 10, 1996

THOMAS E. KLOTZ, Plaintiff,
v.
OLD LINE LIFE INSURANCE COMPANY OF AMERICA, Defendant.



The opinion of the court was delivered by: WILLIAMS

 The parties have filed cross-motions for summary judgment or in the alternative, for adjudication of specific issues, in this diversity action to recover benefits under a life insurance policy. After consideration of the papers and the arguments at the October 30, 1996 hearing, the Court enters the following Order.

 BACKGROUND

 This case involves a life insurance policy ("Policy") issued on the life of Michelle Klotz ("Michelle"), wife of the Plaintiff, Thomas Klotz ("Thomas"). On or about April 20, 1993, the Old Line Life Insurance Company of America ("Old Line") issued to Michelle the Policy insuring her life for $ 125,000, with Thomas designated as the primary beneficiary. Michelle signed up for the Policy through a local insurance agent, Anthony Mosel ("Mosel").

 Premiums were due on or before the 20th day of each month, followed by a 31-day grace period for payment during which the Policy remained in effect. Michelle paid her first $ 20.84 premium on April 20, 1993. The Policy specifies that "premiums are payable at 01 month intervals from 4/20/93," and, on another page of the contract, that "with our consent, premiums may be paid at other intervals." A section of the contract captioned "Premium Payment" specifies the date of default:

 
.... Any premium, after the first, not paid on or before its due date will be in default. Such due date will be the date of default.

 The section captioned "Grace Period" indicates the date on which insurance would cease for nonpayment of premium:

 
A 31-day grace period, without interest charge, is allowed for the payment of each premium after the first. This policy will stay in force during this period. If the premium is not paid by the end of this period, insurance will cease.

 Timely monthly payments continued through automatic check drafts from the Klotzes' joint bank account through August 20, 1994. After Michelle moved out of the family home in late July 1994, Thomas closed the joint checking account. Soon thereafter, Michelle and Thomas opened separate checking accounts.

 Because the joint checking account had been closed, the automatic check draft for the September 20, 1994 premium did not go through. On September 27, 1994, Old Line mailed Michelle a "Notice of Returned Pre-Authorized Check Dated September 20, 1994," asking Michelle to "please mail your payment of $ 20.84 by October 20, 1994 to insure continuation of your valuable insurance coverage." *fn1" On October 16, 1994, Michelle complied with the letter and sent to Old Line the September premium payment. At this point, the next premium was due on October 20, 1994. Counting 31 days (the grace period) from October 20, 1994, the date of automatic lapse for nonpayment of the October premium would occur November 20, 1994.

 On October 28, 1994, Michelle spoke with Agent Mosel and requested that Old Line bill her directly, rather than through automatic drafts. On November 3, 1994, Old Line sent Michelle a form letter which provided her with the paperwork for relaunching automatic monthly drafts from her new checking account. The form letter stated, "If we do not hear from you, this policy will be placed on a direct billing so that processing may continue." Michelle never responded to the invitation to begin automatic check drafts, and thereafter, Old Line, consistent with the terms in the letter, placed Michelle on direct billing. Kenneth J. Griesemer, Old Line senior vice president and treasurer, explained that Old Line then placed Michelle on direct billing, which required quarterly payments. Griesemer Declaration at 3. Old Line never provided Michelle with information relating to the schedule, due dates, or grace periods under the new quarterly billing system.

 On November 28, 1994, eight days after the automatic lapse of the Policy, Old Line sent a bill to Michelle captioned "Notice of Payment Due on October 20, 1994." The bill indicated $ 65.00 due for "03 MONTHS PREMIUM," but it failed to specify which three months it covered, when the payment was due, or the term of the grace period. The letter did not indicate that the Policy had automatically lapsed or had been terminated. A line of copy on the bill read, "We appreciate the opportunity to participate in your financial planning needs." Michelle never submitted a payment in response to this bill.

 On December 29, 1994, Old Line mailed to Michelle a "NOTICE OF TERMINATION." The letter was never received by Michelle, who had been murdered by her boyfriend on December 29, 1994. The Termination letter stated:

 
We have not received the October 20, 1994 premium and the grace period has expired. As of that date, your policy has no cash value and is terminated. PLEASE CONTACT US FOR INFORMATION ON REINSTATING YOUR POLICY.

 Within a week of Michelle's death, Thomas sought to collect under the policy. Old Line refused to pay benefits to Thomas on the grounds that the Policy had automatically lapsed prior to Michelle's death. Griesemer Dec. at 4. Thomas ...


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