Delay results in reinstatement of policy
- In December 1993, Bruce Fein inadvertently failed to pay the premium for his disability policy with the Provident Life and Casualty Insurance Company. On March 15, 1994, Mr. Fein mailed Provident a check for the premium. Provident required Mr. Fein to submit a "reinstatement application," and Mr. Fein did so in May 1994. On June 2, 1994, Provident issued a "conditional receipt" for the premium that stated coverage was conditioned upon acceptance of the application. On June 6, 1996, Provident accepted the reinstatement application and coverage was resumed.
- On February 20, 1996, Mr. Fein submitted a disability claim. Provident denied the claim asserting that the "reinstatement application" misstated Mr. Fein's income and failed to reveal that Mr. Fein had other disability policies with two other carriers.
- William C. Slattery, Esq. of Slattery & Jespersen convinced the Appellate Division that Provident's rejection of Mr. Fein's claim was unlawful. Mr. Slattery successfully argued before the Appellate Division that Provident's long delay in issuing a conditional receipt for the late premium resulted in the automatic revival of the original policy without the need for a reinstatement application. Consequently, nothing in the reinstatement application could affect the coverage under Mr. Fein's policy with Provident. The Appellate Division's decision is reported as Provident Life & Casualty Ins. Co. v. Fein, 310 N.J. Super. 110, 708 A.2d 419 (App. Div. 1998).
- Mr. Slattery's argument, and the Appellate Division's opinion, were based upon N.J.S.A. 17B:26-7, the New Jersey statute that deals with the reinstatement of health insurance policies. Under the statute, an insurer may request an insured to submit a reinstatement application if the insured pays the premium late. The insurer issues a "conditional receipt" for the premium and notifies the insured of the need to submit a reinstatement application. If the insurer does not notify the insured in writing of its disapproval of the reinstatement application within 45 days of the issuance of the conditional receipt, the policy is automatically reinstated.
- Mr. Fein mailed his late premium on March 15. Provident, however, did not issue the conditional receipt until June 2, over two and one-half months later. The Appellate Division ruled that upon receiving a late premium an insurance company must act promptly to either reject the premium, reinstate the policy, or issue a conditional receipt with the requirement of a reinstatement application. The court found that Provident's two and one-half month delay in issuing a condition receipt after receiving Mr. Fein's premium was unreasonable. Provident's acceptance of the premium combined with this unreasonable delay "resulted in a waiver of its right to demand a new application as a condition of reinstatement."
- The Court agreed with Mr. Slattery's analysis of the purposes of the reinstatement statute, N.J.S.A. 17B:26-7. An insurer's obligation to act promptly is intended to inform an insured whether he or she has coverage. If the insured is promptly informed that his or her insurance company will require a reinstatement application, the insured can take action to protect his or her interest. For example, the insured may obtain insurance elsewhere.
- Unreasonable delays in acting on late premiums also permits an insurance company to collect a premium without covering any risk. For example, if an insured sends a annual premium late, without the statutory obligation to act promptly, the insurance company could hold the premium for a year without actually reinstating the policy. If a claim on the policy is made during that year, the insurance company could at that point refuse to reinstate the policy and return the premium. If, however, no claim were made, the insurance company would simply retain the premium with the knowledge that no risk was covered by the payment.
- "Sending a late premium to an insurance company that can hold it without promptly accepting or rejecting it," says Mr. Slattery, "Is similar to buying an umbrella that will not open in the rain."