Appeals court: principal policy without initial payment not in force

A Missouri appeals court yesterday affirmed a lower court ruling denying life insurance death benefits to the widow of a dentist who died before paying his initial premium.

On April 26, 2019, Dr. Robert P. Rothenberg, of Ballwin, Ms., signed documents in the office of his insurance broker, Robert W. Bagby, on a $250,000 term life policy with Principal National Life Insurance Co., according to court documents.

Rothenberg suffered a fatal heart attack later that day.

Rothenberg intended to make a lump sum payment for his annual premium through his and wife Donna’s joint bank account. An Electronic Funds Transfer form was included in the documents at Bagby's office, but Rothenberg did not fill it out, court documents say.

"Bagby called Rob that afternoon and informed him that a voided check was required to complete the paperwork," notes the appeal decision by Judge Bobby Shepherd. "Bagby allegedly told Rob that the Policy would not be in force until the first premium was paid."

After Rothenberg’s death, Bagby informed Donna Rothenberg of the missing banking information, court documents say. Donna Rothenberg then sent a voided check to Bagby, who in turn provided it to Principal.

She subsequently submitted a claim to Principal, contending that the policy had become effective on April 26, 2019, and that the $250,000 death benefit was payable to her. Principal denied the claim.

Dr. Rothenberg had been covered for many years by a Jackson National Life Insurance Co. policy, court documents say. Rothenberg elected to let that policy lapse just 12 days before his death because "the policy’s premium would substantially increase upon renewal," court documents say.

Policy not in force

Principal filed a lawsuit on August 16, 2019, in the United States District Court for the Eastern District of Missouri, seeking a declaration that the policy had never become effective and that Donna Rothenberg was not entitled to the death benefits.

Rothenberg filed a counterclaim against Principal for breach of contract and vexatious denial of proceeds under Missouri law. She also sued Bagby for two counts of negligence: one in his capacity as the couple’s insurance broker and one for his role as the couple’s financial planner.

The district court ruled in favor of Principal and Bagby. A three-judge appeals court panel found no reason to overturn that decision, Shepherd wrote.

"Rob elected to forgo paying an advance premium on his application, which meant that the Policy would not be effective until he had paid his first premium," he wrote. "Wishing to pay the premium through his and Donna’s joint bank account, he utilized the EFT Form but did not input his banking information. The absence of this information prevented Principal from withdrawing funds. Because the initial premium was not paid at the time of Rob’s death on April 26, 2019, the Policy’s unambiguous language dictates that it was not in effect and, thus, Principal was not liable for coverage."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.