Insurers Lapsed Without Notice, Breaking California Law, Lawsuits Say

By John Hilton

A pair of insurers are defendants in new lawsuits filed in California over whether proper notice was given in cases of lapse or termination of policies.

The plaintiffs, who seek class-action status, claim American National Insurance Co. and Lincoln Benefit Life Co. violated a 2013 California law that beefed up notification requirements.

The law establishes a new minimum grace period during which individual and group life insurance policies must remain in force after a premium payment is missed; gives certain policyowners the right to designate additional persons to receive notices of lapse; and provides that notices of lapse and termination that are not mailed to the designees and known assignees are ineffective.

'Continue To Lose'

The complaint against American National was filed on Dec. 10 by plaintiffs Myra Steen and Janet Williams. The lawsuit claims the insurer failed to notify policyholders of their right to designate additional persons to receive notices of lapse "despite being required to do so on an annual basis."

The insurer also failed to provide proper notices of pending lapses or termination, the lawsuit states. As a result, many policyholders have been "forced into unnecessary reinstatements" or have not received proper benefits, the claim states.

"Thousands of policy owners and beneficiaries have lost, and continue to lose, the benefit, value and security of their life insurance; have been, and continue to be, forced into unnecessary reinstatements; and in many instances have lost all reasonable access to any insurance at all," the lawsuit reads.

According to a court filing, Steen is the mother of Janice Williams, who died June 10, 2020. Steen purchased several policies from American National, mostly via door-to-door solicitation, the lawsuit said. She took out a $20,000 policy on Williams on Oct. 19, 1996, and paid a monthly $30.90 premium.

Plaintiffs maintain they paid the premium for many years to the agent, who visited monthly. The Williams' policy lapsed on or about January 2017. Some months before that, the agent ceased working for American National, the lawsuit said, but he continued to collect Steen's premium payment.

Plaintiffs maintain that several policies lapsed without notice from American National. The lawsuit alleges breach of contract and unfair competition under California law.

Second Lawsuit

Steen is represented by the San Diego law firm of Nicholas & Tomasevic. Craig M. Nicholas did not respond to messages regarding the lawsuit.

The firm filed a second lawsuit against Lincoln Benefit Life Co. on Dec. 16. Plaintiff Deana Farley made similar claims regarding a $125,000 policy she took out on her then-minor son, Ellis-Redd Bates, on or about 2011.

Her $122.43 monthly payments were made by automatic withdrawal, the lawsuit said. In 2016, a payment "was inadvertently missed" and the policy was lapsed, the lawsuit said. Reinstatement was granted on Nov. 4, 2016, the lawsuit said, but another payment was missed in October 2018 and the policy was lapsed -- at least as far as Lincoln Benefit is concerned.

"At no point relevant to this matter has Defendant, complied with or attempted to comply with The Statutes regarding the subject Policy," the lawsuit reads. "Defendant violated [California law] by failing to provide notice of a right to designate an alternative notice recipient. As such, termination of the policy was ineffective and the policy remains in force."

Neither insurance company has filed a response to the lawsuits.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.