The Case of the Customer Who Died to Soon
Facts:
On October 26, a North Country Life Insurance agent went to the house of Ned and Caitlyn Sanderson. He persuaded the Sandersons to buy a life insurance policy and accepted a check for $1,600. On his way out the door, he gave the Sandersons a “conditional receipt for medical policy,” dated that day. The form stated that the Sandersons would have a valid life insurance policy with North Country Life, effective October 26, but only when all conditions were met. The most important of these conditions was that the North Country Life home office accept the Sandersons as medical risks after the company scheduled a medical examination. The Sandersons were pleased with the new policy and glad that it was effective that same day.
Ned died in a car accident four weeks later. North Country Life declined the Sandersons as medical risks and refused to issue a policy. Caitlyn Sanderson sued. North Country Life pointed out that medical approval was a condition to being covered. In other words, the company argued that the policy would be effective as of October 26, but only if it later decided to make the policy effective. It had not made that decision as of the date of Ned’s death.
At Trial
Plaintiff argued that the policy was a scam. The so called “conditional receipt for medical policy” is designed to trick customers and then steal their money. The company leads people to believe they are covered as of the day they write the check. But they aren’t covered until much later, when the insurer gets around to deciding the applicant’s medical status.
The company gets the customer’s money right away and gives nothing in exchange. If the company, after taking its time, decides the applicant is not medically fit, it returns the money, having used it for weeks or even months to earn interest. If, on the other hand, the insurance company decides the applicant is a good bet, it then issues the policy effective for weeks or months in the past, when coverage is of no use. No one can die retroactively. The company is being paid for a period during which it had no risk.
Defendant, North Country Life, argued that it would be impracticable for North Country Life to issue life insurance policies without doing a medical check. That is the road to bankruptcy and would mean that no one could obtain this valuable coverage. They further argued that they do a medical inquiry as quickly as possible as it is in their interest to get the policy decided one way or the other.
The policy clearly stated that coverage was effective only when approved by the home office, after all inquiries were made. The Andersons knew that as well as the agent. If they were covered immediately, why would the company do a medical check?
Questions:
- Does the clause making the policy effective only after a medical examination violate public policy? Explain
- What other basis for a lawsuit might Caitlyn have against the insurance company? Explain
- Based on your answers to Nos. 1 and 2 who will win this case and why?
