Coverage continued during grace period depsite insured's oral cancellation of life insurance policy

Law Reporter, Mar 2003

INSURANCE

Dodson v. J.C. Penny Corp., 309 F.3d 476 (8th Cir. 2002).

The Eighth Circuit Court of Appeals held that an insured's group life insurance policy continued through a statutory 31 -day grace period-despite the insured's verbal request to cancel the policy-in the absence of a written cancellation notice by the policyholder.

Here, the Dodsons purchased an accidental death and dismemberment insurance policy from J.C. Penney in February 1998. In June 1999, Mr. Dodson telephoned J.C. Penney's offices and, speaking with a service representative, stated that he wished to cancel the policy. The representative informed Mr. Dodson that he could either receive a refund for the unused premium or allow the policy to lapse when the next premium payment was due, on August 13. Mr. Dodson chose to allow the policy to lapse.

The Dodsons died in an automobile accident on September 11. When their children attempted to collect on the policy, J.C. Penney told them that the policy had been canceled effective August 13. The children sued J.C. Penney to enforce the policy. The trial court, finding that the state's mandatory 31-day grace period did not apply, granted defendant summary judgment.

Reversing, the court of appeals examined the state statute, Ark. Code Ann. sec 23-83-110, which provides that a policyholder is entitled to a 31-day grace period on payment of any premium after the first premium, unless the policyholder gives the insurer written notice of discontinuance in advance of the date of discontinuance.

The court found that Mr. Dodson's oral cancellation was unequivocal and fell within the terms of the policy. Because his notice had not been in writing, however, the insurer was not relieved of its statutory duty to provide the 31-day grace period.

Accordingly, the court remanded.

Plaintiffs' Counsel

*Phillip Farris, Batesville, Ark.