Temporary Life Insurance Coverage Created When Policy Approved Before Death
Insurance Law Update
Hodgson v. Banner Life Insurance Co.
California Court of Appeal
In Hodgson v. Banner Life Insurance Co., __ Cal.Rptr.3d __, 2004 WL 2902550 (Cal. App. Dec. 15, 2004), a California Court of Appeal applied California Insurance Code §10115, which recognizes, under certain circumstances, the date of an original insurance application as the "effective date" to enforce an insurers obligations under a life insurance policy.
Michael Hodgson submitted an application for life insurance along with the initial premium to an insurance agent, who provided him a conditional receipt providing interim coverage. When the insurer received the application and premium, it notified the agent that it would not provide interim coverage, although it would continue to process the application. The agent returned the premium to Hodgson and requested return of the conditional receipt. The insurer ultimately approved the application. The approval date, however, came five days after Hodgson was involved a car accident. He later died.
The insurer terminated the policy on the ground that a material change in the applicant’s health rendered the policy ineffective. Plaintiffs, the adult children of the applicant, sued. The trial court granted the insurer’s motion for summary judgment, finding that the temporary insurance was effectively rescinded when the insurer returned the premium and requested return of the conditional receipt. The appellate court reversed. It distinguished the California Supreme Court’s decisions in Ransom v. Penn Mutual Life Ins. Co., 43 Cal. 2d 420, 274 P.2d 633 (1954) and Smith v. Westland Life Ins. Co., 15 Cal.3d 111, 123 Cal. Rptr. 649, 539 P.2d 433 (1975), because in those cases the insurance applicant died before the application was approved. Here, the application was approved, but the policy had not been issued. Accordingly, under California Insurance Code §10115, temporary insurance had been created and plaintiffs were entitled to the policy benefits.