Johnston & Johnston v. Conseco Life Insurance Co.
2013 U.S. App. LEXIS 21086
| 5th Cir. | 2013Background
- Johnston & Johnston (J&J) purchased a flexible-premium life policy (1st $1M face + $1M rider) on Mary Ann Johnston in 1988; Conseco later assumed the policy.
- The policy relied on cash surrender value to fund monthly deductions; when cash value would not cover the next monthly deduction the policy entered a 61-day grace period and would terminate at its end unless paid.
- Conseco sent annual planned periodic premium notices and annual policyholder statements projecting when cash value would run out; the policy entered grace periods 22 times and J&J cured 21 times.
- Key events: policy entered a grace period Dec. 12, 2010 (notice required payment of $28,794.14 by Feb. 11, 2011); Conseco sent a grace notice Jan. 6, 2011; J&J made no payment and the policy terminated Feb. 11, 2011; insured died Aug. 15, 2012.
- J&J sued, arguing Conseco violated La. Rev. Stat. § 22:905 (notice must be mailed 15–45 days before a premium is "payable" and must state the correct amount), claiming the operative due date was Oct. 12 or Dec. 12, 2010 and Conseco’s notices were defective.
- District court granted summary judgment to J&J, finding Dec. 12, 2010 (first day of grace) was the § 22:905 due date; Fifth Circuit reversed, holding Feb. 11, 2011 (end of grace) was the operative date and Conseco’s Jan. 6, 2011 notice complied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When is a premium "payable" under La. Rev. Stat. § 22:905 for a flexible-premium policy? | Premium was "due" when cash surrender value first became insufficient (Dec. 12, 2010); § 22:905 notice must be sent 15–45 days before that date. | "Payable" means the payment required to avoid termination at the end of the grace period (Feb. 11, 2011); notice timing measured to that date. | Court: "payable" means the payment required to prevent termination — Feb. 11, 2011. |
| Whether a notice sent during a grace period can satisfy § 22:905 timing requirement? | Grace notices are sent after premiums become past due, so cannot satisfy the pre-due-date window. | A grace-period notice sent 15–45 days before the date payment is required to prevent termination can satisfy § 22:905. | Court: A grace-period notice, properly timed (here Jan. 6, 2011 is 36 days before Feb. 11), can comply. |
| Whether Conseco stated the correct amount in its notice(s) as required by § 22:905(A)(1)? | September planned-premium notice listed annual planned amount ($32,451) not the required payoff; thus notice defective. | Grace notices (Dec. 12 and Jan. 6) set the correct amount necessary to maintain coverage ($28,794.14). | Court: The Jan. 6, 2011 grace notice stated the correct amount due to avoid termination. |
| Whether Regulation 36 required Conseco to provide an additional 30-day grace period after the 61-day grace period ended? | Because "lapse" per Regulation 36 occurs when cash value equals zero (Dec. 12) and policy language redefines lapse as the end of the grace period, Regulation 36 required another 30 days after Feb. 11. | Policy provided a 61-day grace period triggered when cash value insufficient; Regulation 36's 30-day requirement is satisfied by the 61-day grace period and does not create a second grace period. | Court: No second grace period required; Regulation 36 was satisfied by the 61-day grace period. |
Key Cases Cited
- First Am. Title Ins. Co. v. Cont’l Cas. Co., 709 F.3d 1170 (5th Cir.) (standard for reviewing summary judgment)
- In re Katrina Canal Breaches Litig., 495 F.3d 191 (5th Cir.) (view evidence for summary judgment in nonmovant’s favor)
- SWAT 24 Shreveport Bossier, Inc. v. Bond, 808 So. 2d 294 (La.) (statutory construction: apply clear law as written)
- Learmonth v. Sears, Roebuck & Co., 710 F.3d 249 (5th Cir.) (Erie‑style deference to state law; predict state high court)
- First Am. Bank & Trust of La. v. Tex. Life Ins. Co., 10 F.3d 332 (5th Cir.) (forfeiture statutes and insurance provisions strictly construed)
- Turner v. OM Fin. Life Ins. Co., 822 F. Supp. 2d 633 (W.D. La.) (purpose of § 22:905: protect insured from inadvertence; grace-notice timing issues)
- Ochsner v. IdeaLife Ins. Co., 945 So. 2d 128 (La. Ct. App.) (discussing § 22:905 purpose)
- Boring v. La. State Ins. Co., 97 So. 856 (La.) (early precedent interpreting notice timing under predecessor statute)
- Time Ins. Co. v. Vick, 620 N.E.2d 1309 (Ill. App. Ct.) (distinguished: involved fixed‑due-date term policy rather than flexible premium policy)