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Insurance Law

: INSURANCE LAW NOTES

Third Circuit Discusses Reasonable Expectations Doctrine

By Richard T. Victoria

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In West v. Lincoln Benefit Life Company, the U.S. Court of Appeals for the Third Circuit reviewed and summarized PA's reasonable expectations doctrine in ruling that a former policyholder did not have a reasonable expectation that a life insurance policy would be reinstated.

In West, the Third Circuit faced the question of whether a policy should have been deemed reinstated despite the fact that the insured failed to submit a premium payment during a 61-day grace period. More specfically, the insured decedent had failed to pay premiums and was notified that the policy was in a 61-day grace period during which he could pay and apply for reinstatement. However, his reinstatement would be subject to the underwriting approval and not guaranteed. Ultimately, the premium check was submitted, but the decedent died while the underwriting review was pending.

Looking both to statutory requirements set forth in 40 Pa.C.S.A. § 510 and to the reasonable expectations doctrine as it has developed and evolved in PA, the Third Circuit held that the insurer was correct in denying coverage both because it had complied with statutory requirements and because the insured did not have a reasonable expectation that coverage would be reinstated. Briefly stated, the Court determined that the reinstatement requirements were clearly stated by the insurer and nothing provided to the insured created a reasonable expecation of coverage. Further, the fact that the insured failed to read the reinstatement guidelines in their entirety could not be the basis for such a reasonable expectation.

As I have said here before, it is important that policyholders do their best to read and understand their policies and communications from their insurers. This case empahsizes the importance of this point. Please read your policies or, at least, have someone read and explain them to you.

Additionally, if you are looking for a nice history and summary of the reasonable expectations doctrine, this case is certainly a good place to start.

Full post as published by INSURANCE LAW NOTES on February 21, 2008 (boomark / email).