On September 27, 2018, the Supreme Judicial Court denied the application for further appellate review of the Savings Bank Life Insurance Company of Massachusetts (SBLI) from the Appeals Court decision in Michelle Brown v. Savings Bank Life Insurance Company of Massachusetts. In this case, the Appeals Court found that SBLI had to stand trial on Ms. Brown’s claim that SBLI’s agent deceived and misrepresented certain fact to her to obtain a commission by not properly advising her to maintain a $1 million life insurance policy of her husband’s life pending a new application for insurance.
While this decision relates to life insurance, its implications relating to advice on policy renewals and lapsing of coverage apply to all producers, agencies, and insurers marketing any insurance product.
Statements by sales agent giving renewal and lapse advice lead to a lawsuit
Ms. Brown and her husband had purchased three life insurance policies from SBLI in 2001 and 2002. Her husband’s policy, for one million dollars, had a ten-year term with annual level premiums of $440. When the ten-year term expired, the husband did have the right to renew his policy. But that next year’s annual premium increased from $440 to $5,340 annually.
Before the end of the term, employees of SBLI, licensed as insurance agents, contacted the Brown’s regarding the increase in the policy premium applicable to each policy on recorded lines. The insurer, as a matter of business practice, recorded telephone calls by way of a voice-call recording system.
The SBLI sales agents made several calls to the Browns about “options available with us so that you could continue coverage ongoing.” Ms. Brown’s testimony was that the sales agent recommended that she and her husband purchase new policies rather than maintain the old policies.
According to an SBLI sales agent:
- the practice of the [SBLI] sales division [was] to make sure that everybody keeps their insurance in force while they are going through underwriting because SBLI could refuse to issue a new policy:
- no insurance agent would write a new contract on any client and tell them to cancel their old policy first and then apply with us [SBLI];
- the failure to advise an insured not to cancel an existing policy pending a new application would be grounds for termination.
However, in Ms. Brown’s case, the sales agent soliciting the new policy failed to tell Ms. Brown to maintain her policy or to give her the notice that he described as mandatory, even though they began the process for procuring a replacement policy for her own $700,000 policy long before it lapsed.
Ms. Brown’s husband did not pay any portion of the $5,340 premium as of November 28, 2011, nor did he apply for a new policy before the policy lapsed. On January 6, 2012, the insurer sent a notice of policy lapse to the husband at the parties’ home in Hopedale. The letter notified the husband that he could seek to revive the policy by filling out an application for reinstatement of coverage and returning it with the overdue premium.
On January 11, 2012, the SBLI sales agent who subsequently spoke about not lapsing an existing policy pending a new application discussed the jump in premiums with Ms. Brown. When Ms. Brown asked, “What are our options [for coverage] at this point?” SBLI’s sales agent stated, “If you still need coverage you need to reapply for new contracts.”
When the sales agent addressed Ms. Brown’s concern that the husband’s policy had already lapsed and she was “nervous that [her husband] is not covered at all at this point.” The sales agent advised her that if she wanted to “try to cover him now, we’d have to do a reinstatement. You’d have to pay $5,340…[t]o reinstate that contract. But I don’t think you want to do that…Because it’d be far cheaper for him to maybe apply for a new [ten]-year plan.”
During this conversation, the sales agent did not offer to Ms. Brown the reinstatement option for her husband’s policy pending approval of the new policy. Although the policy provided for installment payments, the sales agent did not discuss with Ms. Brown making an installment payment to maintain coverage while the new application was pending, nor whether SBLI would refund any paid premium if the company issued a new policy.[pullquote]The sales agent subsequently acknowledged that the “only way” he could earn a commission would be if the husband purchased a new policy. His testimony was he would not have received a commission if the husband had continued his old policy.[/pullquote]
When Ms. Brown again expressed concern that “now we have nothing,” the sales agent explained the application process and stated that the husband is “probably going to be without insurance probably for about [thirty] days.” Ms. Brown then told SBLI’s sales agent to send an application for a new one million dollar policy for the husband.
After receiving the application, the husband complied with all requests for medical information. During the application process, the husband spoke directly with the sales agent. During that call, the sales agent did not mention reinstatement pending approval of the new $1 million policy.
The sales agent subsequently acknowledged that the “only way” he could earn a commission would be if the husband purchased a new policy. His testimony was he would not have received a commission if the husband had continued his old policy.
The husband’s old policy lapsed on November 28, 2011. The application for a new policy was rejected on May 2, 2012. The husband died on June 6, 2012, and SBLI denied Ms. Brown’s claim on December 10, 2012.
Ms. Brown sues SBLI for breach of contract, negligence, deceit, and 93A claims
Under the policy, the husband had the right to seek reinstatement of the policy for up to five years after the end of the grace period for the unpaid premium, but there was no right to reinstatement of the lapsed policy once the husband had died.
On December 4, 2012, Ms. Brown wrote to the insurer asking for a claim form for her husband’s death benefits, stating that she did not timely receive the notice denying the husband’s application for a term life insurance policy. SBLI responded on December 10, 2012, stating that the husband’s original policy had lapsed and no new policy had issued.
After an exchange of G. L. c. 93A demand letters and responses, Ms. Brown filed suit against SBLI in the Superior Court in March 2015, claiming:
- Breach of contract for failure to automatically renew the original ten-year term life insurance policy.
- Deceit.
- Negligent supervision of its sales agent.
- Breach of G. L. c. 93A (unfair and deceptive business practices).
SBLI denies Ms. Brown’s suit’s claims and asserts suit barred by policy’s two-year suit provision
In the Superior Court, SBLI claimed that Ms. Brown’s contract, tort, and statutory claims failed because she had not filed suit within the limitation period in the policy requiring that:
Any suit brought on or in respect to this policy shall be brought against us no later than two years after the date the alleged cause of action accrues…”
Since SBLI notified Ms. Brown of the denial of her claim in December 2012, the insurer argued her March 2015, was more than one year too late.
The Superior Court judge hearing Ms. Brown’s and SBLI’ cross-motion for summary judgment agreed with SBLI and ruled that the contract claims were barred by the two-year statute of limitations contained in the policy.
Also, the judge ruled that SBLI had not acted with deceit or negligence, and had not violated the Massachusetts consumer protection statute, G.L. c. 93A, as a matter of law, because Ms. Brown should have known to maintain or reinstate the coverage.
After the dismissal of her case in the Superior Court, Ms. Brown appealed to the Appeals Court.
Appeals Court overrules Superior Court on dismissal deceit and misrepresentation claims.
The Appeals Court affirmed the Superior Court decision on Ms. Brown’s contract and contract-related claims. However, the three-judge panel hearing the appeal reversed the Superior Court decision dismissing Ms. Brown’s tort and consumer protection claims.
The deceit and misrepresentation claims of Ms. Brown’s lawsuit relied on allegations that:
- An SBLI sales agent deceived and misled her and her husband by telling her, in a 2011 conversation, to have the husband buy a new policy without telling her to continue to pay the premium on the old policy, and by failing in January, 2012, to offer the option of reinstating the old policy, once lapsed, while the application for a new policy was pending.
- SBLI was negligent in its supervision of its sales agent.
- SBLI violated G. L. c. 93A by failing to inform her and her husband that the policy should be maintained or reinstated while the application was pending.
SBLI argued on appeal that since Ms. Brown’s suit sought the one million dollar policy limit in damages, all of her claims were in reality contract claims barred by the policy’s two-year statute of limitations for suits “on” the contract.
The Court ruled the deceit, and deceit-based 93A statutory claims were not claims that arose from the contract and were not, as SBLI argued, “in respect to” the policy.
Instead, the Appeals Court ruled that Ms. Brown’s contract claim was based on SBLI failing to automatically renew the policy in accordance with the renewal provisions of his policy. The deceit and negligent supervision claims, the Court found, were not based on the insurance contract, but on the 2011 and early 2012 telephone conversations with SBLI’s sales agent. In those conversations, some of which were recorded, the SBLI’s sales agent failed to inform the insureds that they could and should either maintain (as in the case of the 2011 conversation) or reinstate (as in the 2012, conversations) the policy while the application for new coverage was pending.
Neither the claims for deceit and misrepresentation with a three-year statute of limitations nor the unfair business practice claims under G.L. c. 93A, with a four-year statute of limitations, was time-barred under the Appeals Court’s decision these claims were not related to the contract claims “in respect to this policy.”
The Appeals Court also went further to note that any insurance policy provision an insurer might draft seeking to limit tort-based consumer protections claims may have a difficult time enforcing such a provision. The Court emphasized this point stating:
“Finally, however one might construe the contract language, imposition of a contractually shortened limitations period on tort-based consumer protection claims violates public policy. Our courts have declined to enforce contractual waivers of rights under the individual consumer protection provisions of c. 93A.” (Emphasis added).
Appeals Court says the facts alleged by Ms. Brown against SBLI merit a jury trial
While the Appeals Court stated they expressed no view as to the ultimate merits of the competing claims and defenses of Ms. Brown and SBLI, the Court did state: “The evidence, viewed in the light most favorable to Ms. Brown, merited a jury’s consideration.”[pullquote]“The evidence, viewed in the light most favorable to Ms. Brown, merited a jury’s consideration.”[/pullquote]
The Court detailed that evidence viewed in the light most favorable to Ms. Brown, and taking into account all properly considered evidence in the case record, a factfinder would be permitted to find that SBLI’s sales agent told Ms. Brown to choose between continuing the old policy at a higher premium or applying for a new policy at a lower rate that:
- According to SBLI’s sales agent’s testimony, it was SBLI’s policy to advise insureds to keep their policies in force while applying for a new one, but there is no evidence that SBLI’s sales agent did so in the 2011 conversation with Ms. Brown before the policy lapsed.
- In January 2012, after the husband’s policy lapsed, Ms. Brown expressed her concern that the husband lacked coverage and specifically asked what the options were for coverage, SBLI’s sales agent told her that she could reinstate the policy, but presented this as an all or nothing option, and expressly advised against it.
- He did not inform her that she could seek reinstatement of the old policy while the new application was pending.
- He did not address whether, if reinstated, the husband could pay a quarterly premium rather than an annual one.
- He also did not discuss these options with the husband when he spoke to him in March
- SBLI’s sales agent’s promise that all notices regarding the husband’s policy would be sent to Ms. Brown, the letter declining to issue a policy was not sent to Ms. Brown, effectively foreclosing any effort by her to reinstate the husband’s policy before his death.
- Moreover, Ms. Brown has offered evidence that the omissions were deliberate because SBLI’s sales agent stood to make a commission on a new policy but not the reinstatement of the old policy. Intentional misrepresentation also rises to the level of a c. 93A violation.
In conclusion the Court noted that in view of the evidence that: SBLI’s sales agent advised against maintaining the policy; in a 2011 conversation, SBLI’s sales agent failed to tell Ms. Brown of the importance of maintaining coverage; and later, when asked, failed to disclose to her the option for reinstatement—it was for a jury to decide what inferences to draw from the evidence.
Appeals Court’s final order and denial of applications for further appellate review
In their final order, the Appeals Court panel affirmed the contract-related claims’ dismissal. The Court reversed the Superior Court’s dismissal of the claims alleging deceit, misrepresentation, and violation of G.L. c. 93A.
Also, the Court allowed, in part, a motion to amend that the Superior Court had denied and remanded the Ms. Brown’s remaining claims for a jury trial in the Superior Court.
Thank you, Attorney Madan.
Agency Checklists wishes to thank Attorney Anil Madan, counsel for Ms. Brown, for copies of the materials relating to this interesting case.
