An insurance policy is a contract, and therefore the law of contract interpretation controls its meaning. Under Illinois law, when construing the terms of an insurance policy, a court seeks to ascertain the parties' intentions. The court must construe the policy as a whole, with due regard to the risk undertaken, the subject matter that is insured and the purposes of the entire contract. If the policy's language is unambiguous, the court must afford the words in the policy their plain, ordinary, and popular meaning. Whether the words of a contract, including an insurance policy, are ambiguous is a question of law that a reviewing court decides de novo.
The decedent purchased a life insurance policy with appellant insurer through appellant third-party administrator (TPA) which designated appellee widow as the beneficiary thereof. Although the policy had lapsed, the decedent paid the premium to the TPA for purposes of reinstatement. However, he failed to provide the application for reinstatement of coverage or any other evidence of his insurability. Several days after such payment, the decedent was killed by a passing car. Upon receipt of the check, the TPA rejected it and indicated that an application with the payment was required. The TPA denied widow's claims for death benefits upon its determination that the policy had lapsed, and she filed suit for breach of contract. The trial court granted summary judgment to widow. The appellate court affirmed the circuit court’s judgment against insurer. However, the judgment against TPA was reversed and remanded with instruction to enter judgment in favour of TPA.
Could appellant insurer, in an action for breach of contract, be held liable for non-payment of death benefit covering a lapsed insurance policy in view of the decedent’s failure to provide application for reinstatement despite payment of overdue premium?
The policy was in force when the decedent died, based on application of the mailbox rule and the plain language of the policy. However, the trial court erred in finding that the TPA had a contractual obligation to pay benefits under the policy, as it acted as an agent for the insurer, a disclosed principal.