Renewal of Policies Following the Death of the Insured
By: Derek Goff
Typically, an insurance policy is a personal contract which terminates upon the death of the named insured. White v. Ga. Farm Bu. Mut. Ins. Co., 255 Ga. 298, 336 S.E.2d 748 (1985). However, an insurance policy may be extended beyond the death of the named insured by its own terms. Id. Those terms usually require that written notice of the named insured’s death be provided to the insurer within a certain time. Where a policy affords coverage after the named insured’s death, such policies typically provide coverage to certain individuals or entities until the end of the policy term.
An interesting problem arises when the named insured dies during the policy term, an individual associated with the named insured continues to pay the premiums (or the premiums continue to be automatically withdrawn), the policy automatically renews by its own terms, and a loss occurs during the renewal policy term subsequent to the named insured’s death. Georgia courts have analyzed such a scenario on two separate occasions in the context of a fire loss under a homeowners policy. So. Gen. Ins. Co. v. Key, 197 Ga. App. 290, 398 S.E.2d 237 (1990); Green v. Allstate Ins. Co., 2015 WL 11233460 (N.D. Ga. May 15, 2015).
In Key, a mortgagee named on a fire insurance policy renewed the policy on its mortgagor’s behalf not knowing the mortgagor died prior to the renewal. Key, 197 Ga. App. at 291. During the renewal policy period, a fire destroyed the home, and the insurer denied coverage on the grounds that the policy was void ab initio due to the death of the named insured. Id. The insurer argued the deceased insured lacked capacity to enter into the renewal contract, but the Georgia Court of Appeals rejected that argument. The court held the policy was not void ab initio with regard to a mortgagee because it held an insurable interest in the property and the standard mortgagee clause permitted it to recover under the terms of the policy. Id. Thus, the mortgagee maintained capacity to enter into the renewal contract, even though the named insured lacked capacity. Thus, the court held the mortgagee maintained an independent right to recover under the terms of the policy.
In Green, the named insured on a homeowners policy died during the policy term, but the policy was repeatedly renewed by the named insured’s nephew who lived at the home for more than six years following the named insured’s death. 2015 WL 11233460 at *1. At that point, a fire destroyed the home, and the named insured’s nephew filed a claim for the resulting loss. The insurer learned about the named insured’s death for the first time during its investigation of the claim and denied coverage because the policy was no longer in effect following the end of the premium period in which the named insured died. The nephew brought suit seeking a declaratory judgment and damages as a result of the denial. The U.S. District Court for the Northern District of Georgia ruled in favor of the insurer and held the insurer properly denied coverage because there was no legal contract between the insurer and the nephew. The court also explained the nephew lacked the ability to continue the policy following its expiration at the end of the term after the named insured’s death. It reasoned: “Georgia courts have long held that ‘insurance policies are of the nature of personal contracts. The insurer is selective of those risks which revolved around the character, integrity, and personal characteristics of those whom they will insure.’” Id. at *4 (citations omitted). The court further explained the nephew could not be said to have “resided with” the named insured (or qualify as an insured) considering the fact that the named insured held no residence following his death. Id. Thus, the court concluded there was no legal contract between the nephew and the insurer at the time of the fire, and the coverage ceased at the end of the term following the named insured’s death.
Georgia courts are not alone in this treatment of insurance policies following the death of the named insured. In Maryland, the Court of Special Appeals analyzed this issue in the context of liability coverage in an auto policy. Maryland Auto. Ins. Fund v. John, 198 Md. App. 202, 205-06 (2011). The named insured’s sister continued to pay the insured’s premiums and drive the insured’s vehicle following the death of the named insured. Id. at 206. The named insured’s sister informed the insurer’s agent of the named insured’s death, but the agent mistakenly informed her that she could continue driving the vehicle with coverage following her brother’s death, provided the premiums were paid. Id.
During the renewal policy period, the insured’s sister was involved in an auto accident with a motorcyclist who initiated a claim. Id. at 204. The Maryland Court of Special Appeals held the agent’s error was insufficient to create coverage where there was none. Id. at 213-14. The policy included an anti-assignment provision that prohibited an assignment of the policy without written consent of the insurer. Id. at 208. Further, the court held that neither an oral modification of the written policy occurred, nor was a new oral contract created as the result of the agent’s representations and continued acceptance of premiums. Id. at 217. Additionally, the court explained the insurer could not inadvertently create coverage through waiver where no coverage existed under the policy. Id. at 216. This reasoning is consistent with how Georgia courts would likely handle a similar legal issue.
These cases illustrate the general principle that an insurance policy is a personal contract in which the insurer bases its premiums and accepts risk specifically with regard to the named insured. Thus, an insurance policy cannot be renewed to extend coverage where the named insured ceases to have an insurable interest. Accordingly, insurance claims professionals should carefully review claims when they are submitted following the death of the named insured to determine whether coverage is still available.
Attorney Contact Info
Derek Goff
derek.goff@swiftcurrie.com
205.314.2408