Barnabas v Individual Assurance Co. [2019] FMSC 14; 22 FSM R. 252 (Pon. 2019) (7 June 2019)

FSM SUPREME COURT TRIAL DIVISION
CIVIL ACTION NO. 2017-005
CIVIL ACTION NO. 2017-006
CIVIL ACTION NO. 2017-007
CIVIL ACTION NO. 2017-008

SELESTINO BARNABAS,
SILVERROSE SOAR,
LAZARUS ARDOS,
REMIKIO PRETRICK,
Plaintiffs,

vs.

INDIVIDUAL ASSURANCE COMPANY,
Defendant.
__________________________________________

CORRECTED ORDER GRANTING SUMMARY JUDGMENT

Beauleen Carl-Worswick
Associate Justice

Hearing: March 27, 2019
Decided: May 16, 2019
Corrected: June 7, 2019

APPEARANCES:

For the Plaintiffs: Vincent Kallop, Esq.
Micronesian Legal Services Corporation
P.O. Box 129
Kolonia, Pohnpei FM 96941

For the Defendant: Maximo Mida, Esq.
Ramp & Mida Law Firm
P.O. Box 1480
Kolonia, Pohnpei FM 96941

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HEADNOTES

Civil Procedure - Summary Judgment - Grounds
Under FSM Rule 56, a summary judgment motion will be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 254-55 (Pon. 2019).

Civil Procedure - Summary Judgment - Procedure
Once the party moving for summary judgment presents a prima facie case of entitlement to summary judgment, the burden shifts to the non-moving party to show that a genuine issue of material fact remains for resolution. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 255 (Pon. 2019).
Insurance - Lapse and Cancellation
37 F.S.M.C. 404, by its terms, does not apply to the cancellation of a life insurance policy when there are no issues of non-payment of a premium. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 255 (Pon. 2019).

Insurance - Lapse and Cancellation
When 37 F.S.M.C. 404 does not apply to a life insurance policy’s cancellation, the court will evaluate the matter according to the terms of the agreements among the parties. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 256 (Pon. 2019).

Insurance
A supplemental term life insurance rider does not constitute an individual insurance plan. It is in name and in function an attachment to an existing insurance plan. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 256 (Pon. 2019).

Insurance; Insurance - Coverage
A "policy endorsement" is an insurance-specific document that may add, remove or modify existing coverage. It is not a stand-alone document. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 256 (Pon. 2019).

Insurance
A "conversion privilege" allows term life insurance to convert to a permanent or individual policy. Term life insurance cannot be or become an individual policy without a conversion option. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 256 (Pon. 2019).

Insurance - Coverage; Insurance - Premiums
A "universal life insurance policy" is a permanent, individual policy that accumulates cash value. Term insurance covers only a period of time and therefore does not accrue cash value. Accordingly, premium refunds do not normally apply to term insurance. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 256 (Pon. 2019).

Insurance - Lapse and Cancellation
When the continuation of a supplemental term life insurance policy was contingent upon sufficient enrollment in the group policy, and when, according to the plan’s terms, if the plan enrollment fell below "35% of those eligible" to participate, the insurer could terminate the policy, the insurer was entitled to terminate the policy as set forth in the supplemental term life insurance policy. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 257 (Pon. 2019).

Insurance - Lapse and Cancellation
When the supplemental term life insurance rider provided that 61 days’ notice was required to terminate the supplemental life insurance plan, the insurer’s notice to the employer, given 66 calendar days before termination, was sufficient notice as required by the policy. It was incumbent upon the employer, not the insurer, to provide notice to policyholders. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 257 (Pon. 2019).

Insurance - Lapse and Cancellation; Insurance - Premiums; Remedies - Restitution; Torts - Conversion
When the insureds received refunds through their employer, as what should occur only for group insurance policies, not individual insurance policies, and when the insurer instructed the employer to stop all employee payroll deductions for supplemental group life insurance, the insurer did not convert the insureds’ money and was not unjustly enriched. Barnabas v. Individual Assurance Co., 22 FSM R. 252, 257 (Pon. 2019).

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COURT’S OPINION

BEAULEEN CARL-WORSWICK, Associate Justice:

I. BACKGROUND

On November 21, 2017, the defendant, Individual Assurance Company ("IAC"), filed its Motion for Summary Judgment with respect to each plaintiff. On January 16, 2018, the Plaintiffs Selestino Barnabas, Silverrose Soar, Lazarus Ardos, Remikio Pretrick (collectively, "plaintiffs") each filed an Opposition to the Motion for Summary Judgment.

A hearing was held in these consolidated matters on March 27, 2019.^[1] Vincent Kallop of Micronesian Legal Services Corporation appeared on behalf of the plaintiffs, who were not present. Attorney Maximo Mida appeared for the defendant IAC.

II. FACTS

According to the complaint filed on February 22, 2017 by Selestino Barnabas (Selestino), he renewed an existing "individual life insurance" policy that was offered by the Pohnpei government, along with group life insurance.^[2] On November 15, 2012, Selestino filled out a Federated States of Micronesia Group Life Insurance Enrollment Form by which he elected to participate in Basic Life Insurance Coverage and Supplemental Life Insurance Coverage. (Exhibit C to the Motion for Summary Judgment).^[3]

Selestino, as did all the plaintiffs, paid the premiums due on the life insurance policies. Nevertheless, the "individual life insurance policies" were terminated in 2015, with no written notice to individual plaintiffs. He received no refund of premiums he paid. Some plaintiffs received "nominal" refunds.

According to the defendant IAC, the Supplemental Term Life Insurance policy was discontinued due to insufficient enrollment. IAC gave notice of the termination of the Supplemental Term Life Insurance policy to the Pohnpei Government and instructed the government to stop withholding payments from the defendants’ paychecks.

III. LEGAL STANDARD

Under FSM Rule 56, a Motion for Summary Judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FSM Civ. R. 56(c); Kyowa Shipping Co. v. Wade, 7 FSM R. 93, 95 (Pon. 1995); Kihara Real Estate, Inc. v. Estate of Nanpei, 6 FSM R. 48, 52 (Pon. 1993). Once the party moving for Summary Judgment presents a prima facie case of entitlement to summary judgment, the burden shifts to the non-moving party to show that a genuine issue of material fact remains for resolution. Urban v. Salvador, 7 FSM R. 29, 31 (Pon. 1995); Wade, 7 FSM R. at 95; FSM v. Ponape Builders Constr. Inc., 2 FSM R. 48, 52 (Pon. 1985).

IV. DISCUSSION

Applicability of Title 37

37 F.S.M.C. 404 regards the cancellation of insurance policies and provides as follows:

§ 404. Cancellation of policies.

(1) No policy shall be liable to cancellation except in accordance with the provisions of this section.

(2) A policy other than a life insurance policy may be cancelled at any time by the policy-owner after giving to the insurer not less than 30 days’ notice in writing of the proposed cancellation by service in accordance with the provisions of this subtitle, and the insurer shall, upon the surrendering of the policy, refund the excess of any premiums paid over and above the pro-rata premium for the period when the policy has been in force.

(3) A policy other than a life insurance policy may be cancelled at any time by an insurer after giving to the policy-owner named therein not less than 90 days’ notice in writing of the proposed cancellation by personal service or by certified mail and upon refunding to the insured the excess of paid premium over and above the pro-rata premium for the time the policy has been in force, which refund shall accompany the notice.

(4) Notwithstanding the provisions of subsections (2) and (3) of this section, the policy-owner and the insurer may agree at the time any policy of insurance referred to therein is issued that the same shall be incapable of cancellation, provided that a clause to such effect is included in the policy.

(5) A life insurance policy may be cancelled by the insurer in the event of non-payment of any renewal premiums due but only after notice in writing specifying the default and the intention of the insurer to cancel the policy has been given to the insured by personal service or by certified mail; provided that the insurer may not cancel the life insurance policy if full payment is made within ten days of receipt of the notice; provided further that a life insurance policy shall not be cancelled by reason only of the nonpayment of a premium unless at least 28 days have elapsed since the premium became due.

(6) Any policy of insurance may be cancelled by the prior mutual consent in writing of the insurer and the policy-owner.

The court finds that 37 F.S.M.C. 404 by its terms does not apply in the circumstances of this case. The plaintiffs contend that the statute should apply to the instant matter; however, they concede that it does not in their Opposition to Motion for Summary Judgment (page 7):

[S]ections 2 and 3 above do not apply to this matter because the current matter deals with life insurance. Sections 4 and 6 of the above do not apply because no contractual provisions are at issue that permitted cancellation at a mutually agreed date. Section 5 does not apply because there are no issues of non-payment.

Accordingly, the court will evaluate this matter according to the terms of the agreements among the parties. There is no dispute that the parties are bound by contracts for life insurance.

Types of Insurance

The plaintiffs contend that there are two types of insurance applicable to this case: group insurance, in which the plaintiffs’ benefits are contingent upon a group plan through their employer, and individual life insurance policies creating a contract between them personally and IAC directly. However, as set forth below, the court finds that this matter regards group term life insurance, with supplemental insurance riders only.

Each plaintiff applied for life insurance through his or her employment with the Pohnpei government, using the Federated States of Micronesia Group Life Insurance Enrollment Form. (Exhibit C to the Summary Judgment Motions). The form includes elections for both types of life insurance at issue here - Basic Life Insurance Coverage (the group plan) and Supplemental Life Insurance Coverage. Exhibit B to the Summary Judgment Motion is a copy of a Group Life Insurance Policy (One Year Renewable Term). Exhibit E to the Summary Judgment Motion is a copy of a Supplemental Term Life Insurance Rider.

Plaintiffs argue that the Supplemental Term Life Insurance Rider^[4] constitutes an individual insurance plan. However, it is in name and in function an attachment to an existing insurance plan.

The document is titled, "Policy Endorsement." An "endorsement" is an insurance-specific document that may add, remove or modify existing coverage.^[5] It is not a stand-alone document. Furthermore, the document specifies at page 3 of 3 that there is no "Conversion Privilege." This term implicitly identifies the subject insurance as term life insurance. A "conversion privilege" allows term life insurance to convert to a permanent or individual policy.^[6] This document cannot be or become an individual policy without a conversion option.

Exhibit F to the Motion for Summary Judgment is an exemplar of an individual life insurance policy. It is titled, "Universal Life Insurance Policy." This insurance-specific language identifies the policy as a permanent, individual policy that accumulates cash value.^[7] Term insurance covers only a period of time and therefore does not accrue cash value. Accordingly, refund of premiums does not normally apply.

Termination

Here, continuation of the Supplemental Term Life Insurance policy was contingent upon sufficient enrollment in the Policy. According to the terms of the plan, when plan enrollment fell below "35% of those eligible" to participate, IAC could terminate the policy. See page 3 of 3 of Ex. E to the Summ. J. Mot. The court finds that defendant was entitled to terminate the policy as set forth in the Supplemental Term Life Insurance policy.

Notice of Termination

Plaintiffs contend they were given inadequate notice of termination of the Supplemental Term Life Insurance policy. The court disagrees.

The Supplemental Term Life Insurance Rider, Ex. E to the Mot. for Summ. J. at page 3 of 3, provides that 61 days’ notice shall be required to terminate the supplemental life insurance plan. By letter dated July 3, 2013, IAC notified the Pohnpei Government of the cancellation of the supplemental policy, effective September 7, 2013. See Ex. H to the Summ. J. Mot. The Pohnpei Government was given 66 calendar days’ notice of termination, which is sufficient notice as required by the policy. It was incumbent upon the Pohnpei Government to provide notice to policyholders, not IAC.

"Nominal Refunds"

Plaintiffs complain that their rights were violated in that they received either no or nominal refund of premiums and the refunds they did receive were not paid to them directly. However, proper procedures were followed.

The plaintiffs received refunds through their employer, the Pohnpei Government, which is what should have occurred as this case involves group insurance only, not individual insurance policies. Exhibit A to plaintiffs’ Opposition is a letter from IAC to the Pohnpei State Government, which references an attached, "spreadsheet to assist you in allocating this money." The spreadsheet is not attached to plaintiffs’ Opposition; however, implicit in this statement is the intention of IAC that the refunded monies be distributed among participants in the life insurance plan.

IAC refunded monies collected to September 7, 2013 and instructed the Pohnpei Government, by letter dated August 30, 2013, to "stop all employee payroll deductions for Supplemental Group Life Insurance as of the pay period ending date September 7, 2013." Ex. I to Summ. J. Mot.

The court does not find that the defendant converted plaintiffs’ money or was unjustly enriched. Attached to the plaintiffs’ Opposition is a copy of a check for premium overpayment for the period 12/28 - 12/31/15, payable to the Pohnpei State Government, to be allocated among plan participants.

V. CONCLUSION

The court finds that there are no triable issues in this matter. The defendant’s Motion for Summary Judgment is HEREBY GRANTED as to all plaintiffs and the plaintiffs’ Complaints are HEREBY DISMISSED with respect to the defendant. The Clerk shall enter judgment in favor of the defendant in the following cases: Selestino Barnabas v. IAC (2017-005); Silverrose Soar v. IAC (2017-006); Lazarus Ardos v. IAC (2017-007); and, Remikio Pretrick v. IAC (2017-008).

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^[1] As these matters are consolidated, this order refers to Selestino Barnabas; however, the same analysis pertains to each plaintiff and the order binds all plaintiffs.

^[2] All plaintiffs were employed by the Pohnpei Government in various capacities.

^[3] Silverrose Soar enrolled in Basic and Supplemental Life Insurance on 9/5/11; Lazarus Ardos enrolled in Basic and Supplemental Life Insurance on 10/7/11; Remikio Pretrick enrolled in Basic and Supplemental Life Insurance on 11/28/12. The enrollment form for each plaintiff is Exhibit C to the respective Motion for Summary Judgment.

^[4] Ex. E to the Summ. J. Mot.

^[5] Marianne Bonner, Endorsements Ä What are They? (2019) at https://www.thebalancesmb.com/endorsements-what-are-they-462463

^[6] See generally Schnabel v. Philadelphia American Life Ins. Co., 795 F. Supp. 816 (S.D. Tex. 1992); Katie Adams, What is a convertible insurance policy? (2019) at https://www.investopedia.com/ask/answers/09/convertible-insurance-policy.asp

^[7] Julia Kagan, Universal Life Insurance (2019) at https://www.investopedia.com/terms/u/universallife.asp.