Opinion
No. C5-01-610
Filed October 16, 2001.
Appeal from the District Court, Kandiyohi County, File No. C500707.
Rodney C. Hanson (for appellant)
James M. Jorissen, Connie A. Lahn (for respondent)
Considered and decided by Crippen, Presiding Judge, Schumacher, Judge, and Shumaker, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
On appeal from the trial court's summary judgment for respondent Franklin Life Insurance Co., appellant Heather Nagel contends that the court erred in finding her husband's life insurance policy had not been reinstated. Because reinstatement of the policy required exact compliance with the terms of the offer, we affirm.
FACTS
Both parties have stipulated to the facts of the case. In April 1996, respondent issued a life insurance policy to Thomas Nagel, appellant's husband. The policy designated appellant as the beneficiary and granted a 31-day grace period in which the insured could pay past-due premiums. The policy also stated that "[i]f a premium is not paid by the end of the grace period, this policy will lapse."
On August 2, 1999, the policy lapsed for failure to make the July premium payment before the end of the grace period. Approximately nine days later, appellant's husband received notice that his policy had lapsed but that he could reinstate his policy if he acted immediately:
Subject to the conditions STATED herein, [respondent] will return your policy to an active status. To take advantage of this special offer, you must sign, date and return this statement with your check. The signed offer and check must be received in the home office by the "offer expiry" date indicated.
By taking advantage of this offer, your policy will be reinstated without evidence of insurability. If you have already sent in your premium payment, the signed special reinstatement offer is still required.
The "offer expiry date" was August 30, 1999, and the notice contained a signature line for the "INSURED: THOMAS R. NAGEL." The notice also provided that the reinstatement offer was subject to various conditions, including:
1. PAYMENT AND SPECIAL REINSTATEMENT OFFER SIGNED BY INSURED * * * AND MUST BE RECEIVED IN THE HOME OFFICE ON OR BEFORE THE OFFER EXPIRY DATE SHOWN AND DURING THE LIFETIME OF ALL PERSONS INSURED UNDER THE POLICY * * *.
2. THIS IS A SPECIAL REINSTATEMENT OFFER FOR YOUR CONVENIENCE AND IS NOT AN EXTENSION OF THE GRACE PERIOD.
On August 17, 1999, Thomas Nagel died. On August 23, 1999, respondent received the July premium payment on the life insurance policy and on August 26, 1999, received the August premium. Both checks were drawn and signed by appellant.
On September 7, 1999, respondent informed appellant by letter that the policy had lapsed without value because the July premium payment "was not received within the [31-day] grace period, and no cash value was available within the policy to extend it under a non-forfeiture option." Respondent reimbursed appellant for the July and August premium payments.
DECISION
On appeal from summary judgment, the reviewing court determines whether there are any issues of material fact and whether the trial court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). This court reads "the evidence in the light most favorable to the party against whom judgment was granted." Nygaard v. State Farm Ins. Co., 591 N.W.2d 738, 740 (Minn.App. 1999) (quotation omitted), review denied (Minn. June 29, 1999). The interpretation and construction of insurance contracts are questions of law, which this court reviews de novo. Haarstad v. Graff, 517 N.W.2d 582, 584 (Minn. 1994).
An insurance policy may be reinstated after it has lapsed for failure to make a premium payment if the insured complies with the conditions specified in the policy. Sellwood v. Equitable Life Ins. Co. of Iowa, 230 Minn. 529, 533, 42 N.W.2d 346, 350 (1950). Reinstatement allows the original policy to remain in force without having to create a new policy. Id.
It is undisputed that appellant's husband failed to pay his July premium within the grace period as specified in the policy. Accordingly, his policy lapsed. The only manner in which he could revive the policy was through respondent's offer, which contained four conditions precedent to reinstatement. A condition precedent is a condition that must be performed before the agreement or contract becomes operative. Nat'l Union Fire Ins. v. Schwing Am., Inc., 446 N.W.2d 410, 412 (Minn.App. 1989). Here, the insured was required to: (1) sign and date the offer; (2) pay the past-due premium; (3) ensure that respondent received the signed reinstatement offer and payment by August 30, 1999; and (4) remain alive.
There was only one area of compliance in this case: the reception of the premium payments before the expiry date. The other conditions were never met: the insured failed to sign the reinstatement offer, deliver the signed document to respondent, and remain alive. Consequently, there was no reinstatement of the insurance policy. See Minar v. Skoog, 235 Minn. 262, 265, 50 N.W.2d 300, 302 (1951) ("An acceptance, to be valid and to give rise to a binding contract, must be made in unequivocal and positive terms which comply exactly with the requirements of the offer.").
1. Substantial compliance
Appellant suggests that the receipt of the premium before the expiry date constitutes substantial compliance. Although "[t]he duty under a contract is full and complete performance," that duty may be satisfied by substantially complying with all the essentials necessary to the full accomplishment of the purposes for which the thing contracted for has been constructed, except for some slight and unintentional defects which can be readily remedied.
Ylijarvi v. Brockphaler, 213 Minn. 385, 389-90, 7 N.W.2d 314, 318 (1942). The substantial-performance doctrine pertains to cases involving building and construction contracts. Material Movers, Inc. v. Hill, 316 N.W.2d 13, 18 (Minn. 1982). The rule may also apply to other contracts, but "[i]t is given a much more limited application * * * depending on the fact situation in each case." State Bank of Monticello v. Lauterbach, 198 Minn. 98, 108, 268 N.W. 918, 923 (1936).
The doctrine holds no weight in the context of this case. The offer expressly required the insured to sign, date, and send the reinstatement offer to the insurer before the expiry date and during the insured's lifetime. None of these acts occurred. All areas of noncompliance were essential to fully accomplish the purpose of the offer — returning the insured's life insurance policy to active status. See, e.g., Farm Bureau Mutual Cas. Co. v. Stein, 284 Minn. 407, 410-11, 170 N.W.2d 334, 336-37 (1969) (concluding there had been no reinstatement at the time of the insured's death even though the insurer may have received the premium payment at the time of the insured's death but had not yet accepted the payment).
2. Grace period
Appellant makes a serious effort to equate reinstatement with the effect of paying an overdue premium within the prescribed grace period. This assertion fails in light of undisputed evidence that the policy defines nonpayment of premiums within the grace period as cessation of coverage and specifically sets forth the conditions for reinstatement. This point was reiterated in the notice, which provided that reinstatement was for the insured's convenience and was "not an extension of the grace period."
By failing to pay the July premium in a timely fashion, the policy lapsed and could be reinstated only by compliance with the conditions of the offer. Because appellant's husband failed to comply with these terms, there was no policy in existence at the time of his death.