Defense Digest

Sometimes The "Date Of Issue" Is The Issue: Wise v. American General

On March 10, 2004, William Wise suffered a heart attack and died. The same day, the life insurance policy he had applied for a month earlier, while in apparent good health, arrived in the mail. That policy, issued by American General and mailed to Mr. Wise by Intelliquote—which had previously provided him with an internet website premium quote and then mailed him the requested application—bore an "issue date" of March 3rd, a full week before Mr. Wise died. However, both the application and the policy prominently stated that insurance would not take effect until payment of the first premium.

Mr. Wise's widow mailed the premium payment to American General the next day, March 11th, which the insurer promptly rejected along with her claim for benefits. Based on these facts, Mrs. Wise brought suit in federal district court against Intelliquote and American General, claiming that she was entitled to benefits under the policy, and to other damages for statutory bad faith, and violation of Pennsylvania's consumer protection law. Summary judgment for Intelliquote was issued to both American General & Intelliquote. In Mrs. Wise's appeal to the Third Circuit, Mrs. Wise made a number of arguments, all based on the policy's issue date. She argued that the policy should have been deemed to be in effect because the insurer waived the supposed "requirement" that the premium was "due" on the issue date by making it "impossible" to comply with that provision. She also argued that American General's practice of including a "date of issue" that preceded policy delivery and opportunity to pay, the date fixing payment of all future premiums, amounted to a fraudulent "backdating," resulting in less than a full year of initial coverage for a full-year's payment, requiring treatment of the policy as beginning on the "date of issue" of March 3rd.

In Wise v. American General Ins. Co., 2006 U.S. App. LEXIS 21315 (3d Cir. 2006), the Third Circuit rejected each of these arguments, holding that a contract had not been formed since the essential term of payment of the premium—stated in the application and policy—was necessary and that this condition had not been met. Based on this failure, the court likewise held that summary judgment was appropriately granted on the breach of contract claim, and the same failure meant she could not pursue statutory claims for bad faith or violations of consumer protection law against either Intelliquote or American General. The court also rejected Wise's arguments based on fraud, holding that there was no "condition precedent" in the policy requiring payment of premium by the issue date. It also held that the inclusion of an "issue date" that precedes the "effective date" of a policy would not be considered improper "backdating" of the policy, resulting in a waiver of the condition that payment be received before coverage begins. The court held that this practice was acceptable under Pennsylvania law and had been held not to be inherently unfair, even when it resulted in the kind of "gap" in coverage claimed in this case. The court also noted that the practice conformed with that of the majority of courts in other states that have considered the question of whether backdating is inherently unfair or fraudulent.

Insurers reviewing this precedential decision may want to consider that another fact, not specifically relied on by the Third Circuit in affirming summary judgment for the defendants in this case, one that may have influenced the outcome. American General's application for life insurance, as the letter from Intelliquote reminded the prospective insured, offered Mr. Wise a means of closing any "gap" in first-year coverage by obtaining a "Limited Temporary Life Insurance Agreement," obtained by submitting a premium payment with the application and meeting certain age and health requirements. Unfortunately, Mr. Wise did not avail himself of this opportunity while still in apparent good health.

* Jim is a shareholder in the firm's Appellate Practice Group. He can be reached in our Philadelphia, Pennsylvania office at (215) 575-2703 or jwgicking@mdwcg.com.