JULY 2011 BAD FAITH CASESPLAINTIFF ALLEGES TERMINATION OF LIFE INSURANCE CONSTITUTED BAD FAITH, BUT COURT DOES NOT GET TO MERITS AS CLAIM TIME BARRED (Middle District)

In Bariski v. Reassure America Life Insurance Company, a widowed plaintiff, Janice Bariski, brought a bad faith claim against the insurer after it terminated her late husband’s life insurance policy.

The insurance policy was issued to plaintiff’s husband in 1990 and provided for a thirty day grace period in which late payments could be made while the policy remained in effect. If payments were not made during the pendency of this thirty day period, the policy would lapse, but the insured would still have the opportunity to pay what was owed and reinstate the policy, without re-applying, on the same terms.

In November 2005, the late Mr. Bariski fell behind in his premium payments and failed to satisfy them during the initial thirty day grace period. He was informed that his policy had lapsed and that he would have until January 9, 2006 to pay in full and reinstate before his policy would be terminated.

Mr. Bariski then sent a check for the overdue payments to the insurer. The check was post-marked sometime before January 8th but was not received by the insurer until January 10th, one day after the policy was to be terminated. The insurer then sent Mr. Bariski a notice of the policy’s termination which was dated January 9th but not received until January 13th, at least four or five days after the payment was sent.

Despite their receipt of the payment, the insurer nevertheless informed Mr. Bariski that he would have to re-apply for coverage and demonstrate proof of insurability. Mr. Bariski appealed this finding and sent the insurer a letter requesting immediate reinstatement of his policy. The insurance company denied this request and remained steadfast in its position that the former policy had been and would remain terminated pending a full reapplication process.

After the insured died in December, 2007, his widow and estate’s executrix initiated this lawsuit alleging, among other things, bad faith.

Defendant moved for summary judgment, basing its motion on two grounds, the first one being that the two year statute of limitations period for bringing bad faith claims precluded plaintiff from bringing suit. And, alternatively, that the bad faith statute applies only in the context of an insurer denying payment of policy proceeds and not in the context of a policy being terminated.

The insurance company prevailed on the statute of limitations defense; thus, the court did not address the applicability of the bad faith statute to a termination situation.

While the plaintiff was not the life insurance policy’s named beneficiary, the court, for purposes of the summary judgment motion, assumed that the policy was assigned to her and treated her as a proxy for the named beneficiary. In  evaluating the plaintiff as a named beneficiary, the court noted that her individual claim would have accrued (i.e. the statute of limitations would begin to run) on the date of her husband’s death—December 20, 2007. As such, the plaintiff, pursuant to the bad faith statute’s two year statute of limitations, would have had until December 20, 2009 to bring a timely claim. However, she waited over a year after the statute of limitations had run before initiating suit in January 2011.

The court eschewed the plaintiff’s arguments that application of a “discovery rule” would have tolled the running of the statute of limitations in this case, especially because plaintiff’s husband had informed her of his feeling that the policy had been wrongfully terminated almost four years before the plaintiff finally brought suit. Consequently, the discovery rule argument was not sufficient to parry the insurer’s statute of limitations defense and plaintiff’s bad faith cause of action was dismissed as time barred.

Date of Decision: July 6, 2011

Bariski v. Reassure Am. Life Ins. Co., Civil Action No. 1:10-cv-804, United States District Court for the Middle District of Pennsylvania, 834 F. Supp. 2d 233, 2011 U.S. Dist. LEXIS 72459 (July 6, 2011) (Kane, J.)