Kotler v. Life Insurance

Opinion

MILLER, J. Daniel Kotler, a creditor of decedent Robert L. Coate, and Margaret G. Coate, executrix of the estate of her deceased husband, appeal from a judgment in favor of Life Insurance Company of California based on an order for entry of summary judgment.

This case turns on the duty of a life insurance company to give written notice to a creditor-assignee of a life insurance policy as a precondition to the lapse of the policy.

The undisputed facts are that Robert Coate was indebted to Kotler for an amount in excess of $50,000. On or about October 1, 1974, decedent Coate, an agent of respondent, took out a 10-year straight line decreasing term life insurance policy. Kotler was named the primary beneficiary and decedent’s estate was to receive any excess proceeds over the Kotler indebtedness. The annual premium on the policy was [985]$412.50, but a right was given to change the basis of premium payments from an annual to a monthly, quarterannual or semiannual basis.

On or about September 30, 1974, Robert L. Coate also executed a collateral assignment of the life insurance policy to Daniel Kotler. The collateral assignment was recorded by Life Insurance Company of California on or about October 10, 1974. The policy recites that such an assignment is “binding” on the insurer upon such recordation. Thus, Kotler was named as both the beneficiary and as the assignee of the policy.

Subsequently, premium notices were forwarded to Coate at his office. No premium notices were ever sent by the insurer or by the insured to Kotler.

On or about September 12, 1975, Coate gave oral instructions to respondent to change the basis of premium payments from annual to quarterannual and to send future notices to him. Thereafter, all notice of premium due dates, notices of nonpayment of premiums and notices of termination of the subject policy were sent to Coate. No notices of premiums due, nonpayment, termination or right to reinstate were ever sent by the insurer or the insured to Kotler.

Coate died of terminal cancer on April 11, 1976. At the time of his death, the insured had failed to pay the quarterly premium of $109.35 due on January 1, 1976 within the 31-day period of grace.

On January 16, 1976, a “notice of late payment offer for the payment of the quarterly premium” was sent to Coate, but not to Kotler. After termination of the policy and on or about March 3, 1976, respondent mailed a notice to Coate, but not to Kotler offering to reinstate the life insurance policy upon payment of the past-due premium and completion of an application for reinstatement.