A lapsed policy is a policy that expires or terminates due to nonpayment of premium. When you stop paying premiums on the policy it will eventually terminate, and coverage will cease.
If a life insurance policy lapses, there could be an issue as to whether the insured died before or after the lapse date. Often times, policy lapse cases turn on the critical issue of “notice”.
The issue of notice could possibly turn on two (2) separate, but important, questions:
Often times, the policy will require the insurance company to send notice to the insured that the policy is about to lapse. Typically, there will be a 30-day required notice, but the actual notice period will be set forth in the policy. In a lapsed notice case, it will be important for the claimant’s attorney to carefully review the policy to examine whether it contains any notification provisions. If the insurance company did not comply with any such notice provisions, this could be potential grounds for breach of the policy.
An issue which often arises in these cases is whether the insured, or a designated third person, like the insured’s son or daughter, actually received the notice. The claimant might argue that the insured did not receive the notice. Meanwhile, the insurance company will assert that the notice was mailed and delivered.
In Florida, there appear to be two different approaches under case law to the question of when delivery of a lapse notice is considered effective. Each approach will ultimately depend on the language of the policy and how that language is written.
Generally speaking, notice of a policy’s impending lapse will be deemed effective upon the insured’s actual receipt of the notice. This “receipt” rule is generally more favorable to the claimant because, naturally, the insurance carrier will probably have a hard time proving that the notice was received.
However, if a life insurance policy specifies, for example, that notice will be mailed or sent to the last known address, or if it uses similar kind of language, the case law suggests that the insurance company does not have to prove receipt, but rather only that the notice was dropped off in the mail. This “mail drop” rule, if applied to a lapse case, may present a more formidable challenge to the claimant.