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Dc Electronics v. Employers Modern Life Co.





APPEAL from the Circuit Court of Cook County; the Hon. ARTHUR L. DUNNE, Judge, presiding.


The principal issue presented by this appeal is whether an insurance company (defendant Employers Modern Life Company ("Employers")) is required by law to notify the owner of an insurance policy (plaintiff DC Electronics, Inc. ("DC")) on the life of the owner's employee (Donald J. Barrett ("Barrett")) that the five-year term contract of insurance was about to expire and a premium was due in order to exercise an option to renew the existing policy or convert it into a new policy. We answer this question in the affirmative. We reverse the trial court's decision to deny DC's and Merchant's *fn1 motion for summary judgment and to grant summary judgment to Employers, and remand.

The facts emerge from the pleadings, exhibits, affidavits and depositions filed by the parties. On June 1, 1973, Employers issued its five-year term policy No. 18499 in the face amount of $150,000 on Barrett's life, with an expiration date of June 1, 1978. His wife, Eva, was the named beneficiary. An option to renew or convert the policy without evidence of insurability under the terms of the policy was vested solely in its owner. Barrett notified Employers on August 31, 1976, that Donald J. Stumm would thereafter be considered his agent of record with respect to the policy and correspondence ensued between them. On October 22, 1976, at Barrett's request, the ownership of and beneficial interest in the policy was transferred from Barrett and his wife to DC. On November 10, 1976, additional plaintiff Merchants National Bank of Aurora, as trustee under trust agreement dated November 1, 1976 ("Merchants"), was named beneficiary of that policy at the request of DC. This change purportedly was made in order to fund a combination stock redemption and cross-purchase agreement between DC and Barrett, who was formerly president and then chairman and chief executive officer of DC.

On or about April 5, 1978, Employers assertedly sent a letter to Barrett notifying him of the June 1, 1978, insurance premium policy date, together with a notice of premium due. DC and Merchants denied receipt by Barrett, DC, Merchants or Stumm of the April 5 letter or notice.

For the purpose of demonstrating a vital and continuing interest in coverage, proof was presented purporting to show that prior to June 1, 1978, Barrett had suffered several massive heart attacks. His stock redemption agreement with DC was under-funded and both he and DC were actively seeking additional insurance on his life until the date on which he died.

The June 1, 1978, premium on the policy was not paid on that date. Barrett died on November 4, 1978. Stumm notified Employers of Barrett's death and requested claim forms. He was then advised by Employers of the nonpayment of the June 1, 1978, premium. DC, as owners of the policy, tendered the June 1, 1978, premium to Employers on November 13, 1978, less than six months after its due date, in an effort to cure the default. Employers returned DC's check.

Suit for delaratory judgment was then brought by DC and Merchants. The action was pleaded in the alternative: that the alleged April 5, 1978, notice did not comply with the requirements of section 234 of the Illinois Insurance Code (Ill. Rev. Stat. 1979, ch. 73, par. 846) ("Code"); alternatively, that the April 5, 1978, notice was neither sent by Employers nor received by DC, Merchants, Stumm or Barrett. Employers filed an answer to the complaint, joining issue.

DC and Merchants requested Employers to admit certain facts and genuineness of certain documents, including the authenticity of Employers' letter of April 5, 1978, and insurance premium renewal notice, and the fact that no other premium notice or written communication aside from that alleged letter was ever sent by Employers to DC, Merchants, Stumm, Barrett, or to the predecessor agents on the insurance policy. Employers declined to respond to this request, nor did it file any motion with respect to the request to admit.

DC and Merchants thereafter moved for summary judgment supported by affidavits which assert that the April 5, 1978, letter and accompanying notice of premium were never received by DC, Merchants, Stumm, Barrett or Barrett's secretary who opened all his mail. No answer to the motion for summary judgment was filed by Employers, nor did it file any counteraffidavits concerning the alleged lack of notice for which DC and Merchants contended. The trial court denied this motion.

Employers thereafter filed its motion for summary judgment supported only by a copy of the insurance policy originally tendered to Barrett. In its motion, Employers asserted that the five-year term of insurance had expired by its own terms on June 1, 1978, without having been renewed or converted, Barrett had died on November 4, 1978, at which time the policy of insurance was no longer in effect, and there existed no genuine, material issue of fact, so that judgment should be entered for Employers. This motion was granted by the trial court. The policy contained provisions related to both renewal and conversion. We consider only the renewal language, since only renewal was attempted by DC, as follows:

"Renewable Privilege. The Owner is hereby given the privilege of renewing this policy on the life of the Insured on any expiry date without evidence of insurability for an additional five-year term period, provided that no renewal period shall extend beyond the policy anniversary on which the Insured's attained age is 65 years. Renewal shall be effected by payment, on or before its due date, of the increased premium as defined herein.

* * * The premiums for successive term periods shall be based upon the attained age at renewal and the Company's premiums in effect on the Policy Date of this policy.

The policy provides that all rights and privileges thereunder are vested in the named owner during the lifetime of the insured.

DC and Merchants maintain that section 234 (1) *fn2 of the Code requires all life companies doing business in Illinois to send notices of premiums due to their insureds not less than 15 days nor more than 45 days prior to the date when the premium is payable and, in the absence of such notice, the owner of the policy has six months after default to make payment of the late premium. They argue that the Code is of particular importance in this instance, since the provisions relating to renewal and conversion under the policy were predicated upon the payment of a premium to be ascertained and fixed by the company itself according to its rates then in effect and reason that they could not make an election for either renewal or conversion without first having been told what premium they were required to tender. The absence of notice in this case, they contend, was the reason for having tendered the amount of the previous premium paid. Employers counters that section 234 of the Code does not require an insurer to give notice of the expiration of a policy of term insurance which has been written for a specific period because Employers neither cancelled nor declared DC's policy as forfeited. Rather, it claims, the policy of insurance issued on decedent's life ...

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