A recent unpublished decision by a N.J. federal district judge addressed whether an insurance company can be forced to pay out $300,000 on a life insurance policy purchased by a senior who stopped paying premiums before his death.  Smith v. Conseco.

The New Jersey legislature enacted a statute, effective in 2000, requiring insurers to remind senior citizen policyholders of their right to designate a third-party to receive notice from the insurance company of an attempt to cancel the policy, as a means of protecting seniors whose diligent record keeping may have fallen off with age.

Unfortunately, the legislature provided only that the Department of Banking and Insurance may fine an insurance company $1,000 to $2,000 for failing to honor this legal obligation. The Smith case addressed whether the beneficiary of a life policy has a private right of action against the insurance company for failure to provide the required notice, forcing them to pay out the full life insurance policy benefit.

The law provides that every insurer shall permit its senior citizen insureds to “designate a third party to whom the insurer shall transmit a copy of notices of cancellation, lapse, nonrenewal and conditional renewal with respect to a policy of personal lines insurance.”  The senior citizen must notify the insurer that a third-party has been so designated, and the insurance carrier must then notify both the insured and the third-party designee of changes in coverage status.

The judge recognized that although there are a few reported cases in New Jersey, where the courts have found a private right of action, in somewhat analogous circumstances, absent specific intent expressed by the legislature, the court was reluctant to read a private right of action into the statute or code.

This is an area where adequate safeguards and protections to an insured would seem to require modification of the statute to expressly provide for a private right of action.  Perhaps an enterprising legislator would take up this cause.  As this case points out, having the insurance carrier exposed to a $2,000 fine ultimately does nothing for a beneficiary who is denied the intended benefit of a $300,000 life insurance policy, presumably as a result of inadvertent inattention by a senior citizen insured.  Here, the decedent had faithfully paid premiums for almost 20 years, before discontinuing payments.

The take away is that seniors are wise to designate a third-party to receive notifications, so that if things fall through the cracks, there is a second pair of eyes looking out for inadvertent lapses in coverage, not intended by the insured.  This also serves as a cautionary tale for those of us who are trying to keep an eye out for seniors in our lives, whose attention to the increasingly complex “paperwork” of daily life, is not as keen as once it was.