Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 87-1324.
Mansmann, Scirica and Cowen, Circuit Judges.
We are asked to decide whether a life insurance policy remained in effect beyond the extended period allowed for payment of premiums when, prior to the grace period's expiration, the policyholder commenced voluntary bankruptcy proceedings under Chapter 11 of the Bankruptcy Code.
The policyholder, Counties Contracting and Construction Company, appeals from an order granting summary judgment in favor of Constitution Life Insurance Company affirming the insurance company's refusal to make payment of insurance proceeds to Counties. Counties, now a Chapter 11 debtor, argued that certain provisions of the Bankruptcy Code, in addition to principles of waiver and estoppel, precluded Constitution Life from denying the payment of the proceeds. We conclude that although Counties was afforded a degree of relief by one rehabilitative provision of the Code, other provisions were either inapplicable by law or because Counties did not act in conformity with the statutory requirements necessary for entitlement to the relief afforded by the section. We also determine that Constitution Life did not, by reason of language utilized by it in certain letters to Counties, waive its right to cancel the policy for non-payment of amounts owing to it. We will affirm the decision of the district court.
The facts were stipulated to by the parties and are as follows: On March 25, 1969, a life insurance policy was issued to Counties insuring the life of one of its employees, James Cleary. The annual premium for the policy was due in advance on March 25 of each year. In conformity with Pennsylvania law*fn1 the policy provided a 31-day grace period for the payment of the premium.
From 1969 through 1983, the advance premium was always paid by Counties. In March 1984, however, Counties did not pay the premium nor the interest due on various loans which had been taken out against the value of the policy.
On April 11, 1984, within the policy grace period, Counties filed for voluntary bankruptcy. Two days later Constitution Life mailed a late premium notice to Counties and then, on June 26, sent an additional letter:
The yearly interest for the present loan on your life insurance policy and the annual premium are due. Your policy says this interest and premium must be paid within 31 days. Otherwise the insurance would end without further notice. Then you would no longer have your protection . . . .
I'm sure that you want to keep your insurance in force . . . . We urge you to pay the premium and repay the loan. Then you'll once again have the full protection and cash value of your policy.
The insured, James Cleary, died on July 26, 1984. On July 30, 1984, without knowledge of either the insured's death or Counties' bankruptcy, Constitution Life mailed another letter to Counties: "To keep this policy in force, we will need a payment of $3,574.59 . . . within ten days. If we don't get it, we'll have no choice to end the policy without value." This was Constitution Life's final communication with Counties concerning the payment of the amounts due. It is undisputed that Counties did not reply nor did it tender any premium payment or explanation to Constitution Life.
On or about September 25, 1984, Counties informed Constitution Life of Cleary's death and demanded payment under the policy. Payment was refused by Constitution Life.
Counties filed a complaint against Constitution Life in the United States Bankruptcy Court to compel turnover of the policy proceeds. After Constitution Life filed its answer, denying that the proceeds were due, the parties entered into a stipulation to withdraw reference from the bankruptcy court and proceeded in the district court. Counties and Constitution Life then filed a stipulation of uncontested facts and cross-motions for summary judgment.
On December 21, 1987, the district court denied Counties' motion for summary judgment and granted Constitution Life's similar motion. The district court found that filing the voluntary bankruptcy petition during the statutory grace period extended the grace period for 60 days under 11 U.S.C. § 108(b) (1978) (amended 1984). After this period, the policy expired. The district court then held that Counties' position that the automatic stay provision of 11 U.S.C. § 362(a) precluded Constitution Life from denying it the benefits of the policy would be alien to basic concepts of insurance law since it would permit Counties to "retain indefinitely the option to make a retroactive decision to carry insurance."
The district court also concluded that the letters sent by Constitution Life to Counties concerning Counties' obligations did not constitute a waiver of the policy provisions regarding lapse of the policy for nonpayment of premiums at the end of the grace period. The court found that doctrines of waiver and estoppel do not apply in the absence of a contract between the parties.
Finally, the district court rejected Counties' argument that Constitution Life was required to take affirmative action to cancel the policy for nonpayment of interest due for the loan taken against the policy. The district court first found that the policy contained no requirement of notice in this regard and then noted additionally that the policy was also cancelled for nonpayment of the premium Thus, failure to ...