Our records indicate that you did not make the scheduled premium payments on this premium certificate as you planned. The cash value of your certificate has been depleted, and is no longer sufficient to support the monthly charges and consequently the certificate entered its 61 day Grace period at that time.

At a minimum, $72,078.72 must be received by us on or before 8/22/2010, in order to prevent a lapse.

PHL sent a second notice on July 22, 2010.

On August 20, 2010 – two days before the lapse date – the Trust sent PHL a check for $72,078.72. It was returned for insufficient funds. On August 24th – two days after the lapse date – PHL received a wire transfer in the amount of $75,150.00 from Khal Torath, a religious organization that had loaned the funds to the trustee of the Trust, Benzion Lebovits.

Taking the position that the Policy had lapsed, PHL refused the payment.

The trustee sued PHL, seeking a declaration that the Policy had not lapsed due to nonpayment of premiums.

The trustee moved for summary judgment, arguing that PHL's lapse notices were void because they incorrectly stated the amount due.

The PHL Policy

The PHL Policy provided that the amount necessary to cure a default was the amount:

sufficient to increase the Net Account Value on that Monthly Calculation Date to cover three Monthly Deductions.

New York Insurance Law Section 3203 defines the amount due to cure a default as:

sufficient premium to keep the policy in force for three months from the date the insufficiency was determined.

(Emphasis added.)

The District Court's Decision

The district court granted the trustee's motion, ruling that PHL's notices had not correctly stated the amount due and, therefore, that PHL had not been entitled to lapse the policy on August 22, 2010.

In its decision, the district court explained that New York Insurance Law Section 3211 prohibited an insurer from lapsing a policy under one year from a default in payment unless it provided notice to the insured – and that the notice had to “state the amount of such payment [due].” (Because the trustee tendered more than the amount stated in the PHL's notices well within one year of the June 22, 2010 default, PHL was not entitled to lapse the policy on that basis.)

The district court conceded that the statute did not explicitly state that the amount given in the notice had to be correct, but it projected that New York's highest court, the New York Court of Appeals, would invalidate a notice that misstated the premium due, as long as the misstatement was not de minimis.

It then found that PHL's notices had not accurately stated the amount due.

The district court said that the policy's cure provision could mean that the insured had to pay three months' worth of premiums plus the shortfall that caused the default – in effect, a fourth monthly premium (or portion thereof). Alternatively, the district court continued, it also was possible to read the language to mean that the amount due was three monthly premiums, with the shortfall included in that amount.

Given the ambiguity, the district court adopted the trustee's position, finding it more closely in line with New York Insurance Law Section 3203.

The district court concluded that if the trustee could demonstrate that he was ready and able to bring the policy's premiums up to date, it would declare the policy in full force and effect.

The case is Lebovits v. PHL Variable Ins. Co., No. 12-CV-6397 (FB) (RML) (E.D.N.Y. Aug. 9, 2016). Attorneys involved include: For the Plaintiff: IRA S. LIPSIUS, ESQ., DAVID BENHAIM, ESQ., ALEXANDER J. SPERBER, ESQ., CHERYL D. LIPSIUS, ESQ., Lipsius-Benhaim Law, LLP, 80-02 Kew Gardens Road, Suite 1030, Kew Gardens, NY 11415; For the Defendants: PATRICK J. FEELEY, ESQ., ELIZABETH ROZON BAKSH, ESQ., Dorsey & Whitney LLP, 51 West 52nd Street, New York, NY 10019.