In Catholic Charities of Southwest Kansas, Inc. v. PHL Variable Insurance Companies, 79 F.4th 1321 (10th Cir. 2023), the U.S. 10th Circuit Court of Appeals, predicting Kansas law, held that the statute of limitations on a beneficiary’s claim for wrongful termination of life insurance contracts started to run when the insurer attempted to terminate the policy, and not when the policy insured died.
Under the case facts, the insurance company issued two life insurance policies to plaintiff, insuring the lives of Elwin Liebl and John Killeen. Plaintiff was a named beneficiary under the policy. Then, between 2013 and 2014, the insurer sent plaintiff notices within the policy grace periods, demanding premium payments. The premiums were not paid. As a result, the policies cancelled.
In 2016, both insureds died and plaintiff sought benefits under both policies. The insured denied the plaintiff’s claims, asserting that the policies terminated for non-payment of premiums earlier. The plaintiff then sued the insurer in Federal District Court in Kansas, alleging failure to pay death benefits under both policies. Kansas law imposed a five year statute of limitations period for breach of contract claims. See KSA 60-511(1).
Both the insurer and the plaintiff agreed that plaintiff’s claims would have been timely filed if the statutory limitation period began to run when the insureds died. Both parties also agreed that if the limitations period began to run when the insurer terminated the policies, that plaintiff’s suit would be barred.
The U.S. Court of Appeals for the 10th Circuit, predicting what Kansas law would be, found that the statute of limitations on a beneficiary’s claim for wrongful termination of a life policy started to run when the insurer attempted to terminate the policy. While the full scope of the plaintiff’s damages would not be known until the insurer became obligated to pay benefits, the insured was free to seek nominal damages, specific performance, or a refund or premiums when the termination notices were sent, thereby allowing the statute to be triggered.
Plaintiff argued that a named beneficiary did not have any vested interest in the policy during the insured’s lifetime and, therefore, the statute should be triggered upon the death of the insured when the plaintiff’s interests became vested. This argument was rejected. The Court noted that the rights of a third-party beneficiary were no greater than those of the policy’s insured.