By NEIL HARTNELL
Tribune Business Editor
A Bahamian attorney has lost his battle with Colina Insurance Company after the appeals court rejected claims that his $150,000 life insurance policy had "unlawfully lapsed".
Dorsey McPhee, representing himself, had challenged Justice Indra Charles's Supreme Court verdict that his Account Value had a "zero balance" as a result of five lapses due to non-payment of the due premium.
He had argued that its investment account should have held $6,707 in August 2014, sufficient to pay the premium payment that resulted in the policy's cancellation, but the Court of Appeal backed the judge's finding that it was actually overdrawn by $305.
Appeal Justice Roy Jones, in a unanimous verdict, backed the Supreme Court's finding that the BISX-listed life and health insurer had the right under the policy contract to increase the premium payments and Guaranteed Cost of Insurance (GCOI) due to Mr McPhee's failures to make timely premium payments.
The dispute related to the life insurance policy taken out by Mr McPhee on October 7, 2003, from Canada Life just prior to that company's early 2004 acquisition by Colina Insurance Company. The latter subsequently became the underwriter with the responsibility to honour the contract with the attorney.
"The face value of the policy was $150,000 with quarterly premium payments of $528.12, payable four times a year," the Court of Appeal found. "The policy provided for monthly deductions comprising the GCOI, which was initially $74.62; waiver of premium of $12.76; and an expense charge of $9. These deductions amounted to $96.38.
"The respondent [Colina] increased the GCOI each year under a provision in the policy for a yearly renewable term per $1,000 of insurance coverage. Under the contract, the appellant [Mr McPhee] could apply to have the GCOI changed from a yearly renewable term to a level rate if certain conditions were satisfied. However, the appellant did not exercise this choice and consequently the GCOI continued to increase."
The Court of Appeal added that Colina also adjusted the interest applied to the policy's investment account, increasing it to 3 percent from 1 percent in February 2005. A second adjustment accounted for the Government's decision to increase the insurance premium tax from 2 percent to 3 percent in 2004.
Mr McPhee first challenged his increasing premiums on March 4, 2014, describing them as a "mortality tax that was not provided for under the terms of his contract". He also sought information about his investment when he became 66.
Colina, noting that the policy had lapsed five times between December 2005 and December 2013, advised Mr McPhee that the policy's account value stood at $53.50 as of April 30, 2014, because of the premium defaults.
The insurer informed him this was not sufficient to meet the premium payments becoming due, and warned on August 18, 2014, that it would lapse the policy if the due premium was not paid by September 7 that year. Mr McPhee duly paid on September 8 but, despite being just one day late, Colina "refused to deposit the premiums into the account because the policy had already lapsed and was cancelled".
Mr McPhee challenged Colina's ability to increase the GCOI and premium payment due to the several lapses, arguing that a "policy illustration summary" attached to his insurance contract made no mention of the "guaranteed cost" or any associated annual premium increases.
"The appellant argues that the respondent has confused the 'Cost of Insurance Option - Yearly Renewable Term' - (the cost per $1000 of coverage increases annually) - with the contractual term GCOI, which is merely the deduction from the account value used to pay for the insurance," Justice Jones wrote.
"However, page six of the Policy Illustration document signed by the appellant makes it clear that "this illustration is neither a contract nor an offer to provide insurance. In the event the policy is applied for and issued, the terms of this contract shall prevail'."
Justice Jones found that the Supreme Court was "entitled to take the view the policy contract gave [Colina] the power to increase the premium payments and GCOI when the policy lapsed, and the appellant [Mr McPhee] applied for its reinstatement. There is no merit in this ground of appeal".
Justice Charles had found that the policy allowed for an increase every year per $1,000 of insurance coverage, and that Mr McPhee had failed to alter the GCOI from a yearly renewable rate to a level rate.
The Court of Appeal also rejected Mr McPhee's challenge to Colina lapsing and terminating his policy on September 7, 2014, finding that the Supreme Court could not be faulted for its verdict.
Justice Jones wrote: "The appellant contends that because his insurance policy provided permanent insurance protection as well as an investment account, his premiums included an additional amount placed in an interest-bearing investment account. This savings facility allows the insured to borrow or surrender the policy against the accumulated amount.
"The appellant argues that this feature also allowed for the deduction of premium payments from that account when they were not made or were not paid in full. The appellant asserts that the balance in his investment account as of August 9, 2014, was at least $6,707. On this basis, he says, there were sufficient funds to pay outstanding premiums and avoid the policy lapsing due to non-payment in September 2014."
The multiple lapses and failure to meet due premium payments, the Court of Appeal found, resulted in the policy's investment account lacking sufficient funds to meet these obligations.
"It can be concluded from this that if the appellant had paid his premiums in a timely fashion, the policy would have had a positive investment account value and would not have lapsed," Justice Jones ruled. "Instead, the trial judge found that the balance on the account was $305 overdrawn and thus was insufficient to meet the premium payment."