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No. 2--01--1349

PRESIDING JUSTICE HUTCHINSON delivered the opinion of thecourt:

Defendant, Old Line Life Insurance Company of America, appealsthe circuit court's judgment in favor of plaintiff, Robert J.Nelson. The trial court ruled that defendant was liable to payplaintiff the proceeds of a $200,000 life insurance policy. Onappeal, defendant argues that it was not liable under the policybecause the insured's death occurred more than six months after thepolicy had lapsed due to the insured's failure to pay the premium. See 215 ILCS 5/234(1) (West 2000)). We reverse.

In May 1995, defendant issued a $200,000 life insurance policyto plaintiff's wife, Wendy Nelson. The insured named plaintiff asthe beneficiary of the policy. Premium payments were due May 1 andNovember 1 of each year. The policy provides a 31-day grace periodfor late premium payments. The provision states that the policywill remain in force during the grace period, but if the premium"is not paid by the end of this period, insurance will cease." Another provision of the policy provides that "[a]ny premium, afterthe first, not paid on or before its due date will be in default. Such due date will be the date of default."

The insured paid all premiums due through May 1, 1999. OnOctober 10, 1999, defendant sent the insured a notice that thepremium was due on November 1, 1999. However, the insured did notpay the premium. On November 21, 1999, defendant sent a noticereminding the insured that the premium was past due. Finally, onDecember 31, 1999, defendant sent the insured a notice that thepolicy had been terminated. Wendy Nelson died on May 23, 2000. Plaintiff made a claim to receive the $200,000 death benefit underthe policy, and defendant refused to pay plaintiff. Plaintiff thenfiled this declaratory judgment action seeking a determination thathe was entitled to receive the death benefit.

In the trial court, plaintiff relied on section 234(1) of theIllinois Insurance Code (the Code) (215 ILCS 5/234(1) (West 2000)). Section 234(1) provides in pertinent part as follows:

"No life company doing business in this State shalldeclare any policy forfeited or lapsed within six months afterdefault in payment of any premium installment or interest orany portion thereof, nor shall any such policy be forfeited orlapsed by reason of nonpayment when due of any premium,installment or interest, or any portion thereof, required bythe terms of the policy to be paid, within six months from thedefault in payment of such premium, installment or interest,unless a written or printed notice stating the amount of suchpremium, installment, interest or portion thereof due on suchpolicy, the place where it shall be paid and the person towhom the same is payable, shall have been duly addressed andmailed with the required postage affixed, to the person whoselife is insured *** at least fifteen days and not more thanforty-five days prior to the day when the same is due andpayable, before the beginning of the period of grace ***. Such notice shall also state that unless such premium or othersums due shall be paid to the company or its agents the policyand all payments thereon will become forfeited and void,except as to the right to a surrender value or paid-up policyas provided for by the policy." 215 ILCS 5/234(1) (West2000).

Plaintiff argued that the notices defendant sent to the insured didnot comply with section 234(1) of the Code. Relying on FirstNational Bank v. Mutual Trust Life Insurance Co., 122 Ill. 2d 116,122 (1988), plaintiff argued that a life insurance policy isforfeited under section 234(1) only when a premium remains unpaidfor "six months plus any period of extended coverage made possibleby the policy's provisions." Plaintiff argued that the policy's31-day grace period was a "period of extended coverage" and,therefore, the six-month provision of section 234(1) did not beginto run until the end of the policy's grace period. Plaintiffargued that, because the insured died within six months of the endof the grace period, the policy remained in force and plaintiff wasentitled to the proceeds. The trial court agreed and awardedplaintiff the death benefit. Defendant timely appeals.

On appeal, defendant concedes that the notices it sent to theinsured did not comply strictly with section 234(1) of the Code. Defendant contends that, despite the deficiencies of its notices,section 234(1) expressly granted it the authority to cancel theinsured's policy six months following the "date of default." Defendant notes that its policy with the insured unambiguouslydefines the date of default as the date a premium is due andunpaid. Thus, defendant argues, its cancellation became effectiveon May 1, 2000, which was six months after the November 1 due datefor the payment of the premium. Because the insured died more thansix months after the November 1, 1999, premium was missed,defendant argues that the policy was forfeited and plaintiff wasnot entitled to recover the death benefit. Defendant argues thatthe trial court erred in relying on First National Bank, whichdefendant contends is factually distinguishable.

A resolution of defendant's contention requires a constructionof section 234(1) of the Code and the language of the insured'slife insurance policy. In construing a statute, a court mustascertain and give effect to the legislature's intent in enactingthe statute. Collins v. Board of Trustees of the Firemen's Annuity& Benefit Fund, 155 Ill. 2d 103, 110 (1993). The statutorylanguage is usually the best indication of the drafters' intent,and the language should be given its plain, ordinary, and popularlyunderstood meaning. Collins, 155 Ill. 2d at 111. The constructionof a statute is an issue of law that we review de novo. In reDetention of Lieberman, 201 Ill. 2d 300, 307 (2002).

Similarly, in construing an insurance policy, the mainobjective is to ascertain the parties' intentions as expressed inthe agreement. SCR Medical Transportation Services, Inc. v.Browne, 335 Ill. App. 3d 585, 591 (2002). If the provisions of apolicy are clear and unambiguous, they must be given their plain,ordinary, and popular meaning. Browne, 335 Ill. App. 3d at 591;Wausau Insurance Co. v. All Chicagoland Moving & Storage Co., 333Ill. App. 3d 1116, 1124 (2002). The construction of an insurancepolicy is a matter of law subject to de novo review. WausauInsurance, 333 Ill. App. 3d at 1124.

Section 234(1) plainly provides that a life insurance policymay not be forfeited within six months of the date of "default." 215 ILCS 5/234(1) (West 2000). The insured's policy, in turn,defines the date of default as the date a premium payment ismissed. Therefore, under the plain language of section 234(1) andthe policy, defendant could lawfully cancel the insured's policyafter the insured failed to pay the premium within six months ofthe date that it was originally due. Here, the premium was due onNovember 1, 1999. The insured failed to pay the premium by thisdate and the policy was in default. After the insured failed topay the premium by May 1, 2000, which was six months after the dateof default, defendant could lawfully cancel the policy undersection 234(1) of the Code. Therefore, the policy was no longer ineffect at the time of the insured's death on May 23, 2000, anddefendant was not obligated to pay plaintiff the death benefit.

Relying again on First National Bank, plaintiff argues thatthe 31-day grace period under the policy postpones the start of thesix-month statutory period under section 234(1). In First NationalBank, an insurance company applied the accumulated cash value of alife insurance policy to pay the missed premiums and extend thecoverage, as the policy allowed. In determining at what point thepolicy was forfeited under section 234(1), the Illinois SupremeCourt stated that a forfeiture occurred when the premium remainedunpaid for "six months plus any period of extended coverage madepossible by the policy's provisions." First National Bank, 122Ill. 2d at 122. The "extended coverage" referred to in FirstNational Bank was clearly the additional coverage purchased byusing the policy's cash value or "paid up" provisions. The court'sopinion makes no reference to a 31-day grace period as an "extendedcoverage" for purposes of section 234(1) and we reject plaintiff'sassertions that such a conclusion may be inferred from theopinion's language. Moreover, as defendant notes, the court'sinterpretation of section 234(1) was dicta, as the insured in FirstNational Bank died long after the six-month period ended. FirstNational Bank, 122 Ill. 2d at 118, 121-22. For these reasons,First National Bank does not govern the facts before us. Indeed,our research has uncovered no case holding that a 31-day graceperiod operates as extension of coverage. See generally Estate ofBlakely v. Federal Kemper Life Assurance Co., 267 Ill. App. 3d 100,110 (1994) (holding that decedent's overpayment of premiums duringthe policy's first year extended coverage so that the policy wouldnot have lapsed at the time of his death); see also Hall v.Metropolitan Life Insurance Co., No. 95--C--2718 (N.D. Ill. 1998).

In what is apparently the only case involving this precisefact situation, a New York court held that a one-year statutorynonforfeiture provision began to run from the date of default, notfrom the end of the policy's grace period. Pinkof v. Mutual LifeInsurance Co. of New York, 49 A.D.2d 452, 375 N.Y.S.2d 618 (1975). Pinkof involved the interpretation of a statute similar to section234(1) of the Code. In that case, the insured failed to pay apremium and then died more than a year after missing the premiumpayment, but less than a year after the grace period had expired. Finding that the policy had been forfeited, the Pinkof courtobserved that, if the New York legislature had intended for thestatutory period to begin after a default plus the policy's graceperiod, it could easily have said so. Pinkof, 49 A.D.2d at 456,375 N.Y.S.2d at 621.

Although we are not bound by Pinkof, we find its analysispersuasive because it is predicated upon statutory construction ofa similar statute and gives effect to the statute's plain language. The Illinois Supreme Court has repeatedly expressed its preferencefor construing a statute according to its plain language. See,e.g., Collins, 155 Ill. 2d at 111. In our view, the 31-day graceprovision in the insured's policy and the statutory nonforfeitureprovision clearly serve separate functions. The policy provisionapplies where the insurance company provides adequate notice thatthe premium is due. The six-month statutory provision contained insection 234(1) is an alternative period that applies where theinsurer does not provide acceptable notice. Plaintiff offers nopersuasive policy reason for tacking these provisions onto oneanother.

Plaintiff alternatively contends that we should not defer tothe policy's definition of "date of default." According toplaintiff, doing so would allow insurance companies to employ"creative drafting" to circumvent section 234(1)'s six-monthnonforfeiture provision. However, far from being an attempt at"creative drafting," the defendant's policy simply gives the phraseits commonly accepted meaning. See Black's Law Dictionary 428 (7thed. 1999) (default means "the failure to pay a debt when due"). The words of an insurance policy generally should be given theirplain and ordinary meaning, and plaintiff has not suggested anyreason to depart from that meaning here. We reject plaintiff'ssuggestion that defendant had attempted to avoid the application ofsection 234(1). Rather, for the reasons detailed above, we holdthat the trial court erred in ruling that defendant was liable topay plaintiff the death benefit under the insured's policy.

For the foregoing reasons, the judgment of the circuit courtof Lake County is reversed.

Reversed.

CALLUM and GILLERAN JOHNSON, JJ., concur.