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October 9, 2020

An employees’ group life insurance policy contained a condition precedent to coverage: any employees on leave at the time of the group’s enrollment must have returned to “Active Service,” meaning they had to return from leave to work for a least one day, before the policy would become effective as to that employee.

An employee was on medical leave at the time the group policy issued, and passed away six months later without ever having returned to work. The carrier denied coverage based on the employee’s failure to have returned to “Active Service.” The employee’s beneficiary sued, and alleged that the carrier had waived the “Active Service” requirement by (1) allowing its agent, the employer, to collect premiums, leading the employee to believe the policy was in effect, and (2) failing to ensure the employer adequately explained the “Active Service” requirement, which the employee could easily have satisfied had she known what was required. The trial court dismissed the lawsuit. 

The Court of Appeal reversed. The court held that while waiver and estoppel cannot be used to establish coverage for claims or losses that are not, in fact, covered by the policy, these doctrines can be used to preclude an insurer from relying on the failure of a condition precedent to coverage. Applying waiver and estoppel in the latter circumstance does not create coverage, but provides coverage for which the insured thought he or she had paid. Here, by collecting premiums from the employee as if the policy were in effect and never giving clear notice to the employee that she had not satisfied the “Active Service” requirement, the carrier could be estopped from asserting the policy never went into effect.