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WAIVER AND ESTOPPEL

The concepts of waiver and estoppel are quite similar and easy to confuse. Some courts treat waiver and estoppel as two parts of the same theory.

Waiver: the voluntary and intentional surrender of a known right. By a waiver, a party relinquishes a right. For example, if an insurer issues a policy even though the medical questionnaire has not been completed and was not signed by the applicant, the insurer will have waived the right to have that information.

Nevertheless, the law is clear that some waivers are forbidden. No party to an insurance contract may waive a right that also partly benefits the general public. For example, the insurable interest requirement benefits the public as well as the insurer; thus an insurer may not waive its right to demand that the applicant have an insurable interest in the life of the insured at the time the policy is applied for. Similarly, a policyowner may not waive his or her rights to nonforfeiture values or premium notices.

Granting a waiver is not necessarily permanent. An insurer may elect to waive a particular right for one time and one purpose only. If so, the waiver will have no effect on future actions between the parties. If a party has repeatedly waived a contractual right in the past, it can reclaim that right simply by notifying the other party that it intends to reassert that right in the future.

Estoppel: the loss of the ability to assert a defense because the party has acted in a manner inconsistent with that defense. For example, if an insurer has repeatedly accepted payment of late premiums after the end of the grace period without requiring the insured to comply with the reinstatement process, the insurer may be prohibited (estopped) from requiring a reinstatement for future late premiums. This may be the result even if the prior late premiums were accepted by mistake and without recognizing that they were late.

There is a fine distinction between the example above and the rule that the concept of estoppel may not be used to create coverage or to extend coverage beyond that assumed by the insurer in the contract. A classic case is Pierce v. Homesteaders Life Association. The policy in that case provided that the death benefit was payable only if the insured died before age 60. The policyowner paid and the insurer accepted premium payment through the end of September of the year in which the insured turned 60. The insured�s 60th birthday was on March 3, and she died on March 11. The insured�s beneficiary filed a claim for the death benefit asserting that because the insurer had accepted a premium payment for a period beyond the insured�s 60th birthday, the insurance company had waived that contractual limitation and should therefore be estopped from denying coverage. The court held for the insurer and asserted that coverage cannot be created by waiver.

The essence of the distinction between the example and the case is narrow but clear. In the case, no coverage was to be provided after the insured reached age 60. Estoppel could not be invoked to create something that never existed. In the example, coverage existed for the insured subject to the condition that premiums be paid on time. The insurance company�s actions were inconsistent with the existence of that timely premium payment condition; thus the insurance company was estopped from asserting it.

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