By R. Michael Kemler, J.D., LL.M.

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Unum Life Insurance Co. canceled Dr. Daniel M Kane’s disability policy in apparent violation of the common law legal doctrine of "implied waiver": an insurer waives its right to cancel an insurance policy when it accepts a late premium payment.

My client is a hospital-based ophthalmologist, whose practice is primarily in micro-surgery and who is physically active. He purchased personal income & overhead expense disability insurance from Unum (then, one of the country’s major underwriters). Three years later, he severely fractured both wrists in a bicycle accident, with ensuing open reduction surgery and internal fixation to one wrist. The orthopaedist’s prognosis was guarded: due to further deterioration of this wrist, osteoarthritis, and the demands of ophthalmic surgery, my client had only another several years to practice ophthalmic surgery.

Unum provided initial, permanent benefits. It later denied partial benefits. It did this, in part, by subtracting from the doctor’s pre & post-disability net income loss the amount by which his Medicare reimbursement had declined. This left his net income above the threshold for partial benefits. Certain "waivered" premiums were not returned. In early 1995, my client made a late premium payment, beyond the grace period. The insurer accepted the late payment, depositing it into its bank account. Two days later, the insurer wrote my client, informing him that since the payment had been received beyond the grace period, his coverage had "lapsed."

The insurer accepted a late payment and, then, canceled the policy of a high risk/high income physician-insured. It violated the implied waiver rule. Negotiation was fruitless. The case is in litigation, in federal court, at great burden and expense to the physician-insured.