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MCKEE v. FEDERAL KEMPER LIFE ASSUR. CO.

November 13, 1989

ROSE NELL MCKEE, PLAINTIFF,
v.
FEDERAL KEMPER LIFE ASSURANCE COMPANY, DEFENDANT



The opinion of the court was delivered by: HOWARD, JR.

 GEORGE HOWARD, JR., UNITED STATES DISTRICT JUDGE

 On May 8, 1989, plaintiff filed an action in the Circuit Court of Craighead County, Arkansas seeking proceeds of a life insurance policy, along with a statutory penalty and attorney's fees for failure of defendant to pay. Defendant removed the action to this Court. Pending before the Court are cross motions for summary judgment. Most of the facts, recited below, are not in dispute. *fn1"

 On April 27, 1988, Bobby McKee completed an application with defendant for a life insurance policy in the amount of five million dollars. The policy was issued on July 1, 1988, naming plaintiff as the beneficiary. It had a two year contestable period. Bobby McKee was killed in a tragic car accident on a highway outside Kennett, Missouri on February 20, 1989.

 Plaintiff submitted a proof of loss to defendant's agent, Ricky Lynn Floyd, on March 1, 1989. Defendant received the proof of loss on Friday, March 3, 1989.

 On March 6, 1989, Mary Beth Jachec, claims representative with defendant, assigned the investigation of McKee's death to Equifax. On March 15, 1989, Jachec wrote plaintiff's counsel to advise them that the investigation had begun but that payment may be delayed due to the investigation. Plaintiff's counsel was also informed that a normal investigation would take between six to eight weeks and that the five million dollar policy would accrue interest at the rate of eight percent from the date of death.

 On March 20, 1989, plaintiff's counsel wrote defendant requesting that the settlement check be forwarded to them when the claim was complete. Jachec wrote plaintiff's counsel on April 10, 1989, to advise them that defendant was still awaiting additional information. By letter dated May 2, 1989, Jachec informed counsel that defendant was awaiting one more report before the claim would be finalized.

 Payment was approved on May 3, 1989, and a check for $ 5,072,454.24 issued on that date was mailed to plaintiff's counsel by letter dated May 4, 1989. The check was received by plaintiff's counsel on Saturday, May 6, 1989. On Monday, May 8, 1989, counsel returned the check and enclosed in the same envelope a summons and complaint asserting that the check was paid more than two months after the date of proof of loss and was for an incorrect amount.

 ANALYSIS

 Plaintiff contends that defendant was required to pay the policy proceeds within two months after receipt of proof of loss. She relies on A.C.A. sec. 23-81-113 which provides:

 
(a) There shall be a provision that when a policy shall become a claim by the death of the insured, settlement shall be made upon receipt of due proof of death and, at the insurer's option, surrender of the policy or proof of the interest of the claimant or both surrender and proof.
 
(b) If any insurer shall specify a particular period prior to the expiration of which settlement shall be made, the period shall not exceed two (2) ...

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