Business

The Fine Print | Sean P. Murphy

When a small error on a check costs you everything

Madeleine Maldonado wrote out “three thousand three hundred and 99/100” dollars on a check for $3,399.91. But on a chekc, words control the payment, not the numbers written in.
Suzanne Kreiter/Globe Staff
Madeleine Maldonado wrote out “three thousand three hundred and 99/100” dollars on a check for $3,399.91. But on a check, words control the payment, not the numbers written in.

The box on the check had the exact amount due written in: $3,399.91.

It paid the annual premium on Madeleine Maldonado’s long-term care insurance. If her health deteriorated, the insurance would kick in to cover thousands of dollars in monthly expenses for care at home or in a nursing home. At age 81, it was of vital importance for Maldonado to keep her insurance in effect.

But when she finally made a claim, Maldonado and her daughter were shocked to learn her insurer had canceled the policy due to a $98.92 error. She had written the correct amount in the box, but the words spelling out the amount were wrong.

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And when there’s a contradiction between numerals and words on a check, words control.

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Maldonado, of Concord, wrote “three thousand three hundred and 99/100” dollars. That meant her payment was short by $98.92.

Three months later, AIG, the insurer, terminated her policy for nonpayment after sending Maldonado two notices without hearing back from her or her family. Hundreds of thousands of dollars in potential coverage disappeared due to a mistake by someone in her ninth decade.

Coincidentally, I made the same mistake last month. And I’m merely in my seventh decade (just barely). I meant to pay a landscaping contractor $1,370, and penned that amount in the little box that appears on the top line of checks. But I wrote “one thousand three hundred and 70/100” dollars on the bottom line. Oops.

My contractor’s bank caught my mistake and withdrew $1,300.70 (the written amount) from my checking account and deposited it into his. The bank then gave him a heads-up. This contractor does a lot of work in my neighborhood. We are on friendly terms. He flashed me a good-natured text message. I immediately mailed a check for $69.30 to him. Problem solved.

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Clearly, Maldonado’s relationship with AIG was nothing like mine with the neighborhood landscaper.

Was it legal for AIG to cancel Maldonado’s policy?

The rules governing everyday business and banking transactions say if a check contains contradictory terms, “words prevail over numbers.”

The rationale is that writing words is more deliberative than writing numerals.

First point to be made: If you are writing checks to a recipient who owes you something contingent on your continued timely payments — like interest-free financing or insurance coverage — act like your life depends on making payments on time and in the right (written) amount.

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Another point: AIG is nothing like my neighborhood landscaping guy. AIG is as impersonal as they come. If you have long-term care insurance, your insurer hopes you drop dead of a heart attack or in a horrible, split-second accident. Just so long as it doesn’t have to pay while you linger in an expensive nursing home. It’s nothing personal. It’s a business calculation shared by AIG, one of the world’s largest and most notorious insurers. (See: financial crisis of 2008, $100 billion-plus bailout of AIG.)

Long-term care insurance has become a big loser for insurers. As the Globe’s Deirdre Fernandes recently reported, insurers badly miscalculated when they predicted the number of people likely to need nursing home care, versus the number likely to die before filing a claim. It’s a numbers game.

Carey Peabody, Maldonado’s daughter, appealed to AIG to accept a late payment and reinstate the policy. But instead of focusing on Maldonado’s obvious intent, AIG pointed to Maldonado’s failure to respond to an invoice for the past-due $98.92 or to a later notice of termination.

Peabody said her mother missed or misunderstood them. She said she doesn’t know if AIG refunded any portion of her mother’s premium. My thought: A rational person does not shell out thousands for a policy and then let it go, at her age, for lack of less than $100 — about the cost of one hour of nursing home care.

Cancelling long-term care insurance is a big step. Beneficiaries like Maldonado are afforded the extra protection of naming an adult child or other person to whom AIG will send a copy of the termination notice as a sort of backstop before it actually happens. It’s an implicit acknowledgment that comprehension of such matters may elude elderly beneficiaries like Maldonado.

But this safeguard didn’t work for her. Maldonado’s late husband — who was seven years her senior — apparently experienced a moment of confusion of his own. In a form submitted to AIG, he wrote Maldonado’s name in the place where her backstop was supposed to be listed. It was completely illogical to do so, in stark contravention of AIG’s protective policy goal. Yet no one at AIG caught it or did anything about it.

Peabody fought a yearlong telephone and e-mail battle with AIG. But the head honchos never blinked, even brushing off an offer of voluntary mediation from state Attorney General Maura Healey. In a letter to AIG, Healey’s office presented Peabody’s case for reinstatement, emphasizing Maldonado’s “good faith” efforts to maintain her policy. AIG replied that Maldonado had ample opportunity to realize her lapse and rectify it, but failed to do so.

A spokeswoman for Healey said “our office is taking a look at the overall industry practices of insurers who write long-term care policies.”

AIG responded that the company “honors our commitments to our policyholders and works hard to ensure that every claim is handled fairly. While we can’t comment on the specifics of individual policies, we are always willing to consider relevant new information in meeting all of our obligations to our customers.”

AIG also pointed out it has paid out billions in claims in recent years.

But nothing to Maldonado.

“The lower-level people at AIG agreed it looked unfair,” said Peabody, who lives in California, recalling her contacts with AIG. “But when they sent it up the chain of command it always came back down with a denial.”

Maldonado has been diagnosed with dementia. She’s looked after at home by family and professional care providers. It’s expensive to her family, and may become even more costly as her illness progresses and her needs intensify.

“Now is when she really needs her insurance,” said Peabody. “This is exactly why she had it.”

Sean P. Murphy can be reached at smurphy@globe.com. Follow him on Twitter @spmurphyboston.