X v. Y Insurance Co.

An individual, X (plaintiff) entered into contracts with insurance company Y (defendant) for life insurance and medical insurance. The contracts for the insurance policies contained lapse clauses, which would cause the policies to lapse if X failed to make timely payments. If X did not make a payment during the month in which it was due, then the contract allowed a one-month grace period during which X could make the payment before the policy would lapse. There was also an automatic premium loan provision, under which Y would loan the amount of the premium to X as long as the past-due premiums were not more than the policy’s surrender value. Additionally, there was an option for X to reinstate the policies within one year of lapse at the discretion of Y. Y also had a system of reminders in place to let X and other customers know when premiums were due or past due. X failed to pay his insurance premiums in January 2007 and then failed to pay during the grace period in February 2007, causing the policies to lapse. X filed a lawsuit, asking for the life-insurance policies to be reinstated by the court. The Tokyo High Court held that the lapse clause was invalid under Article 10 of the Consumer Contract Act, which essentially prohibited businesses from creating unfair contracts with consumers. Y appealed to the Supreme Court of Japan.