## Facts

- An individual policyholder entered into two monthly-premium insurance contracts with an insurer: a medical-care insurance contract (Aug. 1, 2004) and a life-insurance contract (Mar. 1, 2005).
- Standard-form policy conditions set monthly premium due dates and provided a grace period through the end of the following month.
- The conditions included an automatic lapse clause stating that if premiums were not paid within the grace period, the contract would lapse the day after the grace period expired, without any further demand for performance.
- The conditions also included an automatic premium loan feature, permitting the insurer to advance unpaid premiums (with interest) against surrender value up to the amount available, delaying lapse while sufficient value remained.
- The policyholder failed to pay premiums and did not cure the default within the grace period; the insurer treated the contracts as lapsed under the clause.
- The policyholder sued, seeking to treat coverage as continuing on the theory that the lapse clause was void under consumer protection law.

## Issues

1. Whether a standard-form life-insurance term providing for automatic lapse upon nonpayment after a grace period, without further demand for performance, is void as an unfair term under Consumer Contract Act art. 10 (contrary to Civil Code good faith).
2. Whether the insurer properly treated the policyholder’s contracts as lapsed under the policy conditions.

## Decision

- The Supreme Court of Japan (Third Petty Bench) held the automatic lapse clause valid and not void under Consumer Contract Act art. 10.
- The Court reversed the high court’s ruling that had invalidated the clause.
- The Court concluded the insurer properly treated the contracts as lapsed following nonpayment and expiration of the grace period (as moderated by the policy’s automatic loan feature).

## Legal Principles

- Parties may contract around default Civil Code termination rules (including demand-for-performance requirements) in long-term, periodic-performance agreements, subject to limits imposed by consumer protection law.
- Under Consumer Contract Act art. 10, invalidity turns on whether a standard term, assessed in context, unilaterally harms consumer interests contrary to the Civil Code good-faith principle.
- An automatic lapse mechanism in life insurance is generally permissible where the overall design reasonably balances interests—e.g., clear disclosure of due dates and grace periods and mitigating features such as automatic premium loans and reinstatement options.
- A clause is not unfair merely because it dispenses with an individualized demand for performance when the consequences of nonpayment are defined, predictable, and tied to the contract’s risk and reserve structure.

## Conclusion

The Supreme Court upheld a life-insurance automatic lapse clause that ended coverage after a defined grace period without further demand, holding that—given the contract’s structure and mitigating protections—the term did not unilaterally impair consumer interests and was not void under Consumer Contract Act art. 10.


X v. Y Insurance Co., 66 Minshū 2216 (Sup. Ct. Japan 2012)