Life Insurance Claim Articles

Just How Material Are Your Life Insurance Application Representations?

By Jeffrey L. Greyber, Esq.

As discussed in other articles featured on this website, one of the first things a life insurance company will turn to when deciding whether to pay a claim is the life insurance policy application. Why? Because there are very few ways (when compared to other types of insurance claims) for a life insurance company to try to deny a claim and voiding the policy ab initio (i.e., rescinding the policy as if it never existed) due to supposed misrepresentations on the life insurance policy application is one such way.

I encountered this situation quite recently – the life insurance company attempted to deny a $250,000.00 life insurance claim based on its contention that the deceased policyholder misrepresented his annual income on the life insurance policy application. The policyholder was a college student who worked part-time at a restaurant. On his 2012 life insurance policy application, the policyholder estimated his annual income at $8,000.00 … “estimated” because he, according to surviving family members and the life insurance agent who were privy to the application process, understandably thought the life insurance company was interested in what he would make during the prospective 2013 policy period, not in what he had previously made. During its claim assessment, the life insurance company requested and reviewed 2012 tax returns showing that the policyholder had made a few thousand dollars less in 2012 than what was represented on the application and did not assess 2013 tax returns. The life insurance company proceeded to deny the claim based on its contention that this few thousand dollars income delta would have caused it to not issue the policy; i.e., was material to its decision to issue the policy. The life insurance company’s denial was unlikely to hold water in front of a judge or jury for several reasons.

There are several different hurdles that a life insurance company needs to clear in order to effectuate a valid policy rescission based on supposed application misrepresentations. I’ll now discuss a few of these hurdles. First, assuming arguendo that the application representation was actually inaccurate, the life insurance company will need to show that the supposedly misrepresented information was material to its underwriters’ decision to issue the policy. Second, the life insurance company will need to show that it did not accept premium payments after it became aware of the supposed application misrepresentation. Third, the life insurance company will need to show that it promptly returned past premium payments to the policyholder in conjunction with its attempted policy rescission.

In the case discussed above, I wrote one letter to the carrier that included this language:

The carrier’s claim denial was premised on its belief that [John Doe’s] annual income was misrepresented on the subject insurance application. We believe the carrier’s claim denial is mistaken. As you can see from the enclosed [2013] tax returns, the $8,000.00 estimate set forth on the subject application for [John Doe’s] projected 2013 (the first policy period) income was quite close. The small difference between Mr. [Doe’s] projected 2013 income ($8,000.00) and his actual 2013 income ($7,217.00) certainly does not rise to the level of misrepresentation, and, upon information and belief, was not material to the carrier’s underwriting department’s decision to issue the subject policy.

Two days after sending this letter, I received a phone call from the life insurance company advising that the claim would be paid in full. If the carrier had not promptly done the right thing, such that litigation would have been required, there would have been several other arguments to make in favor of coverage. For example, the life insurance policy application was anything but clear as to whether it was asking the applicant to set forth past income or an estimate as to income during the prospective policy period. In many jurisdictions, the time-tested contractual doctrine of contra proferentem is alive and well. In short, this doctrine stands for the proposition that whenever insurance contract or application language is ambiguous such that it is subject to more than one reasonable interpretation, such language is to be interpreted against the drafter (i.e., against the insurance company).

Moral of the story? Don’t go quietly into the night if an insurance company attempts to deny a claim based on supposed insurance policy application misrepresentation. Give us a call, there are quite a few ways to unravel such a denial.

Related Denied Life Insurance Claim Articles

Life Insurance Claim Denied, Application Misrepresentation

By Jeffrey L. Greyber, Esq.

I have noticed arising issues in the life insurance arena as of late, and I would like to offer some practical tips to you, the policyholder. There are many unfortunate circumstances that can emanate when it comes to the life insurance field. For instance, if you are in the deplorable position of a loved one, with a life insurance policy, passing away. I have seen many times, the insurance company deny the claim because it dictates on the application that there are misrepresentations in the life insurance policy application.

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Life Insurance Claim Articles