Life insurance policies are purchased to provide security for our families and loved ones. Whether a life insurance policy was purchased directly from the insurance company, one of its agents or brokers, through a group or sponsoring organization, or was provided by an employer as a fringe benefit, if the person insured dies, as a beneficiary you want that life insurance claim to get paid.
Fortunately most life insurance claims are paid promptly with minimal hassle. Privately purchased life insurance policies that have been in force for 2 or more years normally are are paid promptly soon after the beneficiary submits the life insurer’s claim form plus proof of the death of the insured person, typically with a death certificate. Claims for death benefits provided under an employer-provided life insurance policy are also usually processed promptly, sometimes through the employer’s benefits office.
Claims for death benefits under privately purchased life insurance policies that have been in effect for less than 2 years typically undergo far more scrutiny. So do claims in situations in which there are competing claimants, each claiming he or she alone is entitled to the benefits. Unfortunately, this sometimes results in the named beneficiary’s life insurance claim being denied when the person is legally entitled to collect the proceeds of the policy. Life insurance companies employ large staffs of attorneys and claims examiners whose mandate is to find ways to protect the company and deny life insurance claims they can plausibly deny.
However, a life insurance company’s claim denial is not necessarily the final verdict. Any life insurance claims denial can be legally contested, opening the possibility that you can recover the funds that are rightfully owed to you, together with back interest, other consequential damages, plus punitive damages in appropriate cases where the company denied the claim in bad faith.
Situations where 2 or more people claim they are entitled to the full life insurance proceeds, or where no living beneficiary is named, also can involve delays. Even where the life insurance company recognizes it is liable to pay out the benefits, it still wants to make sure it is paying them to the right person so it won’t have to pay out the proceeds more than once. In such circumstances the life insurer typically files an “interpleader” action in an appropriate court, deposits the proceeds with the court, and then lets the competing claimants battle it out between themselves.
Are you a Victim of a Bad Faith Life Insurance Claim Denial?
While there are situations in which the denial of a life insurance claim is valid, sometimes the claim is denied mistakenly, or in bad faith.
The most frequent claims denials occur under the following scenarios:
- Death occurred in the contestability period: During the life insurance contestability period, usually the first two years of the policy, the insurance company has a lot more legal leeway to deny a claim; after this period, life insurance policies issued in the United States become “incontestable.” Given that life insurance companies would have to pay many times more in death benefits than they would have collected in premiums on a newly issued policy, it is no surprise that they make every effort to find a reason to deny benefits in such cases. Keep in mind:
- Everything that has been said on the policy application will be scrutinized, and possibly used as a reason to deny paying the death benefits or reduce the amount of benefits to be paid: the applicant’s age, his or her weight, height, medical history, doctors s/he has consulted, hospital treatment, employment history, driving history, arrest record …anything and everything. The insurance company will be able to access medical and other legal records and will examine them very closely.
- If you are filing a claim where the deceased died within the first two years of issue – or even when an older policy may have lapsed but was reinstated — it often pays to consult an experienced attorney before you file the claim and certainly before you start answering any questions or consent to any access to records.
- Alleged material misrepresentation: Innocent mistakes, errors, or omissions on the application for life insurance coverage – or made during any medical pr paramedical exam – can leave the intended beneficiary vulnerable to an eventual denial of a life insurance claim.
- The life insurer may deny benefits under a policy that was less than 2 years old only if the misstatement they are relying upon was of a “material fact.” Only such misstatements are legally sufficient for the life insurer to justify a denial of benefits within the first 2 years. However, the life insurer is likely to claim any innocent error is disqualifying, but that’s not the law.
- Further, any material misstatement the life insurer seeks to rely upon must have been made in writing and be attached to the policy. Claiming the applicant said X during the application process does not matter unless X was in writing and made part of the policy. Even then that would not necessarily doom the claim.
- If, during the application process, the insurance agent or an examining doctor or paramedical person led the applicant to complete the application erroneously, either accidentally or by design, you as beneficiary still may be able to recover the benefits owed to you. (Agents often encourage applicants to “shade” their answers as the agents do not earn any commission unless a policy is issued.) Considerations to keep in mind are:
- What was the question/statement that resulted in the claims denial? Was it ambiguous? Was it reasonably susceptible of being read by the insured in the manner he or she answered?
- Was the incorrect statement a “material misrepresentation of fact”? Not all misstatements are material. The usual test is: if the question had been answered correctly, would that have caused the insurer to deny issuance of the policy or to charge a higher premium for the policy? Those questions can involve the need for a detailed examination of the insurer’s underwriting criteria and actual everyday practices.
- Did the insurance agent or examing medical staff contribute to the material misstatement, or say something that may have impacted the applicant’s alleged false answer?
- Death during the application period: Many life insurance companies provide temporary life insurance (sometimes called “binders”) to cover the gap between the time the applicant submits the policy application and the insurance company finalizes issuance and delivery of the policy. (A side benefit to the insurer is that the temporary insurance keeps the customer from shopping around.) If a death occurs during this period, the applicant may legally be covered (for some amount, although not necessarily for the full amount of life insurance he or she applied for), the insurance company will likely scrutinize every aspect of the application and policy in painstaking detail to find a reason to reject the claim. A typical reason for denial in this instance is a claim of material misstatement of fact on the application or non-payment of the initial premium installment.
- Denial of accidental death benefits: Denial of accidental death benefits (sometimes known as “double indemnity” or “triple indemnity”) in a life insurance policy or a stand alone “accidental death policy are common, especially on policies more than two years old. In such cases, the life insurance company may pay the face value of the policy, but will deny the extra benefit for accidental death, claiming that the death was not a covered accident. Questions to ask are:
- Did the insured die in or from an accident – either as that term is defined within the policy or as the term “accident” is commonly understood?
- Was the type of “accident” involved specifically excluded from double indemnity benefits under the policy (such as “accidental death from use of illegal drugs”), and if so is that a valid basis for denial in the state involved?
- On what basis is the life insurer claiming the death was not caused by a covered accident? Very often even a minor car accident can cause undiagnosed chest or other trauma that quickly leads to a heart attack.
- Claim denied due to a lapsed policy due to delayed or non-payment: A claim can be denied if there was a failure to make timely payment of the required premium which resulted in the policy “lapsing”? But just because the insurance company claims the policy lapsed does not mean it necessarily did lapse and thus was not in effect. Questions to consider are:
- Did the life insurance company send a formal notice of the lapse on a timely basis? If so, was it understandable to an ordinary person? Was it sent to the proper address?
- Was payment of the premium sent to the life insurer or its agent?
- Was there a processing error or a failure on the part of the insurance company to automatically charge a bank or credit card account it was authorized to periodically debit?
- Was the payment made to an agent or intermediary who did not transmit it on a timely basis to life insurance company?
- Did the company have a pattern of accepting late payments?
- Did the policy contain a grace period?
- Did the policy have any cash value that should have been used to continue it in force or make full or partial payment?
- Was there any disability waiver of premium provision or other provision that may have excused the need for making payments?
- Reduced settlements: Some unscrupulous life insurance companies try to settle an incontestable policy (one in effect for at least 2 years) for a lesser amount, claiming some possible irregularity in the application, taking advantage of the beneficiary’s grief and confusion. If you have been offered less than the contracted amount of your policy, you should have an experienced life insurance lawyer help you investigate all your legal options.
When should you Contact a Lawyer?
You should contact an experienced life insurance lawyer as soon as possible once you receive the life insurance claim denial letter. In cases where a life insurance company has denied the claim in bad faith it may be possible to recover substantial punitive and other damages in addition to the face amount of the policy plus any double indemnity benefits.
Having an experienced team of life insurance attorneys on your side will enable you to protect your rights, bolster your case, and even the odds against the insurance company’s lawyers. The lawyers at Advocate Law Group P.C. are highly experienced in life insurance matters. Our lawyers have recovered millions in punitive damages, plus the face value of the policy, after a life insurer’s wrongful denial of a claim. Another partner was an Assistant General Counsel and later Chief Brokerage Executive of the nation’s largest life insurance company, and is well aware of the tricks some life insurers sometimes play. Advocate Law Group’s lawyers know life insurance law and how companies operate inside out, and that enables us to help you get everything you are entitled to, and sometimes much more.
If you or a family member has had a life insurance claim denied or reduced call Advocate Law Group at 1-888-ITS LEGAL or click here to chat with one of our legal professionals today.
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