Can Life Insurance Companies Deny a Claim?
At first glance, life insurance seems like a fairly simple process. The policyholder applies for insurance with a specified death benefit, and, after he or she dies, the beneficiary or beneficiaries will receive this benefit in full. However, this is not always the case.
Insurance companies will frequently deny benefits to claimants due to misrepresentations during the policy’s contestability period (see our previous blog post).
The Laws Governing Insurance Vary From State to State
Each state has unique laws limiting the insurance company’s ability to rely on misrepresentations on the application to avoid liability. Typical statutes require some combination of three main elements: intent, materiality, and relation to the insured’s cause of death.
An Insurer Must Prove “Intent to Deceive”
Some states provide that an insurer cannot deny claims unless they prove that the misrepresentations were made with the “intent to deceive” the insurer. This means that the policyholder intentionally lied while filling out the application for life insurance.
For instance, Alabama Code §27-14-28 states that no “misrepresentation … under any insurance policy shall defeat or void the policy unless such misrepresentation is made with the actual intent to deceive as to a matter material to the insured’s rights under the policy.”
If an insurer voids an Alabama policy due to misrepresentations on the application, they must prove that these misrepresentations were knowingly and willfully made.
What is Material Misrepresentation on an Insurance Application?
Most states require that a misrepresentation be “material” in order to void a policy and deny a beneficiary’s life insurance claim. Within the context of life insurance, this means that the misrepresentation must have substantially affected the insurer’s decision to issue the policy in question. If the misrepresentation was “immaterial,” or did not affect the insurability of the insured, then the policy cannot be voided.
For instance, California Insurance Code § 359 allows insurers to “rescind the [insurance] contract” provided that “a representation is false in a material point.” The materiality of specific misrepresentations is hotly contested between denied claimants and insurance companies.
Misrepresentation Must be Relevant to Cause of Death
Five states (Kansas, Missouri, Nebraska, Rhode Island, and South Carolina) provide that misrepresentations cannot void a life insurance policy unless they “contribute” to the insurer’s “loss.”
For instance, Neb. Rev. Stat. § 44-358 dictates that the “breach of a warranty or condition in any contract or policy of insurance shall not avoid the policy nor avail the insurer to avoid liability, unless such breach shall exist at the time of the loss and contribute to the loss.” This means that a connection must exist between the misrepresentations in question and the insured’s cause of death (which leads to the insurer’s “loss”).
For instance, if the insured neglected to mention a diagnosis of diabetes when applying for life insurance but died in an automobile accident, the insurer could not legally void his policy due to the misrepresentation of diabetes.
Insurance companies will frequently deny claims based on misrepresentations that were not material to their risk, made without the intent to deceive, or irrelevant to the insured’s cause of death. For example, our client’s claim was denied when the insured died of COPD. We showed that the insured was never diagnosed with COPD, therefore there was no intent to decieve. WE got out client paid. Another client’s claim was denied due to “incorrectly answered questions” on the application. The insured died of natural causes, therefore, there was not only no intent to deceive but the insurer could not show that any errors on the application were material to their risk. Again, we got our client paid.
If the Misrepresentation Was Made By The Insurance Agent, the Beneficiary Can Get Paid
We have seen many, many cases where the application was filled out incorrectly by the insurance agent, despite the insured giving the agent correct information, and the claim was denied. As a general rule, anything the agent knows is imputed to the insurance company, so the insurance company cannot deny a claim based on misrepresentation under these facts.
If your claim has been unjustly denied or delayed due to alleged misrepresentation, don’t hesitate to ask an experienced life insurance lawyer to evaluate your case.
§ 27-14-7. Representations in applications doesn’t require intent to deceive – just material to the risk? Does the court still require intent to deceive in its common law? Can you show a life insurance case?
I purchased a term life insurance policy 25 years ago that included the opportunity to convert to a whole life insurance policy without a medical exam when the term policy ends.
25 years later, obviously my heath is not what it was. But since they are not asking for any health info… can the insurance company claim fraudulent misrepresentation if there are health claims that would have otherwise excluded me from being insured? For example: what if I have been diagnoses with a terminal disease and anticipate death within 5-8 years?
If they, the insurance company, did not ask if there were any changes to my health, would I be at risk of “fraudulent misrepresentation” by not offering the info? and risk my claim being denied by the insurance company?
Shouldn’t Arkansas be included with the 5 states you list under “Cause of Death” above. ARK. CODE ANN. § 23-79-107(c) states: In any action to rescind any policy or contract or to recover thereon, a misrepresentation is material if there is a causal relationship between the misrepresentation and the hazard resulting in a loss under the policy or contract.