Reviewed by Chad G. Boonswang, Esq.
Yes. A life insurance policy is a contract, and when an insurer refuses to pay a valid death claim, the beneficiary can sue to enforce it. In some states, a beneficiary can also sue for bad faith when the insurer’s conduct goes beyond a simple disagreement over coverage. Most of my cases resolve without a trial, but being ready to file suit is often what gets an insurer to pay.
When You Can Sue a Life Insurance Company
The most common reasons beneficiaries sue are:
- The claim was denied for a reason the policy or the law doesn’t support.
- The insurer is delaying payment without a legitimate reason.
- The insurer rescinded the policy over an application error that wasn’t material.
- The insurer says the policy lapsed but didn’t send the notices the law requires.
- The insurer is applying an exclusion to facts it doesn’t fit.
Breach of Contract vs. Bad Faith Claims
A beneficiary who isn’t paid can sue for breach of contract. In a breach of contract case, the recovery is generally limited to the death benefit owed under the policy, plus interest.
When an insurer unfairly delays or denies a valid claim, the beneficiary may also have a bad faith claim. The law reads an implied covenant of good faith and fair dealing into every insurance contract, even if the contract doesn’t say so. A bad faith claim is a tort claim, and depending on the state, it can allow recovery beyond the policy limits for harm caused by the insurer’s conduct, and in some cases punitive damages or attorney’s fees.
Examples of Bad Faith Conduct
- Denying a claim without a reasonable basis
- Delaying the claim unreasonably
- Offering an unreasonably low settlement
- Failing to investigate properly
- Misrepresenting what the policy says
- Failing to explain a denial in a timely, reasonable way
- Cancelling a policy without a valid reason
Is Bad Faith Hard to Prove?
It can be. The beneficiary generally has to show the insurer had no reasonable basis to deny the benefits and knew it, or recklessly ignored it. That usually means a close review of the insurer’s claim file, its procedures, the policy and the facts of the claim.
Employer Coverage Is Different: ERISA
If the life insurance came through an employer, the policy is probably governed by ERISA, a federal law. ERISA changes the rules in important ways. You usually have to file an administrative appeal with the plan before you can sue. The court generally reviews the claim file built during that appeal. And state-law bad faith claims are usually preempted, so the recovery is generally limited to the benefits owed, plus interest and possibly attorney’s fees. Getting the administrative appeal right matters, so talk to an ERISA attorney before you file it.
What to Do Before You Sue
- Get the denial in writing, including the specific reason and the policy provisions the insurer relied on.
- Request the full policy, the application, the premium history and the insurer’s claim file.
- Follow any internal appeal process the policy or ERISA requires, and meet every deadline.
- Keep a record of every phone call, email and letter: the date, the time, who you spoke with and what was said.
- Talk to a life insurance lawyer before you send the insurer anything new.
A claims journal makes it much easier to show what happened. Save every letter and email the insurer sends, and write down every phone call as soon as it ends.
What You Could Recover
In most cases, the recovery is the death benefit plus interest. Many states require interest on unpaid death benefits, often running from the date of death. Depending on the state and the type of claim, a beneficiary may also recover attorney’s fees and, in bad faith cases, additional damages.
How Long Do You Have to Sue?
It depends on the policy and the state. Many policies include a contractual deadline for filing suit, and state statutes of limitation also apply. For ERISA plans, the deadline may be set by the plan and may start running after the appeal is denied. Don’t wait to find out which applies to you.
What to Expect If You File a Lawsuit
Most life insurance lawsuits settle before trial, often after the insurer has to produce its claim file and its reasons are tested. The process usually involves filing the complaint, exchanging documents, taking depositions of the people involved in the decision, and settlement negotiations. Some cases are resolved in months, others take longer, particularly if the insurer files an interpleader action because more than one person claims the benefit.
Talk to A Life Insurance Lawyer Before You Sue
I represent beneficiaries whose life insurance claims were denied or delayed, and I’ll review your claim for free. I work on a contingency fee, so you won’t pay any legal fees unless I recover benefits for you. Contact me to talk about your case.