Throughout the United States, insurers generally have the right to rescind a contestable policy when material misrepresentations have been made in the application. However, each jurisdiction may have specific requirements as to the circumstances allowing rescission or regarding how the misrepresentations can be proven. A life insurance attorney should be retained: we are number one.
Choice of Law in Life Insurance Rescission Cases
When deciding whether to rescind a policy, insurers must first determine which
state's law applies. Because a proper rescission in one state may create bad faith
liability in another, this determination should be made carefully and without
Two recent cases illustrate the choice of law analysis in rescission cases. In
Gomez-Silva v. Jackson National Life Insurance Co., No. CV09-2120, 2011 WL
1656507 (D. Ariz. May 3, 2011), the court analyzed whether Arizona or
California law applied. Even though the policy in Gomez-Silva provided that California law applied, the court held that the choice of law provision in the policy was not dispositive since the provision was not contained in the application, as stated in § 192. The court then concluded that Arizona law applied because the insured was domiciled in
Arizona when he submitted the application and because California did not have a more significant relationship to the parties or the transaction, as provided in § 6 of the Restatement.
In American General Life Insurance Co. v. Billard, No. C10-1012, 2011 WL
797675 (N.D. Iowa March 1, 2011), the court applied § 192 of the Restatement to
determine the applicable state law. Since the policy application did not contain a
choice of law provision, the court looked to the insured's state of domicile at the
time he applied for the policy, which was Florida. Because the court concluded
that neither Texas nor Iowa had a more significant relationship to the transaction
than Florida, it ruled that Florida law governed.
It is also important to remember that federal law may apply to the rescission of
ERISA policies. In Garcia v. American United Life Insurance Co., No. 10-40388,
2011 WL 1409222 (5th Cir. Tex. April 13, 2011), for example, the court held that
Texas law did not apply to the insurer's decision to rescind the policy because the
plaintiff brought suit under ERISA. As a result, federal law governed.
Ambiguity on Enrollment Form
When an insured contests rescission of a life insurance contract, one of the first arguments he or she typically makes is that the response provided on the application was not a misrepresentation. When the questions on an application are not clear or when they can be construed as subjective questions that seek an opinion answer, courts may preclude the insurer from rescinding the policy.
In Loza v. American Heritage Life Insurance Co., No. 10-15651, 2011 WL
2066549 (9th Cir. May 26, 2011), the plaintiff argued that a prostatespecific
antigen test (PSA test) did not constitute a diagnostic test for cancer"—a term contained in the defendant's application—because the test could not identify or rule out the presence of cancer. The court held that the term was ambiguous and that the defendant was not entitled to rescission. The court reversed summary judgment in favor of the defendant on the insured's breach of contract claim, as well as his tort claims for bad faith, negligent infliction of emotional distress and intentional infliction of emotional distress.
In Brondon v. Prudential Insurance Co., No. 09-CV-6166T, 2010 WL 4486333
(W.D.N.Y. Nov. 9, 2010), the court found that the term heart trouble as used in
the defendant's application was ambiguous. As a result, the insurer could not rely
on the alleged misrepresentation of the insured's health condition to rescind her
policy. The court also awarded the insured attorneys' fees, costs, and prejudgment interest under ERISA.
In Barry v. United States Life, No. 2:09-cv-1790, 2011 WL 1832995 (D.N.J. May
12, 2011), the insured died one month after the policy was issued. On the application, the insured failed to disclose that he had a disease or disorder of the liver, despite the fact that his prior blood tests had evidenced abnormal liver function and that his doctor had recommended an ultrasound test. Importantly, the court concluded that this question was subjective, not objective, and that as a result, the insurer was required to prove an intentional misrepresentation. The court then held that there was no evidence that the insured had actually known the details of his health condition, precluding the inference that he intentionally misrepresented his health status on the application.
If your life insurance claim has been denied due to material misrepresentation, contact us now.