As lawyers who specialize in the wrongful denial of life insurance claims, we know that life insurers deny claims on one basis more than any other – so called “material misrepresentations” in the policy application. They do this for a couple of reasons.
First, it is relatively easy for them to accuse the policyholder of lying and then to intimidate beneficiaries with that accusation. Secondly, material misrepresentations are firmly rooted in contract law. Therefore, denials on that basis can sound intimidating to a layperson.
In this article we are going to briefly explain the law behind material misrepresentations. Then will present the facts of one case that illustrates how slippery these claim denials can be.
Life insurance policies are nothing more than contracts between the policyholder and the insurance company. As with any contract, the parties have to be truthful with one another during negotiations. If one party tells a lie and the other party only enters into the contract because of that lie, the lie is deemed to be material. In the life insurance context, the “negotiations” consist of the policyholder’s responses to questions posed by the insurance company in the policy application.
If the policyholder lies during the application process and ends up obtaining a policy the insurance company would not have otherwise issued, that lie is said to be a material misrepresentation. Material misrepresentations are important because they can serve as a valid basis for the insurance company refusing to pay policy benefits. The material misrepresentation analysis, however, is rarely cut and dried.
The truth or no?
In one recent case, a man named Paul applied for a life insurance policy. The life insurance application asked if Paul had any “current medical conditions.” Paul responded “no.” The application also specifically asked if, at that time, Paul was suffering from high blood pressure. Again, he responded “no.” The application further asked if Paul was currently taking any prescription medications. Paul could not remember the name of the medication he had been on for a few months so he left that answer blank.
Technically, Paul did not lie in his life insurance application. On the day that he filled it out, he had been on blood pressure medication for about three months. Therefore, he believed he was telling the truth when he stated he did not have high blood pressure or any “current” medical conditions.
Paul turned the application into his insurance broker, who reviewed the document in Paul's presence. The broker did not ask Paul for any additional information. Shortly thereafter, the broker turned the application in to the life insurance company. Several weeks later, Paul was notified that he qualified for a life insurance policy. He was asked to pay an annual premium payment, at which point his policy would become effective.
Was it a lie?
Paul died from a heart attack within a year of receiving his life insurance policy. His wife Sue, who was the sole beneficiary under his life insurance policy, filed a claim with his life insurer. Because the policy was still so new, the life insurance company notified Sue that it was going to do a thorough investigation into Paul’s life and death before it could make a decision about her claim.
Part of that investigation involved obtaining Paul's past medical records. Of course, when the insurance company reviewed those records it learned that Paul had had a fairly significant problem with high blood pressure. Although that condition was controlled with medication for a period of time, it eventually returned and may have played a part in Paul’s death.
Consequently, the insurance company denied Sue’s claim. The denial letter stated that Paul had made material misrepresentations in his application and therefore the company was under no obligation to make a death payout. Although Sue understood that decision on some level, it still didn't sit right with her. Therefore, she contacted a lawyer who specialized in the wrongful denial of life insurance claims.
Initially, the lawyer agreed that the insurance company may have been within its rights in denying the claim. Nonetheless, he decided to dig a little deeper into the case. First, he obtained all documents relating to Paul's life insurance policy. When he reviewed the application, he saw Paul's responses and he also saw the line Paul had left blank concerning his current medications. The lawyer found it significant that neither the insurance broker nor the insurance company had followed up with Paul to retrieve an answer to that question.
Had either of them done so, they would have known about Paul’s high blood pressure and could have made a decision on insuring him accordingly. In other words, the attorney argued that it was the negligence of the broker and the life insurer that resulted in the company issuing a policy, not Paul’s “lie.” Though the argument was by no means a slam dunk, Sue asked the lawyer to present the argument in an appeal to the insurance companies internal review board.
Ultimately, the case went to arbitration and Sue ended up receiving about 50% of the death payout called for in Paul's life insurance policy. While she would have liked to receive more, the case is a good reminder of two important concepts surrounding life insurance.
(1) If you don’t tell the complete truth in your life insurance application, you may cause problems for your loved ones after you die; and
(2) A life insurance claim denial should rarely just be accepted by the beneficiary at face value. If anything, Paul’s case is a great example of how claim denials based on alleged material misrepresentations may leave a lot of room for interpretation.If you have recently received a life insurance claim denial, and the reasoning behind that denial does not sit right with you, please feel free to call our specialized attorneys today. We contest wrongful life insurance claim denials every single day. We will provide a free initial consultation and give you our honest opinion about your chances of having your claim denial overturned . Call us today. We're here to help.