As lawyers who specialize in the wrongful denial of life insurance claims, we know that life insurance companies do not like to pay claims. Often, they will invoke confusing policy language in an effort to justify a claim denial. They do this hoping that the beneficiary, who is already grieving and likely incapable of putting up a fight, will simply accept the claim denial and go away.
Just when we think we've seen every bogus claim denial reason possible, the life insurance companies surprise us with a new one. Such was the case recently when a life insurance company told a policy beneficiary that her claim had to be denied because the policyholder had mentioned the life insurance policy in other estate planning documents.
This article explains that case in detail and also explorers some of the legal concepts that rendered the life insurer’s claim denial inappropriate.
The consummate planner
The case involved an older gentleman named Jack. Jack had spent his career as a librarian for the law library in his county. Jack was an avid reader. He was rarely seen without a book in his hand and because he worked at the law library, often he would be seen reading one legal treatise or another. Though Jack was not a lawyer, he did know more about the law than most people by virtue of his heavy reading habit.
As a consequence of all that studying, Jack was more diligent than most people when it came to estate planning. Jack drafted his own lengthy will, obtained a life insurance policy early in his life, and even created trust funds set that would pay for college for all six of his grandchildren. He did all of the work himself and prided himself on his ability to plan for his family’s financial security even after his death.
One of the interesting decisions Jack made when drafting his will was to list his life insurance policy as an asset that was to be passed on after his death. In another interesting (if not confusing) move, Jack’s will purported to leave his life insurance proceeds to his grandson, Nick. What was particularly interesting about this decision, was the fact that Nick was not the named beneficiary in Jack's life insurance policy. To the contrary, the beneficiary was Jack's wife, Betty. In another significant plot twist, it was well known that Nick and Betty did not care very much for one another.
Because Jack was so confident in his estate planning abilities, he never had any of his documents reviewed by a lawyer. Instead, he told his wife about the various instruments he had drawn up, and informed her that they were kept in a safe deposit box at the local bank.
Death creates confusion
Jack passed away at the ripe old age of 80. As instructed, Betty went to Jack’s safe deposit box following his death. In it, she found all of his estate planning documents, including a copy of his life insurance policy. Because she suspected Jack had left many things to many people, she had copies of all the documents made and distributed them to several family members, including Nick.
When Betty reviewed the documents, she of course noticed that she was the sole named beneficiary under Jack’s life insurance policy. Therefore, she made a claim for benefits with Jack's life insurance company. Around the same time, Nick read Jack’s will and discovered that his grandfather purported to leave his life insurance proceeds to him via that document. Therefore, he also submitted a claim for benefits to Jack's life insurance company.
Within a matter of weeks, both Nick and Betty received letters in the mail from Jack’s life insurer. The letters explained that payment under Jack’s life insurance policy was being delayed indefinitely because they could not determine who the true beneficiary was. In other words, the insurance company claimed it did not know who to pay and that, therefore, it was not going to pay anyone anytime soon.
Just a lame excuse
Over the course of Jack’s long career as a law librarian, Betty had attended more functions with more lawyers than she could count. When she received the insurance company’s letter, she immediately contacted one of those lawyers for a bit of advice. He referred her to another attorney specializing in the wrongful denial of life insurance claims. That attorney immediately knew that the life insurance company was just playing games.
With Betty's permission, he fired off a letter to the insurance company reminding it of some very basic legal concepts it appeared to be ignoring. Specifically, a life insurance policy is a contract between the insurance company and its policyholder. The terms of that contract are contained within the four corners of the document. Without the other party’s express authorization, a party to a contract cannot change that contract through an unrelated writing.
In essence, the attorney argued, that is what Jack had tried to do when he named Nick as the policy beneficiary in his will. Though making Nick the beneficiary may have been Jack's intention, he didn't go about it the right way. The only way to change the beneficiary was to fill out a Change of Beneficiary form and send it to the life insurance company.
The attorney threatened to file suit on Betty’s behalf if the insurance company did not pay her the full policy benefit within 30 days of his letter. Not surprisingly, betting received a check in the mail just 15 days later. This case illustrates just how important it is to contact a specialized attorney anytime you receive a life insurance claim denial or are subject to an unreasonable delay. Many people in Betty's position would have just given up. Instead, she found a true professional who got her the result she needed.If you have had a life insurance claim denied recently, please do not hesitate to contact us to discuss the circumstances of your case. If we can possibly help, we are glad to do so.