In our line of work, we see life insurance companies deny valid claims all the time. Of course, the life insurers do this based on a corporate desire to generate profits. The more claims they can deny, the more money they keep in their own coffers. That makes shareholders happy and earns insurance executives large bonuses.
What bogus claim denials also do, however, is destroy the lives of everyday people. After all, for many people, life insurance is the only form of estate planning they can afford. It's a fairly good strategy. A person can pay relatively small monthly premiums. In exchange, her family can receive a death payout that is on par with the money she could have earned had she lived. For many families, a life insurance payout is the difference between financial security and utter devastation.
Working with real people facing the real dilemma of a life insurance claim denial is the thing that motivates us to come to work every day. As lawyers who specialize in this area, we are well aware that claim denials are often legally unsupportable. Nonetheless, life insurance companies issue improper denials all the time because most people simply don't know they have the right to contest their decision. They are also often intimidated but insurance company lawyers who use confusing language to make their bogus claim denials sound legitimate.
One excuse life insurers like to use for denying claims is the allegation that the policyholder lied in the insurance application process in order to receive a policy he was not actually entitled to. This excuse is rooted in contract law. The law mandates that parties to a contract negotiation be honest with one another. If one party lies during negotiations and that lie causes the other party to enter into a contract he would not otherwise have entered, the lie is said to be a “material misrepresentation.”
Material misrepresentations are important because they relieve the party who was lied to from his obligation to carry out contract terms. In the life insurance context, if an insurance company can claim its policyholder made a material misrepresentation in the application process, it can often avoid its obligation to make a death payout when that policyholder passes away.
As with other justifications for denying coverage, however, life insurance companies frequently misuse the concept of material misrepresentations. This article presents one such case.
An unknown allergy
The case involves a mortgage broker named Paula. Paula was offered a life insurance policy through her employer. The only thing she had to do to obtain the policy was fill out a four-page health questionnaire. Among other things, the questionnaire asked if Paula suffered from any allergies. At the time she filled out the application, Paula truthfully answered “no.”
Indeed, Paula had never even suffered from hay fever or other types of seasonal allergies that plague many people today. Thus, it was shocking to everyone who knew her when, after going out to a bar and eating a plate of oysters, Paula went into anaphylactic shock and passed away. Her autopsy revealed a severe allergy to shellfish.
What was odd about the circumstances of Paul's death was that she had been eating shellfish her whole life. Never, before the night she died, had she had any sort of reaction. As her family would come to find out, however, latent shellfish allergies -- those that appear later in life -- are actually quite common. While it is rare for the first allergic reaction to be fatal, it does happen from time to time.
Adding insult to injury
When Paula's husband John went to make a claim for benefits under her life insurance policy, he had no reason to believe the claim would be denied. Imagine his surprise then, when a claim denial letter arrived in the mail just a few weeks later. in the letter, the insurance company said it was denying John's claim on the grounds that Paula had made a material misrepresentation in her policy application. Specifically, the insurer claimed Paula lied when she told them she had no known allergies.
John, who had no legal training whatsoever, immediately identified the claim denial as bogus. He wasted no time in contacting a lawyer specializing in the wrongful denial of life insurance claims. After listening to the facts and circumstances of Paul's death. The lawyer agreed the claim denial was illegitimate.
Within a matter of days, the lawyer had gathered evidence from Paula's medical history showing that she had never had any allergic reaction to shellfish before the night she died. In fact, Paula had had a complete allergy panel taken about five years prior to her death. That comprehensive test -- which looks for allergies to about 100 different environmental stimuli -- revealed that aside from a dust allergy, Paula was allergy-free. Additionally, the lawyer was able to obtain a letter from an allergy specialist stating that shellfish allergies frequently arise later in life. The physician attached copies of several university studies proving as much.
John's lawyer submitted all of this evidence to the life insurance company’s internal appeals board. He also sent a letter stating that if the claim denial was not overturned within 14 days, he would file a lawsuit on John's behalf and, among other things, seek punitive damages for bad faith denial of claim.
It didn't take long for the internal appeals board to overturn the claim denial. They don't tend to fight that hard when they know they are wrong. What they're hoping for in issuing a bogus claim denial is that the beneficiary won't have the will to fight them on their reasoning in the first place.That is why it is so critical to contact a lawyer specializing in this area anytime you are facing a life insurance claim denial that just seems unfair or unreasonable. If you find yourself in this situation, please contact our firm today. We're here to help.