For most Americans, life insurance seems like a fairly wise investment decision. In exchange for paying relatively small monthly premiums, a person can bring financial security to their family that might otherwise not be available to them. Some people, however, become overly concerned with the amount of their monthly premiums. Thus, they may fail to disclose to the insurance company things about their health or lifestyle that could result in them having to pay higher premiums.
Failing to tell a life insurance company the whole truth during the application process can be a big mistake. This is especially true if the policyholder ends up dying within the first two years of the date the policy was issued. That is because, under most policies, those first two years are known as the period of contestability.
If a person dies within the period of contest ability, the insurance company can undertake an independent investigation into the circumstances of that policyholder’s death. If the insurer discovers that the policyholder lied about anything in his insurance application, the company can refuse to pay death benefits. This is true even if the policyholder died from something wholly unrelated to the lie.
As lawyers who specialize in the wrongful denial of life insurance claims, we can tell you that it is difficult to overcome a lie that is discovered during the period of contestability. Nonetheless, as with other reasons for denying life insurance claims, life insurance companies often misuse the investigation process allowed during the period of contestability in order to simply avoid paying out on otherwise valid claims. This article explores one such case.
There’s a first time for everything
Justin was a successful businessman in his late 50s. Just prior to his 59th birthday, he was offered a new position as the CEO of a start-up technology company. The company was well funded and offered extensive benefits for its executive staff. Among the benefits Justin was entitled to receive was a life insurance policy worth $2.5 million.
In order to qualify for the policy, however, Justin had to fill out a lengthy health and lifestyle questionnaire. His answers within the questionnaire were used to determine not only whether Justin was eligible for a life insurance policy, but, if so, how much the premiums would be.
One of the questions within the form read as follows: “Do you regularly engage in any of the following activities? Scuba diving, skydiving, bungee jumping, mountain climbing, motorcycle racing, or cliff diving?” Justin answered “no” to this question. In fact, he had never engaged in any of those activities at the time he filled out the questionnaire. He did, however, have a scuba diving trip to the Grand Caymans planned for about six months later.
The insurance company issued Justin a policy. He didn't think much about it after that as all premiums were paid by his employer.
An untimely death and surprise claim denial
As planned, Justin and his wife Cynthia took their trip to the Grand Caymans. They both received scuba diving lessons and fell in love with the sport from the first moment. In fact, over the course of the next year, the couple would take two more trips for the sole purpose of scuba diving.
Eighteen months after Justin began his position with the startup company, he was killed in a tragic car accident. Cynthia was devastated, but knew she had to get on with living. One of the first things she did was to file a claim for benefits with Justin’s life insurance company.
Shortly thereafter, Cynthia received notice that payment on Justin's policy was being delayed. The company claimed that because Justin died during the period of contestability, it was going to undertake a full investigation into the circumstances of his life and death.
Several weeks later, Cynthia received a second letter from the life insurance company. The purpose of this letter was to formally deny the claim. The insurance company said it had reviewed Justin's social media accounts and discovered dozens of pictures of scuba diving trips. According to the insurer, because Justin had denied being a scuba diver in his insurance application, and because he had died during the period of contestability, it was well within its rights to deny Cynthia's claim.
Cynthia was a force to be reckoned with. She quickly contacted an attorney specializing in the wrongful denial of life insurance claims. The attorney requested that Cynthia send over all policy documents for his review. He quickly identified the problem with the insurance companies claim denial. The question in the application about scuba diving specifically asked if this was something Justin “regularly” participated in. By the time he died, Justin had only been scuba diving three times in his life – and he had never done so prior to his application.
The attorney filed an appeal with the insurance company's internal review panel. At a hearing before that panel, the attorney argued that a 60 year-old man who had only scuba dived 3 times could hardly be characterized as someone who engaged in that activity “regularly.” The attorney was also able to present testimony from Justin's doctors and good friends who verified Justin had never engaged in scuba diving prior to that trip during his 59th year.
Ultimately, the insurance company had no choice but to overturn the claim denial . While this was a great outcome for Cynthia, the case illustrates how important it is to tell the truth in an insurance application. Although none of us expect to pass away so shortly after receiving a life insurance policy, the period of contestability can be brutal for surviving beneficiaries.Nonetheless, Cynthia's case also shows that life insurance companies do make mistakes in their investigations and claim denials. If you have received a life insurance claim denial that seems unjust or unfair, please contact our firm today. We will provide a free consultation and, in the event you decide to retain our firm, you won't pay a dime unless and until you receive monetary recovery from the life insurance company. Calls today. We're here to help.