Our law firm practices exclusively in the area of the wrongful denial of life insurance claims. When we meet new clients, they are often surprised to learn that life insurance policies are nothing more than written contracts that are governed by general principles of contract law. In other words, the parties to an insurance policy (the insurance company and the policyholder) have to comply with contract law if they want the policy to be effective.
One contract law principle that we see litigated time and time again in the life insurance context is the concept of “material misrepresentations.” Let us break down that principle for you:
- The law requires the parties to a contract to be honest with each other during negotiations;
- If Party A lies to Party B during negotiations, and the lie is important enough that Party B wouldn’t have entered the contract if he’d known the truth; then
- The lie is said to be a “material misrepresentation”; and
- Party B can legally avoid his obligations under the contract.
In the world of life insurance policies, contract “negotiations” occur when the potential policyholder fills out an insurance application. The answers he gives in that application help the insurance company to decide whether it wants to issue him a policy. If they applicant lies about something that is so important that it causes the life insurer to issue a policy it wouldn’t have issued had it known the truth, then the life insurance company can avoid making a policy payout when that policyholder dies.
In generalized terms, the law of material misrepresentations make perfect sense. Unfortunately, we see life insurance companies try to invoke the idea of material misrepresentations all the time in cases where it doesn’t actually apply. This article presents one such case.
A fairly run of the mill insurance application
The case involved a man in his early 60s named Steve. Steve first obtained his life insurance policy not too long before his death. In fact, he received it as part of a work promotion that first made him eligible for coverage.
In order to qualify for the policy, Steve had to fill out a lengthy health questionnaire issued by the life insurance company. It asked numerous questions about things like lifestyle, existing medical conditions, and dangerous hobbies. One specific question would later prove to be a major sticking point after Steve passed away.
The question read: “Do you regularly engage in any dangerous hobbies (dangerous hobbies include, but are not limited to, things like motorcycle riding, scuba diving, or skydiving)?” In response to this question, Steve answered “No.” In fact, he had never done any of those things and didn’t see himself as being that great of an adventurer.
A surprise claim of materiality
Just 16 months after receiving his life insurance policy, Steve passed away. His death came while he was engaged in his very favorite activity – camping. Everyone was surprised by his death but it warmed their hearts to hear Steve got to leave this earth while doing the thing he loved most.
Steve's wife Nicole was the sole beneficiary under his life insurance policy. Shortly after his death, she made a claim for benefits under the policy. After not receiving a response to her claim for over six weeks, Nicole called the company. She was told that the circumstances of Steve's death were under investigation, and that she would receive a claim decision within another few weeks.
There is no way Nicole ever would have predicted the contents of the letter she finally received. The life insurance company was denying her claim in its entirety. The company claimed that Steve had made a material misrepresentation in his life insurance application when he failed to disclose his “camping hobby” in response to a question asking if he regularly engaged in any dangerous hobbies. The company further stated that had it known Steve regularly went camping, it never would have issued him a policy. Accordingly, the letter continued, the insurance company was relieved of its obligation to pay Nicole’s claim.
Fortunately, a friend suggested that Nicole contact an attorney specializing in the wrongful denial of life insurance claims. When she spoke to the attorney, Nicole immediately knew she was in good hands. The attorney had gone up against this life insurance company before, and knew that it often tried to manufacture material misrepresentations in an effort to avoid paying out claims.
The attorney filed suit against the insurer on Nichole’s behalf. During the discovery phase of the lawsuit, the attorney asked the insurance company to reveal every instance where it denied coverage to a person who regularly went camping. The insurance company could not comply. The attorney also asked the insurer to disclose any other policies where it defined camping as a “dangerous activity.” Once again, the company could not comply. At the end of the day, the insurer was unable to produce a shred of evidence to suggest it had ever considered camping to be dangerous prior to Nicole’s claim.
Before at the case went to trial, the insurance company offered to go to mediation with Nicole. During mediation, her attorney highlighted the lack of evidence suggesting that camping was a dangerous activity that would have caused a life insurance company to deny coverage. The life insurance company, on the other hand, was unable to present any evidence to the contrary. Knowing they were dead in the water if they tried to take the case to trial, the insurance company agreed to settle the case by paying Nicole 100% of the policy payout called for in her husband’s insurance policy.Sadly, life insurance companies play fast and loose with policy language and contract law all the time. If you have received a life insurance claim denial that doesn't sit right with you, please contact our office today. Your initial consultation is free and, if we decide to take your case, you won't pay us a dime unless and until you receive monetary recovery from the insurance company. Call today. We're here to help.