A recent court decision has reinforced an important principle in life insurance law: insurers can lose the right to rescind a policy when their own actions contradict that intent. Specifically, when a life insurance company claims misrepresentation but continues to accept premium payments, courts may find that the insurer has waived its right to cancel the policy.
This ruling sends a clear message to insurers. If a company intends to void coverage, it must act promptly and consistently. Mixed signals can cost them the right to deny a claim later.
What Waiver Means in Life Insurance Disputes
In legal terms, waiver occurs when a party knowingly gives up a right through its conduct. In life insurance cases, waiver often arises when an insurer becomes aware of a potential basis for rescission but continues to treat the policy as valid.
Examples of conduct that may support a finding of waiver include:
Accepting and cashing premium payments
Sending billing statements or renewal notices
Failing to return premiums after raising objections
Continuing coverage without timely action
When insurers engage in this behavior after learning of an alleged misstatement, courts may rule that the policy remains in force.
Rescission Attempt Undermined by Premium Acceptance
In the case at issue, the insurer attempted to rescind a life insurance policy based on an alleged material misrepresentation in the application. The company claimed the insured failed to disclose certain health information that would have affected underwriting.
Despite issuing a rescission notice, the insurer continued to accept and deposit premium payments. It later argued that the payments were processed automatically and did not reflect an intentional decision to keep the policy active.
The court rejected that argument. It held that accepting premiums without promptly returning them was inconsistent with rescission. By its conduct, the insurer waived the right to cancel the policy, and coverage remained in effect.
Why Timing Matters Under the Contestability Clause
Most life insurance policies allow insurers a limited window, typically two years, to investigate and rescind coverage based on material misstatements. This is known as the contestability period.
During this time, insurers must act decisively. If they delay, continue accepting premiums, or otherwise affirm coverage, they risk losing the right to rescind. Once the contestability period expires, insurers generally must pay claims unless they can prove intentional fraud.
Courts view these clauses as consumer protections. They prevent insurers from waiting until after a death to raise objections they could have addressed earlier.
What This Means for Beneficiaries Facing Denials
This ruling highlights that claim disputes are not decided solely by what appears on the application. An insurer’s conduct after issuing the policy matters just as much.
If a life insurance company tries to deny a claim based on misrepresentation but accepted premiums for months or years after learning of the issue, waiver may prevent that denial. Courts can enforce coverage based on how the insurer acted, not just what it later claims it intended to do.
Conclusion
Life insurance policies are not easily undone once issued. Insurers must investigate promptly, communicate clearly, and act consistently. Accepting premiums while attempting rescission can destroy the insurer’s own defense.
For beneficiaries, this principle can be decisive. A denial based on alleged misrepresentation may fail if the insurer waived its rights through delay or inconsistent conduct.
FAQ: Waiver and Rescission in Life Insurance Claims
What is waiver in life insurance law
Waiver occurs when an insurer gives up the right to rescind a policy by acting as though coverage remains valid, such as continuing to accept premiums.
Can a policy be rescinded after two years
Generally no, unless the insurer can prove intentional fraud. After the contestability period, policies usually become incontestable.
Does accepting premiums mean the policy stayed active
Often yes. Courts frequently treat continued acceptance of premiums as affirmation of coverage.
What if the insurer says payments were processed automatically
Courts have rejected that defense. Insurers are responsible for their systems and internal processes.
Can waiver stop a denial after the insured dies
Yes. If the insurer had the opportunity to rescind during the insured’s lifetime and did not act properly, it may be barred from denying the claim later.