When Employer Clerical Errors Trigger a Contestability Denial
Life insurance claim denials based on income discrepancies are a niche but recurring problem in employer-provided and group life insurance policies. These cases are often misunderstood because insurers frame them as intentional misrepresentation, when in reality the error frequently originates with someone other than the insured.
This article focuses on a specific scenario that differs from typical application misrepresentation cases: income errors created during employer-assisted enrollment that later become the basis for a denial during the contestability period.
How Employer-Assisted Applications Create Unique Risks
Group life insurance enrollment often happens quickly. Employees may complete applications verbally, through HR portals, or with assistance from administrative staff. Unlike individually purchased policies, the insured does not always personally type or review every data entry field.
That distinction matters. When an error is introduced by an HR representative, payroll clerk, or benefits administrator, the legal analysis changes. The insurer may still attempt to deny the claim, but the justification is far weaker.
Greg’s Case: When a Zero Changed Everything
Greg was a university Dean with a demanding schedule. When his employer offered group life insurance, he agreed to apply at his wife Sandy’s encouragement. Because of time constraints, Greg completed the application verbally with assistance from a secretary in the Human Resources office.
Greg answered all questions truthfully, including his annual income. He earned $250,000 per year.
During data entry, the secretary mistakenly recorded his salary as $2.5 million. The difference was a single zero. Greg never reviewed the final submission and had no reason to suspect an error.
Based on the recorded income, the insurer issued a policy with a $3 million death benefit, consistent with its income-multiple guidelines.
The Death and the Predictable Denial
Just over one year later, Greg died in a cycling accident. Sandy submitted a claim, expecting the policy to pay as issued. Because Greg died within two years of enrollment, the insurer initiated a contestability review.
The review quickly identified the income discrepancy. The insurer alleged Greg materially misrepresented his income and denied the claim in full.
The denial letter framed the issue as intentional deception, even though Greg never supplied false information.
Why Income Plays a Different Role Than Health Information
Income questions serve a different underwriting purpose than medical disclosures. Insurers use income to cap coverage amounts, not to assess mortality risk. A higher income does not make someone more likely to die. It only affects how much coverage the insurer is willing to issue.
That distinction is critical in disputes like Greg’s. Even when income is overstated, the proper remedy is often benefit adjustment, not rescission of the entire policy.
What the Insurer Ignored
The insurer’s denial assumed facts that were not true:
• Greg did not complete the application himself
• Greg did not enter the income figure
• Greg did not benefit from the error knowingly
• The insurer issued coverage without verifying payroll records
• The error was made by an employer representative
These facts undermined the insurer’s claim of intentional misrepresentation.
Legal Strategy That Changed the Outcome
Sandy contacted a life insurance attorney who focused on denied claims. The attorney immediately narrowed the dispute to intent and source of the error.
He gathered:
• A sworn affidavit from the HR secretary admitting the typo
• Payroll records confirming Greg’s actual income
• Employer benefit guidelines showing coverage was tied to salary multiples
• The original application showing Greg provided verbal answers
The attorney argued that Greg qualified for coverage, just not at the inflated amount. He emphasized that rescission was inappropriate where the insured did not knowingly provide false information.
The Result: Partial Payment Instead of Total Forfeiture
Faced with clear evidence, the insurer reversed its denial in part. It agreed to pay the correct benefit amount based on Greg’s actual income, which resulted in a $300,000 payout.
Without legal representation, Sandy would likely have received nothing. The insurer initially took the position that the entire policy was void.
Why These Cases Matter
Income-based denials are often used as leverage rather than law. Insurers know beneficiaries are unfamiliar with how group policies work and assume they will accept a denial at face value.
These cases are distinct from classic misrepresentation disputes because:
• The error often comes from employer assistance
• The insured may never see the final application
• Income affects benefit limits, not insurability
• Partial payment is often the correct legal outcome
Warning Signs of a Wrong-Income Denial
You may be facing this issue if:
• The policy was employer-provided or group based
• Enrollment involved HR assistance
• The benefit amount seems high relative to income
• The death occurred within two years
• The insurer alleges misrepresentation without proof of intent
These cases are highly fact-specific and require targeted legal review.
Final Thought
Not every application error voids a life insurance policy. When an income mistake is created by an employer or administrator, insurers cannot automatically erase coverage and keep decades of premiums.
If your claim was denied based on an income discrepancy, the key question is not whether the number was wrong. The key question is who made the mistake and whether the insured intended to deceive.
That distinction often determines whether the insurer must pay.
We handle these disputes nationwide and focus exclusively on life insurance claim denials. Consultations are free. No fee unless we recover benefits.