The life insurance people count on
For many people, they buy life insurance for peace of mind, knowing that loved ones will be provided for in the event of his or her death. However, typically, those that buy the insurance will not be around to see the insurance company they trusted deny or dispute the benefit claim. According to a recent report, based on data compiled by the National Association of Insurance Commissioners, more than $372 million of life insurance benefits were withheld from beneficiaries last year.
Consider what happened to a California couple. Even though the premiums were up to date at the time the husband died of Lou Gehrig’s disease, the insurance company refused to pay his widow. It was not because the husband had failed to disclose his illness, which was clearly only diagnosed months after the application for the policy. The insurance company said that the husband had not disclosed that he had a bipolar disorder and heart disease, totally unrelated to his cause of death, and conditions which his own doctors said he never had. “Incomplete application – coverage denied.”
Then there is the case of another California couple who met with the insurance agent who wrote down the answers to the questions on the application and had the couple sign. The agent kept the application and provided a receipt for the first month’s premium that had been paid. The agent assured them they were immediately covered as of that date. The husband died of an overdose of drugs two days later and the insurance company refused the claim based on failure to disclose a previous episode where the husband had been treated for a drug overdose. In this case, however, the court held that where a life insurance applicant pays the premium and the writings indicate that the coverage is to be effective from that date, subject only to the insurer’s satisfaction of insurability, then coverage is deemed to be effective unless and until the company notifies the applicant that he or she is not insurable.
Material misrepresentation is the number one reason life insurance companies deny coverage. It is important to note that, under California law, any insurer licensed to conduct business in the state, is forbidden to withhold payment under a life insurance policy for any longer than is necessary to transmit the monies and, whenever possible, such payment should be made within 30 days of the insured’s death. Failure to makes such timely payment entitles the beneficiary to collect interest on the proceeds. When the insurance company claims an incomplete or misleading application, the burden is on the insurance company to prove it and to negate plausible explanations for the incomplete or misleading answers to questions posed by the insurer. If it is determined that an insurer has withheld payment longer that reasonably necessary, then the beneficiary may be entitled to a breach of contract award, even when there has been no bad faith shown by the insurance company.
Anyone whose claim for life insurance proceeds has been delayed or denied should seek the legal advice of a California attorney who is experienced in insurance law.