Life Insurance Claim Denials and “Post-Claim Underwriting”

Life insurance claim denials often occur because the life insurance company claims that a customer’s application contains a “material misrepresentation”. Generally speaking, a material misrepresentation involves hiding or falsifying information that would significantly alter or void the terms of a life insurance policy, provided that such information is asked for in the application. Courts have upheld life insurance claim denials based on material misrepresentations made by life insurance applicants, even when the error is innocent or unintentional. This can happen despite the fact that life insurance coverage has been accepted and the insured has paid premiums on the policy.

One practice that is becoming more common among life insurers in the claim denial phase is called “post-claim underwriting” which occurs if the policy is in the constestability period. (The contestability period, which is two years in New York and New Jersey, creates a window at the beginning of the policy during which the insurer may challenge a policy’s validity. Once the period has passed, the insurer can no longer challenge the policy.) The practice of post-claim underwriting further complicates matters for families dealing with the loss of a loved one. Post-claim underwriting occurs when an insurer waits until after the family files its life insurance claim and then launches an investigation into potential misrepresentations made during the application process. The practice of post-claim underwriting can lead to life insurance claim denials, which can cause financial hardship on grieving families during a period of loss.

These issues were at the forefront when our attorneys represented a widow in her life insurance claim denial lawsuit against the insurance company. A life insurance policy with a $1 million value had been issued to our client’s husband. After the husband passed, with only three weeks prior to the end of the contestability period, the insurance company denied her life insurance claim. The life insurance company alleged that her husband failed to disclose in his application the fact that he had tested positive and had been treated for hepatitis B. The life insurance company claimed that if it had known this information, it would not have issued him a $1 million policy. However, there was no connection between the cause of death and his history of hepatitis B.

In investigating the denial of our client’s life insurance claim, the life insurance company neither requested nor reviewed the deceased husband’s medical records. Rather, the life insurance company issued the husband’s policy upon the completion of a few standardized forms and its agent’s cursory questions about the husband’s medical history. The only tests that the insurer sought before issuing coverage were blood and urine tests, which the insurer administered at the husband’s place of business.

When we filed our life insurance claim denial lawsuit against the insurance company, our attorneys argued that the insurer’s own guidelines were too discretionary to establish that the husband would not have been issued the policy if the insurer had known about his history of hepatitis B. The suit proceeded in multiple jurisdictions including an appeal and eventually settled for a substantial confidential sum in mediation.

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