Payment Grace Periods Can Protect Against Life Insurance Claim Denials

Most life insurance policies include a grace period during which the policy remains effective despite an outstanding premium payment. The grace period provides protection to customers against life insurance claim denials by the insurance company if a premium payment is late. As long as the insurance company receives the overdue premium payment within the grace period, the policy will remain in effect, and when the named beneficiary needs to receive the proceeds of the life insurance policy, life insurance claim denials are not allowed. If, however, the premium is not received within the grace period, the policy may lapse and the insurer may deny the life insurance claim made by the insured’s loved ones.

Often the grace period is written into the life insurance policy. Some states impose this grace period under their insurance laws. If the grace period is contractual, the specific terms, such as the period’s length and whether any penalties apply, will vary depending upon the exact provisions of the policy. Thus, in order to avoid denial of their life insurance claims, it is imperative that life insurance customers are aware of their particular policy terms.

Recently, in Corte v. First Penn-Pacific Life Insurance Co., the attorneys at Trief & Olk represented a widow whose claim to life insurance benefits was denied. The basis of the claim denial was that the woman’s husband had missed a premium payment. However, the life insurance policy obligated the insurance company to provide thirty days’ written notice in the case of a missing premium payment. Trief & Olk’s attorneys argued that not only had the life insurance company attempted to return a premium payment it had previously deposited, the company had also failed to adhere to the terms of the grace period, thus removing any valid basis for the life insurance claim denial. Arguing that the life insurance company had ignored the notice and grace period terms, which prevented the claim denial, our attorneys successfully reached a confidential settlement for our client.

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.

Wrongful Cancellation of Life Insurance

A life insurance policy is a contract between the insured and the insurance company that is intended to provide for the payment of life insurance benefits to family members or friends in the event of the policy holder’s death. These funds are often intended to replace a loved one’s income when he dies, or the value of the services of that loved one to the household. However, after the policy holder dies, life insurance claim denials are not only possible, they are common business practices of insurance companies.

When a life insurance claim is filed, the life insurance company will review both the life insurance claim and the policy itself. During this review, the life insurance company will look for possible reasons that can be used to deny the life insurance claim in a tactic known as life insurance rescission – the life insurance company declares the insurance contract cancelled, and refuses to pay any life insurance claims.

An insurance company may be entitled to deny a life insurance claim if it can show that the applicant made a material misrepresentation during the application process. Life insurance companies looking to deny claims may try to argue that a misrepresentation has been made. A misrepresentation in an application for insurance can be a false statement concerning a past or present fact, made to the insurer by the insured.

However, there are time constraints on an insurance carrier’s ability to seek to cancel an insurance policy or issue a life insurance claim denial, even on grounds of misrepresentation. For example, life insurance policies must include an “incontestability clause,” which bars insurers from challenging a life insurance claim after the life insurance policy has been in effect for at least two consecutive years.

For example, in Ilyaich v. Bankers Life Ins. Co. of New York, the Court, reinstated a valid life insurance claim after it was denied by the life insurance company. The life insurance company had claimed that misrepresentations were made in the application for coverage with respect to the purpose of the insurance. The Court found that the insurance company had wrongfully cancelled the life insurance policy based on the representations in the application for coverage, and stated that the life insurance company was required to investigate, within the two-year contestability period, the accuracy of the information found in the life insurance application. According to the Court, the life insurance company’s failure to verify the information found in the application within two years barred the life insurance company from denying claims.

If you have lost a loved one and the life insurance company has denied your life insurance claim, your ability to recover life insurance benefits might not be lost. However, every state, including New York and New Jersey, requires that lawsuits concerning life insurance claim denials be filed promptly, before the statute of limitations runs out.

Superstorm Sandy and Insurance Claim Denials

As relative normalcy returns to the areas affected by Superstorm Sandy, homeowners and business owners should still be wary of potentially unlawful practices that can result in insurance claim denials for damage resulting from Sandy. Some insurance companies may employ the use of unlawful tactics to delay or avoid paying out valid insurance damage claims. These tactics range from requiring claimants to fill out the same claim documentation repeatedly, or maintaining that damage to homes and businesses was not actually caused by Sandy.

For many insurance claims, the insurer may issue an insurance claim denial by arguing that the damage caused was flood damage rather than wind damage.  While an insurance policy may cover wind damage, it may not cover flood damage.  It is essential that claimants are careful in their selection of claims, in the event that their insurance claim is wrongfully denied.

It is also critical for homeowners and business owners to have the most recent copies of their insurance policies available when they submit their Superstorm Sandy insurance claims.  Homeowners and business owners must be aware of the terms, covered items and exclusions in their insurance policies, so that they can be vigilant against the tactics that insurers may use to issue insurance claim denials, even when a valid damage claim has been submitted.  Finally, homeowners and business owners should be careful to be sure that they have the proper supporting documentation for their claims, and that they are aware of all deadlines which apply to the filing of their claims.

If you have a Hurricane Sandy property damage claim, and you are concerned that your losses might not be fully paid by your insurance company, or that your insurance company has wrongfully denied your insurance claim, please feel free to reach out to us at (212) 486-6060. 

Insurance Companies Might Not Fully Pay Hurricane Sandy Property Damage Claims

The estimates of the damage caused by Hurricane Sandy have exceeded $50 billion, and will likely increase as the recovery efforts persist.  But because insurance companies may face a large number of claims for property damage related to Hurricane Sandy, many people in New York and New Jersey are potentially at risk of not being fully compensated for their losses.

In our experience, when homeowners or business owners attempt to file property damage claims with their insurance companies, the insurance company’s first response is often to deny the property damage claim entirely.  Even when the insurance company admits that it may be responsible for paying a claim under a property damage policy, the insurance company may try to pay less than the full value of the property damage claim.

However, homeowners or business owners suffering damage related to Hurricane Sandy should understand that they need not accept the insurance company’s first offer when trying to settle property damage claims.  Rather, homeowners or business owners have choices which may help them receive a more favorable settlement of their property damage claim, such as:

  1. Hiring a public adjuster who will work to increase the settlement payment made by the insurance company.
  2. Hiring a lawyer to file a lawsuit against the insurance company.
  3. Hiring a lawyer and a public adjuster for your property damage claim.

We have negotiated with and sued insurance companies on behalf of homeowners or business owners when the insurance company refuses to pay any or part of the property damage claims.  Recently, we were hired by the owner of a bed and breakfast because she was denied payment on portions of her insurance policy following a fire which destroyed the business and her home. The insurance company refused to pay for certain damages suffered by our client, and undervalued other losses that she incurred.  We were able to successfully resolve many of these matters by filing a lawsuit against the insurance company, and we continue to litigate on others in order to achieve satisfaction for our client.

If you have a Hurricane Sandy property damage claim, and you are concerned that your losses might not be fully paid by your insurance company, please feel free to reach out to us at (212) 486-6060.  We have offices in New York and New Jersey.

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