Don’t Lose Life Insurance Coverage When you Need it Most – When you are Gravely ill

ERISA Standard of Review

In Firestone Tire & Rubber Co. v. Bruch, the Supreme Court set forth a rubric controlling judicial review of ERISA benefit eligibility decisions.  Under Firestone, courts are to be guided by principles of trust law in evaluating the conclusions of plan administrators.  These principles of trust law require courts to review a denial of plan benefits under a “de novo” standard unless the plan provides to the contrary.  Plans provide to the contrary by granting the administrator or fiduciary discretionary authority to determine eligibility for benefits.  In such instances, a deferential standard of review is applied.

The question of whether a plan administrator’s exercise of power is mandatory or discretionary depends upon the terms of the plan.  To that end, there are no “magic words” determining the scope of judicial review of decisions to deny benefits, and discretionary powers may be granted expressly or implicitly.  However, to the extent a plan is ambiguous; it is construed in favor of the insured, and examined under a more favorable deferential standard.

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Two Year Contestability Period

In the states of New York, New Jersey, and Massachusetts, insurance companies have two years from the date a life insurance policy is issued to contest its validity.  This “contestability” period affords insurers the opportunity to investigate any potential misrepresentations on the insured’s policy application.  If the application is found to contain errors or omissions which are “material,” the insurance company will declare the policy void and refuse payment.

What constitutes a “material misrepresentation” is a legal question which has been extensively litigated by Trief & Olk.  In general terms, for a misrepresentation to be material, it must be of sufficient consequence to have influenced the insurer in determining whether to issue the policy in the first place.  The insurance company will argue that given the withheld information, they would have either refused the policy outright or issued it under a higher premium.

Whether a misrepresentation is material is seldom a clear cut answer.  At Trief & Olk, we have successfully handled misrepresentations initially deemed “material” by the insurance company, such as misstatements as to one’s net worth, omissions of prescription pain medications, and failures to disclosure medical conditions.

If you have been denied an insurance policy due to an alleged “material misrepresentation,” it is important for you to contact an attorney to determine whether the rejection has merit.

New York Life Insurance Claim Lawyer

For Life Insurance Benefit and Other Claim Denials, Deadlines Matter

Employees and their families often rely on their employer’s benefit plans to provide a variety of insurance protections, including life insurance, health insurance, accidental death and dismemberment, and other forms of insurance coverage. Unfortunately, the claims made by employees under the employers’ benefit plans are sometimes wrongfully denied, and employees must file lawsuits in order to enforce their rights. This process has been made more urgent by the Employee Retirement Income Security Act (“ERISA”), a federal statute which governs many of the insurance benefits sponsored by employers, including life insurance denials. Under ERISA, if employees miss their deadlines to file lawsuits against the benefit plans or the plan administrators, their claims may be permanently lost.

When Is It Too Late To Sue?

The deadlines to sue for employer-provided life insurance benefits (and others) are frequently contained in the plans themselves and may be far shorter than those contained in non-employer plans or applicable law. In many cases, employers have drastically shortened in their plans the time for employees and their families to hire an attorney and sue to enforce their rights to have their life insurance claims paid. For example, a New Jersey federal court decision recently held that, because an employee did not file a lawsuit to enforce his rights within ninety days after the final denial of his benefit claim, his lawsuit was dismissed, and his claim for benefits was lost. The ninety day period was part of the employer’s benefit plan, and the court allowed the employer to hold the employee to this shortened period for filing a lawsuit. This is a severe consequence, and employees must take heed – the time to act on denials of life insurance claims, as well as other insurance claims, can be very short and if deadlines are missed, the insurance benefits might never be received.

Employers Are Supposed to Disclose Lawsuit Deadlines To Employees

Although the ninety day deadline in the above case is a relatively short amount of time to find a lawyer and bring a lawsuit, employer-sponsored insurance plans are supposed to clearly disclose to employees their rights when life insurance benefits are denied. The Department of Labor has issued regulations which require employers to give employees notice in their denial letters of certain information, including:

1. The right to file a lawsuit concerning the denied insurance benefits, and
2. The deadline within which to file a lawsuit.

If the notice does not include this information, it may be held to be invalid, and the shortened time frame for filing life insurance lawsuits contained in the employer’s insurance plan may not apply. In other words, if the employee is not told that he may file a lawsuit within the shortened period of time, the shortened time frame for life insurance lawsuits mandated in the benefit plan may not apply to the employee.

And, although employers do not always disclose this, ERISA provides employees who are successful in suing to receive their life insurance benefits the opportunity to request that the insurance plan pay the employee’s attorney fees.

Life Insurance Policies with Vanishing Premiums – and Vanishing Policies

Life Insurance Incontestability Clauses – Clear Rules Apply

New York and New Jersey insurance law, as well as the law of many other states, requires that all insurance policies include a standard incontestability clause. The purpose of such clauses is to create a window at the beginning of the policy during which the insurer may challenge a policy’s validity. Once the period (two years in New York and New Jersey) has passed, the insurer can no longer challenge the policy. While an incontestability clause provides strong protections for policy holders and policy beneficiaries, preventing insurance claim denials, the law withholds these protections from imposters and identity thieves who fraudulently pose as someone else to purchase life insurance in that person’s name. In such cases, New York courts have held that while the insurance policy remains valid, the policy covers the individual “seen and dealt with,” not the individual fraudulently named in the policy. Put another way, the policy insures the imposter whomever he may be, not the stolen identity used by the imposter.

But the law also allows life insurance to be legitimately purchased in someone else’s name. What happens when there is no controversy about who purchased the policy but there is a controversy about the relationship of the purchaser to the individual named on the policy? What if the purchaser misrepresented his or her relationship to the named individual? Should the purchaser still receive the protections of the incontestability clause? In Halberstam v. United States Life Ins. Co., a New York court recently clarified the reach of incontestability clauses.

The case revolved around a policy originally purchased by the Leo G. Family Trust in the name of Leo Goodstein from US Life Insurance on February 25, 2005. At first, the trust retained the beneficiary rights. Later, in October 2008, it transferred those rights to a second trust, the MN Irrevocable Life Insurance Trust. Mr. Goodstein died on March 18, 2009. US Life Insurance subsequently refused to pay on the policy. It alleged that its own investigations uncovered discrepancies between blood samples taken from Mr. Goodstein’s nursing home and blood samples submitted when the policy was purchased. According to US Life, an imposter, not Mr. Goodstein, had submitted medical records and signed off on the policy that the Leo G. Family Trust had purchased in Leo Goodstein’s name. Because of this alleged fraud, US Life argued, the incontestability clause should not bar it from challenging the validity of the policy.

The court did not agree, and refused to allow the life insurance claim denial to stand. According to the court there was no issue about who purchased the policy and who originally served as beneficiary – the Leo G. Family Trust. Moreover, there was no question that the policy had been legally transferred to the MN Irrevocable Life Trust in 2008, three years after the policy had been issued and outside of the window of contestability. When Mr. Goodstein died, MN Irrevocable Life Trust was the legal beneficiary of the policy with no allegations that it had acted improperly. Fraud or misrepresentation may provide an exception to the window of contestability only against alleged imposters, but it did not provide an exception to the window of contestability against a legitimate beneficiary. Therefore, the court stated that US Life had improperly denied life insurance benefits to the MN Irrevocable Life Trust.

US Life also attempted to argue that the policy was invalid because the original purchaser did not have an insurable interest in Mr. Goodstein. The court acknowledged that purchasing life insurance to cover someone else typically requires either (1) a familial or legal interest in that individual or (2) that individual’s consent. Life insurance policies that lack consent or some insurable interest can be rendered invalid if the insurer challenges the policy, but, the court stated, the insurer must contest within the two-year window. Regardless of whether the original purchaser, the Leo G. Family Trust had Mr. Goodstein’s consent or an insurable interest and regardless of whether an imposter had, in fact, signed off on the medical forms, US Life had failed to challenge the purchase quickly enough the incontestability clause precluded the insurance company from challenging the life insurance claim.

Buying and Selling Life Insurance Policies in New York

When Life Insurance Denials Happen, The Insurer Doesn’t Always Get the Last Word

We recently secured a victory in court for our clients when we represented the sons of their deceased mother. The insurance company had issued two life insurance policies totaling $1,500,000 covering the deceased mother’s life, but denied the life insurance benefits to the surviving family members when the mother passed away. After the family submitted the life insurance claim, the life insurance company performed a long investigation of the claim, before denying it, because, according to the life insurance company, the mother had misrepresented her net worth in the life insurance application. The family believed that the net worth listed in the application was accurate and we sued the life insurance company on behalf of the family. Once the lawsuit was started, Metropolitan Life asserted that our clients’ mother made additional misrepresentations in the application that justified the company’s denial of the life insurance claim, even though the insurance company had never alleged the additional misrepresentations in its communications with the family.

The trial court decided the case in favor of the insurance company and dismissed the case based on the newly-alleged claims of misrepresentation, even though it found that the representation of net worth was accurate. However, we appealed the order and argued that the life insurance company could not rely on the alleged misrepresentations that were claimed only after the lawsuit was filed. The New York Supreme Court, Appellate Division, First Department agreed with our legal argument. The Court found that the life insurance company was barred from claiming any misrepresentations other than the net worth of our clients’ mother. The Appellate Division also found that the representation regarding her net worth in the application was, in fact, accurate. Consequently, the Appellate Court not only reversed the trial court’s order dismissing the case but decided the case in favor of our clients. Although the life insurance denial was initially bad news for our clients, the life insurance company didn’t get the last word.

Don’t Lose Life Insurance Coverage When you Need it Most – When you are Gravely ill

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.

New York Life Insurance Claim Lawyer

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.

Buying and Selling Life Insurance Policies in New York

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.

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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. 

New York Life Insurance Claim Lawyer

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.

Visit us on the internet at http://www.triefandolk.com/practices/commercial-real-estate-insurance/insurance-coverage-litigation/