For Life Insurance Policies in New York, Incontestable Means Incontestable

By statute, New York State has strictly limited the ability of insurers to contest the validity of a life insurance policy more than two years after the policy was issued (on grounds other than non-payment of premiums).  This limitation is set forth in New York Insurance Law Section 3203(a)(3), which provides, that life insurance policies issued or delivered in New York must, at minimum, state that they “shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue.”  This two-year period is referred to as the contestability period, after which the insurance company is limited in its ability to deny payment to the insured’s beneficiaries.

While some jurisdictions have allowed insurance companies to limit the scope of the incontestability provision – in other words, to assert challenges to the policy’s validity or a beneficiary’s claim after the two-year period has ended – New York courts have made clear that the state’s provisions should be interpreted broadly to protect the insureds and their beneficiaries.  These protections apply even in the event of fraud in the application, lack of an insurable interest, and lack of consent by the insured when the policy was taken out.  Stated more succinctly: in the context of life insurance policies in New York, incontestability means incontestability.

This proposition was reinforced by a Federal Appellate Court in AEI Life LLC v. Lincoln Benefit Life Co., 892 F.3d 126 (2d Cir. 2018).  The life insurance policy at issue in that case was originally obtained – and paid for – by a stranger to the insured in the context of a wager on human life.  Not only did this type of stranger-originated life insurance policy violate New York law, see N.Y. Ins. Law § 7815(c), the facts of the case also demonstrated that the application for the policy at issue was fraudulent and that the insured neither signed the application nor was aware of it.  Even so, it was not until five years after the policy was issued that the insurer sought to invalidate it.  By that point, however, the policy had been purchased by an innocent third-party, who, in response to the insurer’s efforts to void the policy, brought an action seeking to confirm the policy’s validity.  The purchaser prevailed in its initial action and then on appeal.  The Federal Appellate Court hearing the appeal concluded that: (a) New York’s Life Insurance law “provid[es] no exception to the incontestability defense for fraud;” (b) the law likewise “does not create an exception for lack of consent;” and (c) that “wagering insurance contracts entered for the benefit of parties that lack an insurable interest . . . cannot be challenged after the contestability period has expired.”

These conclusions were heavily grounded on a prior decision by the New York Court of Appeals – the highest state court in New York.  In that case, New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74 (1989), the Court of Appeals explained that New York enacted its incontestability provision with respect to life insurance policies to reflect its “conviction that a policyholder should not indefinitely pay premiums to an insurer, under the belief that benefits are available, only to have it judicially determined after the death of the insured that the policy is void because of some defect existing at the time the policy was issued.”  Relying on this policy, the Court of Appeals held that a beneficiary should not be required to “prove his interest after the policy has been in effect for over two years and after decedent has died and is unable to help confirm the arrangement.”  This sentiment has been echoed in multiple subsequent decisions.  See U.S. Bank National Assoc. v. Sun Life Assurance Co. of Canada, 2016 WL 8116141 (E.D.N.Y. Aug. 30, 2016); Public Administrator, New York County, 39 Misc.3d 952, 956 (Sup. Ct. N.Y. Cty. 2013); Principal Life Ins. Co. v. Erno Altman Ins. Trust, 2011 WL 7498936 (E.D.N.Y. Sept. 20, 2011); Ganelina v.; Reliastar Life Ins. Co. of New York v. Leopold, 192 Misc.2d 385, 387 (Sup. Ct. Nassau Cty. 2002).  These decisions make clear that New York life insurance policies may not be contested beyond the period of contestability.

If you have had a life insurance claim denied for a policy in effect beyond the two-year contestability period, the life insurance attorneys at Trief & Olk are available to answer your questions and represent you if there is a basis to challenge the denial.  Feel free to consult our website for examples of the many successes we have had relating to payment of life insurance benefits or call us directly to discuss how we may help you.