A denial of life insurance benefits can often have devastating consequences on a family. Especially following the death of a loved one, a denial of benefits can be shocking and overwhelming to a family or individual counting on those proceeds. But denials do occur because the life insurance companies will look out for their own best interests and not the interests of a beneficiary expecting to receive life insurance proceeds. This is because the very purpose of a life insurance company is to make a profit, not to pay out money. The less the life insurance company pays, the more profit it makes. So, for these reasons, the life insurance companies will often first exhaust every avenue and opportunity to deny a life insurance claim, even if this means using unfair, manipulative, unethical, or illegal tactics. We will talk more about common life insurance denial tactics.
What are Common Life Insurance Denial Tactics?
Life insurance companies will use any and all available tactics to deny a claim. Here are the most common life insurance denial tactics:
- Claiming a material misrepresentation on the life insurance application during the contestability period
- Claiming that fraud occurred
- Asserting that errors existed in the application for proceeds
- Claiming that coverage had lapsed
- Claiming that coverage did not exist under their proposed policy construction and interpretation
- Canceling a policy because of non-payment of premiums (or lapse of coverage)
- Canceling a policy because of other premium disputes
- Disputing the cause of death, including by suicide or murder by a beneficiary
- Alleging an exclusion in the life insurance policy
- Asserting that the signature on the life insurance application was forged
- Asserting an improper interpretation of complex or ambiguous policy language
In addition to these tactics to deny a claim, life insurance companies will also typically do everything they can to delay a claim. Delay tactics often come in the form of continuously requesting additional information, requiring the beneficiary to complete unnecessary and redundant forms, and just generally slow-walking the entire process. These delay tactics are used by life insurance companies in the hopes that the beneficiary might make a disqualifying error or even just give up on the claim.
Material Misrepresentations During the Contestability Period
The most common tactic used by life insurance companies use to deny a life insurance claim is made by accusing the deceased policyholder of making a “material misrepresentation” on the life insurance application itself. However, under Louisiana law, a denial based on a material misrepresentation can only be made if the deceased policyholder died within two years of the policy being issued; this is known as the “2-year contestability period.”
Also, under Louisiana law (La. R.S. 22:860), in order to deny a claim for material misrepresentation, the insurer must prove the following:
- The deceased policyholder made a misrepresentation or false statement;
- This misrepresentation was material, meaning that the life insurance company would not have issued the policy if it had been aware of the misrepresentation; and
- This misrepresentation was made with an intent to deceive the insurance company.
The Louisiana Supreme Court has held in numerous cases that although the statute (La. R.S. 22:860) as written requires that a false statement bars recovery only if it is made with the intent to deceive or it materially affects the risk, Louisiana law and courts require both factors.
So, when a deceased policyholder dies while he or she is still within the 2-year contestability period, the life insurance company will launch an investigation for any false statement or error made by the decedent. This means an extensive review of medical records, employment records, background checks, death records, insurance records, statements, and other records. And usually, due to the complex and extensive nature of the life insurance application process (not to mention the tons of “fine print”), the insurer can find at least one error made by the decedent when completing the application. Then, the life insurance company will promptly deny the beneficiary’s claim – just like that – and send out a denial letter with a check for a refund of the premiums paid. (Note: do not deposit this refund check!)
Thus, if a deceased policyholder dies while he or she is still within the 2-year contestability period, the life insurance company will scour the records for an error or misrepresentation and then simply deny the claim. However, this is entirely improper because life insurance companies fail to properly consider (1) whether the life insurance company would have issued the policy if it had been aware of the misrepresentation, and (2) whether the deceased policyholder had made the misrepresentation or error with an intent to deceive the insurance company.
Concerning the factor of whether a misrepresentation was “material,” the life insurance companies will typically interpret what is “material” very liberally in order to deny claims. The life insurance companies will often deny a claim even if the insured simply forgot any medical information concerning his or her health history, even if the correct or full information would not have affected the issuance of the policy. Such action is improper under Louisiana law. But the insurers do it anyway because they know that the only way for the beneficiary to win this argument on materiality is for the beneficiary to hire a lawyer who will obtain the insurance company’s “underwriting guidelines” that show under what conditions the life insurer would have written the policy.
Regardless of whether a misrepresentation was “material,” a life insurance company still has the burden of proving that the deceased policyholder made misrepresentation with an intent to deceive the insurance company. Proving a person’s intentions can be extremely difficult, but proving the intentions of a deceased person can be near-impossible. Nonetheless, the life insurance companies will try to do so with circumstantial evidence. However, if a lawsuit must be filed, Louisiana law is clear that a case involving intent from circumstantial evidence can almost never be dismissed before trial; thus, if the insurance company wants to win the case, they will need to prove to a jury that the deceased policyholder was an intentional liar, which can be extremely difficult and come off as offensive and insulting.
How Do I Fight Against a Material Misrepresentation Denial?
Though there is little that beneficiaries themselves can do upon receiving a denial for material misrepresentation, there is much a qualified, experienced life insurance attorney can do, even besides refuting the materialness and intent requirements listed above. Basically, an experienced life insurance attorney can directly challenge the insurer by showing that they are in no position to deny a claim when their own actions actually prohibit a denial for a material misrepresentation.
For example, there are many rules that a life insurance company must follow, especially if it is trying to deny a claim based on a material misrepresentation. Some of these rules, which would, in fact, prohibit denial of the life insurance claim, are:
- An insurer must pay a life insurance policy if it could have found out about the insured’s medical condition through its own investigation based on the information the insured provided.
- An insurer must pay a life insurance policy if it could have found out about the insured’s medical condition through its own investigation based on Medical Information Bureau (MIB) documents authorized by the insured.
- The listing of the name of a medical provider on a life insurance medical examination is sufficient to prevent denial by an insurer based on medical information from that provider.
- An insurer must pay a life insurance policy if it cannot prove that neither it nor its life insurance agent did not know about the insured’s medical condition.
- An insurer cannot underwrite a policy after it is written (post-claims underwriting).
- An insurer must pay a life insurance policy if it would have charged a different premium if it had known of the medical condition on which it bases its denial.
- An insurer must pay 200% penalties and attorney’s fees if it arbitrarily and capriciously denies a claim, or fails to pay within 30 days, or underwrites after the fact.
Thus, the insurance company has a duty to investigate, and if it fails to investigate, it cannot deny a claim for a material misrepresentation based on the information it would have found. As Louisiana courts have held: “Notice of facts which would cause reasonable man to inquire further imposes duty of investigation upon insurer, and failure to investigate has been held to constitute waiver of all powers or privileges which reasonable search would have uncovered.”
Let New Orleans Legal Handle the Life Insurance Company
If you have been denied a life insurance claim, you need the assistance of a qualified, experienced life insurance attorney. A trusted life insurance attorney knows and has seen many of the common life insurance denial tactics. In fact, most life insurance companies will not get serious about paying a life insurance claim that they have previously denied until they know that the beneficiary is represented by an aggressive and effective attorney who will enforce the client’s rights and pursue penalties and attorney’s fees.
If you receive a denial of a life insurance claim, please consider setting up a free consultation with New Orleans life insurance attorney Peter Diiorio at New Orleans Legal, LLC. Mr. Diiorio will be willing to handle your case on a contingent fee basis, which means that we do not charge any legal fees unless we collect life insurance proceeds for you. You will never pay or owe us anything out of your pocket. Contact us to schedule a free face-to-face, Zoom, or telephone consultation, and get on the path to receiving the benefits to which you are entitled.
