In life insurance law, the principle of waiver can play a pivotal role in preserving a policy that an insurance company attempts to cancel. A recent court ruling highlighted this legal concept when the insurer tried to rescind a life insurance policy based on a claimed material misrepresentation in the policy application. However, the insurer continued to receive and cash the premium payments, despite their attempts to cancel the policy.
The insurer argued that it had inadvertently cashed the payments due to the automated design of its computer system, which continued to classify the policy as active. However, the court rejected this argument and ruled that the insurer waived its right to rescind the policy by accepting the premium payments after attempting to cancel. This decision emphasizes that once an insurer continues to accept premium payments, it may forfeit the ability to rescind the policy, even if it initially claims material misrepresentation.
Under life insurance law, if a policy is rescinded while the insured is still alive, the individual may be unable to secure another policy with the same terms, particularly if their health has declined. The law typically limits rescission to two years after the policy's issuance based on the incontestability provision. This provision ensures that insurers cannot rescind a policy after two years unless fraud or material misrepresentation can be proven.
In this case, the insurer’s failure to act within the contestability period meant that the life insurance policy remained in effect. As a result, the insured was entitled to continue receiving coverage despite the insurer’s attempt to void the policy.
This case is an important reminder that insurance companies must act within the law and promptly address any concerns regarding potential rescissions. If your life insurance claim has been denied or your policy has been rescinded, consulting with an experienced life insurance attorney is critical to understanding your rights and options.
Sources:
Insurance Information Institute (III):
The III provides general information about life insurance, including coverage and exclusions that might apply. www.iii.org
National Association of Insurance Commissioners (NAIC):
The NAIC's resources outline important policy rules, including contestability periods and exclusions in life insurance policies. www.naic.org