As lawyers who specialize in the wrongful denial of life insurance claims, we are very familiar with the patterns and practices of the life insurance industry. We know, for example, that life insurers exist for one reason and one reason only – to make money. They cannot do this by indiscriminately paying out every claim that is submitted to their company. Instead, they make the most money when they manufacture bogus justifications for denying valid claims.
Given that it is our exclusive practice focus to contest these wrongful denials, we have probably seen just about every trick in the book. Recently however, a case came to our attention that surprised even us. The life insurance company at issue denied a claim filed by a beneficiary on the grounds that the policyholder had lied in his life insurance application. The claim denial was such a stretch that we thought it would be good to explore the facts of the case here.
In order to do that, however, we need to first discuss some of the basic legal principles that were at issue in that case. Reasons life insurance won't pay out.
Material misrepresentations
Alleged “material misrepresentations” are one of the primary justifications life insurance companies give for denying claims. Material misrepresentations are a concept derived from contract law. Basically, the law provides that when two parties are negotiating a contract, they have to be truthful with one another. If one party tells a lie during negotiations, and that lie induces the other party to enter into a contract he would have otherwise avoided, that lie is deemed to be “material.”
What that means from a legal standpoint is that the party who was lied to can be relieved from his obligation to hold up his side of the contract. Life insurance companies frequently seek to avoid paying out claims on the basis that their policyholder made a material misrepresentation during negotiations. In the life insurance context, negotiations occur by way of the policy application.
After a policyholder dies, the insurance company may go back and look at the statements he made in his life insurance application. If they are able to catch him in a lie, they can sometimes avoid paying out the claim. Knowing this, it is not unusual for a life insurance company to claim that a material misrepresentation was made even when there’s no way to tell if the insured actually lied. The case discussed below is one such circumstance.
An untruthful policy application?
The case involved a man named Michael. Michael was 32 years old and a young architect when he was offered his first life insurance policy. The firm he worked for was putting together a group plan, and all employees were allowed to participate so long as they qualified for insurance. The life insurance company determined eligibility by having each employee respond to a health questionnaire.
One of the things asked in the multi-page questionnaire was whether the policy applicant had ever had unprotected sex. In response to this question, Michael answered “no.” Michael was issued a policy and he named his young wife, Sarah, as his sole beneficiary.
Tragically, Michael was killed in a car accident just six months after the policy issued. As part of the accident investigation, an autopsy was performed on Michael's body. The autopsy revealed that Michael had chlamydia when he died. Of course, that infection had nothing to do with his death, it was just part of the overall reporting on the condition of his body.
Life insurance claim denial due to an STD
Just weeks after Michael died, Sarah made a claim for benefits under his life insurance policy. She was surprised when, one month later, she received a claim denial letter in the mail. The letter alleged that Michael had made a misrepresentation in his policy application that was significant enough to relieve the insurance company from its obligation to make a death payout.
Specifically, the letter stated that as part of its investigation, the insurer had obtained a copy of Michael’s autopsy report. It then referenced the finding of chlamydia in that report. In light of that diagnosis, the letter continued, there's no way Michael could have been telling the truth about not having unprotected sex. Sarah was shocked and embarrassed both by the diagnosis, as well as the claim denial.
Fortunately, Sarah had the wherewithal to put her shock aside and contact a lawyer specializing in the wrongful denial of life insurance claims. She explained the full situation and ask the lawyer if he could help. Within a matter of days, the lawyer had done independent research and had contacted experts in the field of sexually transmitted diseases. He learned that a person can obtain chlamydia through non-sexual means such as sharing food or using dirty towels.
In light of this, there was no way for the insurance company to prove that Michael had contracted chlamydia through sexual contact or that he had lied in his life insurance application. The lawyer thus filed an appeal with the insurance company's internal review board. He submitted reports from his experts as well as excerpts of the independent research he had conducted.
The insurance company forced the case into arbitration but ultimately Sarah and her lawyer prevailed. The insurance company was unable to offer any evidence supporting its contention that Michael had lied about having unprotected sex. Consequently, it could not prove he made a material misrepresentation in his policy application. The arbitrator ruled that the insurance company had to live up to its obligations. Sarah was awarded the full policy benefits plus interest.
This case just goes to show that life insurance companies will stop at nothing in an effort to deny claims. If you or someone you love have recently had a life insurance claim denied and the reasoning behind that denial doesn't sit right with you, please contact our office. We’ll listen to your situation and give our honest opinion about the strength of your case. Call today. We’re here to help.