When a misrepresentation on a life insurance policy

The Office of General Counsel issued the following informal opinion on February 6, 2002, representing the position of the New York State Insurance Department.

Re: Incontestability of Individual Life Insurance Policies and Individual Long Term Care Insurance Policies

Questions Presented:

1] After two years, even if there is a misrepresentation on a life insurance policy application, does the policy still have to be paid?

2] After two years, even if there is a misrepresentation on a long term care insurance policy application, does the policy still have to be paid?

Conclusions:

1] N.Y. Ins. Law § 3203[a][3] [McKinney 2000] provides that an individual life insurance policy must contain a provision that the policy shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue. However, whether or not an individual life insurance policy is incontestable after being in force during the life of the insured for a period of two years from its date of issue depends on the facts.

2] The conclusion concerning incontestability of individual long term care insurance policies depends on whether or not the policy is tax qualified for Federal income tax purposes.

Facts:

No specific facts were provided.

Analysis:

N.Y. Ins. Law § 3203[a][3] [McKinney 2000] provides that an individual life insurance policy must contain a provision that the policy shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue. However, there are a number of cases interpreting this, providing exceptions to the above provision. Thus, whether or not an individual life insurance policy is incontestable after being in force during the life of the insured for a period of two years from its date of issue depends on the facts.

An insurer that writes accident and health insurance may be authorized by the Superintendent to issue long term care insurance policies. N.Y. Ins. Law § 1117[a] [McKinney 2000].Pursuant to N.Y. Ins. Law § 3216[d][1][B][i] [McKinney 2001-2002 Interim Pocket Part] individual accident and health insurance policies must contain an incontestability provision that limits the insurer to a two year period from the date the policy is issued to deny a claim or rescind the policy based upon the insured's misstatements on the application, except for fraudulent misstatements. Thus, if the insured of an individual long term care insurance policy that is not tax qualified for Federal income tax purposes provides a misstatement on the application, the insurer may deny the claim or rescind the policy for up to two years after the policy is issued, except that if the misstatement is fraudulent, the insurer may deny the claim or rescind the policy after the two year period.

A tax qualified long term care insurance policy may be tax deductible for Federal income tax purposes, as a medical expense pursuant to the Internal Revenue Code. 26 U.S.C.A. § 7702B [West Supp. 2001]. Section 7702B[g] incorporates by reference the January, 1993 National Association of Insurance Commissioners [hereinafter "NAIC"] Long Term Care Insurance Model Act requirements for tax qualified long term care insurance policies. The relevant components of the NAIC Model Act's incontestability provision, which is applicable to a misrepresentation on the application by an insured of a tax qualified long term care insurance policy, is provided below:

For a policy or certificate that has been in force for less than six [6] months an insurer may rescind a long-term care insurance policy or certificate or deny an otherwise valid long-term care insurance claim upon a showing of misrepresentation that is material to the acceptance for coverage.

For a policy or certificate that has been in force for at least six [6] months but less than two [2] years an insurer may rescind a long-term care insurance policy or certificate or deny an otherwise valid long-term care insurance claim upon a showing of misrepresentation that is both material to the acceptance for coverage and which pertains to the condition for which benefits are sought.

After a policy or certificate has been in force for two [2] years it is not contestable upon the grounds of misrepresentation alone; such policy or certificate may be contested only upon a showing that the insured knowingly and intentionally misrepresented relevant facts relating to the insured's health.

Accordingly, if a New York State long term care insurance policy is to be tax deductible for Federal income tax purposes it would have to be contestable in accordance with the NAIC Model Act.

Life Insurance Claim Denial Due to Material Misrepresentation on Application: What to Do When Your Claim is Under Review?

• Tatiana Kadetskaya
• August 3, 2021

There are many reasons life insurance companies will not pay out. One of the most common ones is claiming that the insured made material misrepresentations on their application for life insurance. 

However, as with any denied claim, denial due to material misrepresentation is not ironclad. Many misrepresentations are not truly material, but simply the insurance company’s attempt to find simple errors or omissions to avoid paying death benefits. 

If your claim was denied due to alleged material misrepresentation, it is important not to take the denial at face value. You may still be able to recover the benefits with the help of a good life insurance attorney. Call our attorneys at [888] 510-2212 for a free consultation.

Definition: What Is Material Misrepresentation on a Life Insurance Application?

When people take out life insurance, they are asked to answer several questions about their health and medical history. Such questions may ask an applicant about specific diseases, diagnostic tests, and medication or they may be vague and group diseases into categories.

Answers to these questions are assessed by the insurance company when it evaluates the risk involved in insuring a particular individual and establishes the premium rate. 

If the insured died within the first two years of the policy effective date, the insurer has a right to contest it, or request the insured’s medical records to check if the answers provided on the application for life insurance were truthful. The two-year period during which the insurer has the right to contest the insurance contract is called the “contestability period.” If, after the investigation, they find significant inaccuracies, referred to as “material misrepresentations”, they have the right to deny paying the life insurance claim.

Material misrepresentation is any omission, concealment of facts, or incorrect statement on the application that would have caused the insurer to deny life insurance or issue a policy with a lower amount of coverage and/or higher premium had it been aware of this information before issuing the policy. Usually, it implies that the false statement or omission was made to favor the insured by making them seem like less of a risk.

Insurance companies claim material misrepresentation even in cases where an applicant disclosed the medical history in good faith but made an innocent mistake in one of the answers. The way the questions are often phrased on life insurance applications may confuse many applicants for life insurance. For example, an applicant may know his/her diagnosis but may not necessarily know that it belongs to a category of the diseases as outlined in the application.

At our law firm, we have successfully handled many denied life insurance claims based on material misrepresentations on the application. In almost all of these cases, the insureds disclosed their medical history truthfully but were confused about the wording of a question.

What Is Considered Material Misrepresentation: Common Examples

These are documents where material misrepresentation might occur:

• Life insurance application form;
• Life insurance application for reinstatement; 
• Life insurance policy amendment;
• Life insurance application for late enrollment.

Below are some of the most common material misrepresentations:

• Misrepresenting background information [criminal, financial, employment information];
• Inaccurate weight;
• Missing information such as doctor visits or medical tests;
• Misstating age;
• Failure to mention a history of tobacco, alcohol, drug, and any illegal substance usage;
• Not disclosing medicine taken;
• Not disclosing diagnosis or chronic conditions;  
• Omitting extreme and dangerous hobbies and activities;
• Not disclosing the existence of other life insurance policies;
• Misrepresenting immigration status;
• Incorrect or incomplete answers on an application provided by the insurance agent.

Many of the material misrepresentation examples above are made to sound completely legitimate by claiming that the insured was to blame and had fraudulent intentions. An experienced life insurance lawyer will be able to identify unfounded or unrelated allegations and take the appropriate legal action to collect the largest amount of benefit possible.

What Happens When a Material Misrepresentation Is Discovered by the Insurance Company?

State statutes give insurers a right to rescind, or cancel, a life insurance policy if it was issued to an individual in reliance on incorrect information provided in an application. That means that the life insurance company can avoid paying the benefits by refunding any premiums paid and invalidating the existence of the policy.

However, each state has unique laws that limit how much life insurance companies can rely on material misrepresentation to avoid liability. Typically, they require one or both of the following criteria to be met:

• Materiality. Most states provide that a misrepresentation be material enough to void a policy or deny a life insurance claim. In other words, a policy will be cancelled if an insurer can prove that if it had known the correct information it would not have issued the policy or the policy would not have been issued at the same premium. Otherwise, if the misrepresentation was immaterial, it cannot invalidate a life insurance contract.
• Intent. Some states require insurers to prove that the policyholder knowingly and willfully made misrepresentations with intent to deceive the insurance company. That means that the applicant lied on the application for life insurance.

Our material misrepresentation denial attorneys are experienced in defending policies from allegations of material misrepresentation for all the reasons listed above. Call us for a free consultation to determine whether you have a valid claim to life insurance death benefits.

When Would a Misrepresentation on the Insurance Application Be Considered Fraud?

Applicants commit fraud when they make willful misrepresentation with intent to defraud or deceive. If the insurance company proves that the insured intended to deceive by providing wrong information on the application, it can invoke a policy rescission beyond a two-year incontestable period. For example, an applicant for life insurance fails to completely disclose health conditions that the insurer contends would have resulted in a refusal to issue a life insurance policy. The applicant states that she had not ever received disability payments in the past, failing to disclose that she had received prior disability insurance payments for 20 years in the past. 

What if the Life Insurance Agent Made the Misrepresentation?

Sometimes, the material misrepresentation was made by the insurance agent when they completed the application form and medical questionnaire of the insured, either by negligence or intentional lying. In such cases, an experienced life insurance lawyer can help prove that the insurance company is liable through the actions of its agent. 

What to Do When an Applicant for a Life Insurance Policy Failed to Complete the Application Properly?

There is legal recourse for a denied life insurance claim based on material misrepresentations. It is within your rights as a life insurance beneficiary to look into the denial reason and appeal the claim denial, either through an appeal process or litigation. 

Attorneys at Kadetskaya Law Firm have helped many clients collect the life insurance payout they were rightfully entitled to. We know how to fight life insurance claim denials based on material misrepresentation. Whether we settle through negotiations with the insurance company or we need to take it to court, we have the experience you need to win your case.

We handle life insurance claim denials on a contingency fee basis, which means that you will not have to pay us unless we recover the policy proceeds. Only then will we charge a reasonable legal fee. We take pride in offering competitive contingent fee structures and will work with you to ensure you are comfortable with the fee.

Call us at [888] 510-2212 to speak with one of our life insurance attorneys. We offer free case evaluations.

Here are a few cases that our material misrepresentation denial lawyers have successfully handled:

• $550,000 recovered for a claim denial based on misrepresentation on the application form for life insurance;
• $150,000 collected for a client who was denied insurance proceeds after husband died of a heart attack during the contestability period; 
• We have helped a client prove that the material misrepresentation was made by the insurance agent acting in bad faith.