Material misrepresentations in life insurance applications are perhaps the most common ground for life insurance denials. For life insurance policies issued to New Jersey and New York residents, the insured must pass away within two years of the date the policy was issued for a denial to be made based on a material misrepresentation. If, however, the policy has been in effect for over two years, on the date the insured dies, the insurance company cannot deny the claim based on a material misrepresentation.
The rationale behind the two-year cut off period, known as the contestability period, is to prevent life insurance denials from being made years after a policy is issued, when the insured has passed away and beneficiaries would have a difficult time asserting a defense.
To be clear, this means that a life insurance company cannot deny payment on a policy more than two years after it was issued on the grounds that a material misrepresentation was made in the application. However, a consequence of the contestability period is that courts have given insurance companies a significant amount of latitude to deny claims on this basis for insureds who died within that time period.What is a Material Misrepresentation?
Material misrepresentations are commonly alleged to have occurred with respect to the following:
- Medical history and current health
- Assets and income
- Other life insurance policies in existence
- Alcohol or tobacco use
- Dangerous hobbies and activities
When the insured dies within the two-year contestability period, the insurance company will routinely request an insured’s medical or financial records and then closely compare them with the application to determine if there are discrepancies. If one or more are found, there is a high risk that there will be a life insurance denial based on material misrepresentation.
While life insurance companies frequently do not request medical and financial records from applicants before issuing a policy, they almost always do so when the insured dies within the contestability period. This practice, which has been heavily critiqued by consumer and policyholder advocates, is referred to as “post claim underwriting.” Click here to read an article by Attorney Eric Dinnocenzo on this topic. The practice unfairly puts life insurance claims under very strict analysis only when a claim is made and loved ones are in a vulnerable position. This is especially the case since, while some insureds do make false statements on the application, many are misled by the insurance broker to minimize health conditions in the application in order to make a more competitive sale, or they do not fully understand or recall the information asked for in the application.
There are ways to defeat the material misrepresentation defense. The misrepresentation may not actually be “material” in that, if known, the insurance company would still have issued the policy, or would not have assigned a different rating. In addition, there may be a “waiver or estoppel” argument that the insurance company had notice of the undisclosed medical condition.
If you have suffered a life insurance denial based on a material misrepresentation, you can contact New York and New Jersey life insurance attorney Eric Dinnocenzo at (212) 933-1675 for a free consultation.