At first glance, life insurance seems like a fairly simple process. The policyholder applies for insurance with a specified death benefit, and, after he or she dies, the beneficiary or beneficiaries will receive this benefit in full. However, this is not always the case. Insurance companies will frequently deny benefits to claimants due to misrepresentations during the policy’s contestability period (see our previous blog post). Each state has unique laws limiting the insurance company’s ability to rely on misrepresentations on the application to avoid liability. Typical statutes require some combination of three main elements: intent, materiality, and relation to the insured’s cause of death.

Intent

Some states provide that an insurer cannot deny claims unless they prove that the misrepresentations were made with the “intent to deceive” the insurer. This means that the policyholder intentionally lied while filling out the application for life insurance. For instance, Alabama Code §27-14-28 states that no “misrepresentation … under any insurance policy shall defeat or void the policy unless such misrepresentation is made with the actual intent to deceive as to a matter material to the insured’s rights under the policy.” If an insurer voids an Alabama policy due to misrepresentations on the application, they must prove that these misrepresentations were knowingly and willfully made.

Materiality

Most states require that a misrepresentation be “material” in order to void a policy and deny a beneficiary’s life insurance claim. Within the context of life insurance, this means that the misrepresentation must have substantially affected the insurer’s decision to issue the policy in question. If the misrepresentation was “immaterial,” or did not affect the insurability of the insured, then the policy cannot be voided. For instance, California Insurance Code § 359 allows insurers to “rescind the [insurance] contract” provided that “a representation is false in a material point.” The materiality of specific misrepresentations is hotly contested between denied claimants and insurance companies.

Cause of death

Five states (Kansas, Missouri, Nebraska, Rhode Island, and South Carolina) provide that misrepresentations cannot void a life insurance policy unless they “contribute” to the insurer’s “loss.” For instance, Neb. Rev. Stat. § 44-358 dictates that the “breach of a warranty or condition in any contract or policy of insurance shall not avoid the policy nor avail the insurer to avoid liability, unless such breach shall exist at the time of the loss and contribute to the loss.” This means that a connection must exist between the misrepresentations in question and the insured’s cause of death (which leads to the insurer’s “loss”).  For instance, if the insured neglected to mention a diagnosis of diabetes when applying for life insurance but died in an automobile accident, the insurer could not legally void his policy due to the misrepresentation of diabetes.

Insurance companies will frequently deny claims based on misrepresentations that were not material to their risk, made without the intent to deceive, or irrelevant to the insured’s cause of death. If your claim has been unjustly denied or delayed, don’t hesitate to ask an experienced life insurance lawyer to evaluate your case.