Can Life Insurance Deny a Claim?
Life insurance policies are supposed to protect families and dependents in the unfortunate event of a loved one’s death. Life insurance policies are valid, legally binding contracts between policyholders and insurance companies. So, how is it that life insurance companies can deny paying beneficiaries after they have lost their loved ones? There are 5 common reasons life insurance companies deny claims:
1) Suicide or health related deaths (for accidental policies)
So-called “Accidental Death & Dismemberment” policies (AD&D) are commonly sold under the impression that if the insured dies of a non-natural, “accidental” cause, a death benefit will be paid to his or her beneficiaries. However, it is common for accidental death insurance claims to be denied. Insurance companies often define “accident” in an arbitrarily specific manner, in which long lists of provisions must be satisfied before they agree to pay out. For this reason, companies will frequently base their denial on evidence surrounding the circumstances of the insured’s death. It should be noted that AD&D policies never cover suicide or health-related deaths, since both of these scenarios would not qualify as an “accident.”
We recently settled a matter where the insured died from severe injuries he sustained in a motorcycle accident, several weeks after the accident. Our client’s claim was initially denied based on “acute amphetamine intoxication” and benzodiazipine use, although no medical history was available, no autopsy was ever performed, and the medical examiner never viewed the body. We argued that the insured’s cause of death was the injuries sustained from the accident, having nothing to do with drug use, that foreseeability of the accident is legally irrelevant, and that even deaths resulting from negligence (taking drugs then driving) may still be an accident. We got our client paid!
2) Death during first 2 years of policy
In most states, the first two years of a life insurance policy are considered the “contestability period,” i.e. the period of time during which an insurance company can review and fact-check information on a life insurance application (see our previous blog post).
If the insured dies during the contestability period, the company will do a full investigation of the individual’s medical records as well as any other information requested on the application. This means that if there were any misrepresentations, falsities, or omissions on the application, the insurance company may retroactively cancel the policy and refund premiums instead of paying the full death benefit. This is an extremely common tactic among insurance companies, even when the misrepresentation in question is unrelated to the insured’s death.
For example, we got our beneficiary client paid in full when the insured died within the contestability period of heart failure. We argued that the insured had no history of heart failure therefore could not disclose that.
You should know also that most life insurance policies contain a two-year “suicide clause,” in which claims can be denied in the event of a policyholder’s suicide. This is meant to deter people from buying policies with the intention of committing suicide shortly afterward, thereby leaving large life insurance benefits for their family members. However, suicide is not always clear-cut, and life insurance companies will frequently deny claims when there exists a mere possibility of suicide.
3) Nonpayment of premiums
When you buy a life insurance policy, the insurance company’s obligation to pay out is contingent on the policyholder having paid the premiums (see our previous blog post). If you forget to pay, the insurance company will typically provide a “grace period” for making late payments of around one month from the due date. If you do not pay within the grace period, the policy will “lapse,” and you will no longer be covered. Even if you’ve been paying diligently for decades, your policy can be terminated after missing one premium payment.
However, sometimes policy lapse and termination happens through no fault of the insured. For example, if ERISA controls, there are many safeguards in place for an insured who does not receive the required notices and application for conversion – beneficiaries can get paid even if the policy lapsed in these circumstances!
In most cases, life insurance policies should pay out in the event of homicide. However, there are specific circumstances in which insurance companies could deny a beneficiary’s claim in the event of the insured’s murder. For instance, if the beneficiary is under investigation for homicide of the insured, then the beneficiary will not receive the death benefit until cleared of any involvement in the insured’s death. Additionally, life insurance companies will almost never pay out if the insured was murdered while participating in unlawful/criminal activity.
We had one case where the insured was murdered. He was a drug user and the beneficiary’s claim was denied based on misrepresentation. We successfully argued that the agent did not probe into the insured’s drug use, that the insured was never asked whether he was treated for drug abuse, and that drug abuse had nothing to do with the cause of death. Our client was paid in full.
5) Policy clause said it doesn’t pay out for…
Insurance companies will frequently stipulate that they don’t have to pay the benefit for arbitrary reasons. This is especially the case in AD&D policies, in which companies will define “accidental” death in a manner which is deliberately hard to satisfy. Common provisions are that the insured must die within 90 days of the injury which caused his or her death and that death in an airplane is not covered if you are a pilot.
Recently we settled a case where the insured died of drowning, but he drowned due to an undiagnosed heart condition. We argued that “accident” is an event that is not a natural and probable result of the insured’s own acts. Here there was no way the drowning could have been naturally and probably expected or anticipated by the insured, when it was caused by his undiagnosed heart condition. Our client got paid.
Life insurance companies often deny beneficiaries’ claims for these reasons even when they are legally required to pay out.
Was your life insurance claim denied? If your life insurance or AD&D claim has been unlawfully delayed or denied, don’t hesitate to contact an experienced life insurance lawyer for a free case evaluation.