Insurance companies are always looking for new ways to avoid paying claims; the newest trick in their book involves the denial of life insurance benefits by arguing that, despite prompt payment of premiums for a period of time in excess of two years, a contract never existed between themselves and their insureds.
In most states, life insurance policies include a clause known as an “incontestability provision” which is mandated by State Insurance Statutes. In essence, this clause prevents insurance companies from contesting the validity of a policy after a certain period of time. For example, if your policy has a two-year incontestability clause, the insurance company cannot contest the existence of a valid life insurance contract (and not pay you, the beneficiary) after premiums have been paid for two years. These clauses are designed to protect beneficiaries from an unfair denial of the life claim, especially in light of the fact that the insured him or herself is unavailable to dispute the insurance company’s arguments.
In Patterson v. Reliance Standard, Patterson v. Reliance Standard Life Ins. Co., 986 F. Supp. 2d 1140 (C.D. Cal. 2013), after paying for group life insurance for over five years, an insured with a valid life insurance policy passed away. Reliance Standard, despite the fact that five years of premiums had been paid, denied the claim on the specious ground that because the insured had not signed a form stating she was in good health, (which she was), the policy had never gone into effect, and it had no obligation to pay the $200,000 owed to her minor children in life insurance benefits.
Reliance Standard knew full well that if the policy was valid from the inception, the policy incontestability provision would bar it from denying the claim. So, instead, Reliance Standard took the legally unsupportable position that as a result of the alleged omission relating to the insured’s failure to sign a statement of good health, the insurance contract had never been formalized, and thus the incontestability clause should not apply. The federal district court rightly rejected this argument, finding no legal support for Reliance Standard’s attempt to avoid its obligations under the legislatively mandated incontestability clause.
Recently, a life insurance beneficiary came to us after his claim for life insurance benefits was denied. Sun Life, in a situation almost identical to the facts in the Patterson case, is similarly attempting to contest the existence of the life insurance policy after the two year contestability period, this time by arguing that the insured did not comply with requirements for enrollment under a new version of the policy which didn’t even apply to the insured at the time she enrolled! In denying this claim, Sun Life has completely disregarded the existence of the two-year incontestability clause, most likely under the (often correct) assumption that the beneficiaries don’t know any better.
What does this mean for you, the life insurance beneficiary? Never accept a denial! Insurance companies wrongfully deny claims all the time, even though they likely know full well that the denial would never hold up in Court. The insurance company may just be hoping that you will believe them when they tell you the claim is invalid. If that happens, contact an attorney experienced in employer provided life insurance review your claim. We are always willing to review your situation to see if we can help you obtain the benefits you rightfully deserve.