Someone buys life insurance, names family and/or friends as the beneficiaries, and breathes easier knowing that his or her death at least won’t cause financial harm. In many cases, the policy is specifically bought to serve as a replacement for the earnings of the insured.
Yet when the insured dies and the beneficiary presents a claim for the policy proceeds, surprise: the insurer denies the claim. Now what? It’s certainly too late to go find another insurance policy on the deceased. Considerable anxiety is imposed on a family already trying to deal with the death of the insured.
Depending on the reason for the denial and the amount of evidence that the beneficiary can muster, the insurer may be subject to a claim that it breached its duty of good faith. That could result in the beneficiary recovering damages considerably greater than the value of the policy itself, including punitive damages and attorney fees. An attorney experienced in bad faith cases involving life insurance gives the beneficiary the best chance of prevailing on that bad faith claim.
Common Reasons for Denial
There are limited reasons for the insurance company to deny a life insurance claim. Among the most common are the following:
- The insured lied about or concealed relevant health information when filling out the insurance application, such as falsely saying that there was no history of cancer;
- The insured committed suicide, which is not covered by the policy;
- The insured died while engaged in particularly dangerous activity that the policy excluded;
- The premiums weren’t paid.
These are, of course, the reasons that the insurance company may give; that doesn’t mean that they justify the denial of the claim for proceeds. For example, life insurance policies typically provide that they are “incontestable” once the policy has been in force for two years. Any misrepresentations on the application would not prevent recovery of the proceeds if the death occurred more than two years after the policy was issued.
Even if the death occurs during the two years when the policy can be contested, misrepresentations and concealment don’t automatically justify the denial. In most states, for example, the fact that an applicant lied about a family history of cancer won’t allow the insurer to deny a claim for the death of someone in a car accident.
Common Bases for Bad Faith Claims
One improper practice by some life insurance companies is known as “post claim underwriting. “The insurance company simply waits until an insured dies to do the kind of investigation that it should have done before issuing the policy. If the investigation turns up any evidence that can arguably be used to deny the beneficiary’s claim, the insurer does so. An experienced bad faith lawyer can spot the signs of post claim underwriting and craft a solid bad faith claim against the insurer.
Another common improper practice by life insurers is to state that a health misrepresentation caused them to issue a policy that they would never have issued if they knew the applicant’s true state of health. Again, an experienced bad faith lawyer knows how to investigate that basis for denying the beneficiary’s claim:
- Are there other people with the same health problem insured by the same company?
- If so, are their policies issued on terms similar to those in the policy the insurer is denying?
- Did the applicant even make the misrepresentation, or was it made by the agent who took the application, in order to get the application approved?
The insurer may simply fail to conduct a reasonable investigation of the claim before denying it. For example, did the insurer sloppily investigate and wrongly conclude that the insured had a heart problem at the time of the application?
If your life insurance claim has been denied for any of the reasons discussed here, and you have any doubt that the denial is justified, give the attorneys at Surrano Law a call. We have decades of bad faith experience in life insurance cases. Call and tell us what has happened so far, and we will advise you of your options. We have fee arrangements for every need, and sometimes can accept cases on contingency. Your initial consultation is free.