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Life Insurance Denials: Fraudulent Misrepresentation


Life insurance companies sell their products by promising a sense of comfort and financial security. Unfortunately, most people do not realize that insurance companies can and will attempt to deny a life insurance claim after the covered individual dies, claiming that the covered person committed fraud in the application. There is nothing more devastating than having your loved one accused of fraud in their life insurance application, after they are gone and when you were counting on the life insurance policy proceeds. If this happens to you, be aware that you have rights and defenses to these allegations.

In Pennsylvania, life insurance companies generally cannot challenge a life insurance claim if the policy has been in force for two (2) years prior to the decedent’s death and the premiums have been paid. However, if your loved one dies during this “contestability period,” of two (2) years, the insurance company may, and sometimes does, contest the validity of the policy.

After your loved one dies, and you submit your life insurance claim, the life insurance company will conduct an investigation of the decedent’s medical history and circumstances of death. During the investigation, the life insurance company will look to discover potential reasons to deny the claim. They will ask you for access to your loved one’s medical records. They may even request a recorded statement, where they ask you questions, under oath, about your loved one’s medical history, treatment and the circumstances of his/her death. The purpose of this investigation, among other things, is to uncover whether there was a “material misrepresentation” made when your loved one submitted the insurance application.

Under Pennsylvania law, a life insurance policy is void ab initio where the life insurance applicant’s representations are (1) false; (2) made fraudulently or otherwise made in bad faith; and (3) material to the risk assumed. Matinchek v. John Alden Life Ins. Co., 93 F.3d 96, 102 (3d Cir.1996). This means that if the life insurance applicant makes a knowingly false statement in a life insurance application (i.e. status as a smoker, diabetic or rock-climber), the insurance company can avoid payment of the policy to the applicant’s family after he/she dies.

Unfortunately, if a life insurance applicant provides wrong information on an application, his/her actions can be presumed to be fraudulent. That is, in cases involving representations to an insurer, “[f]raud is presumed … from knowledge of the falsity.” Coolspring Stone Supply, Inc. v. American States Life Ins. Co., 10 F.3d 144, 148 (3d Cir.1993).

Attorney Francis O’Neill, Jr. has successfully handled cases in which a life insurance company is attempting to avoid payment of a life insurance policy. There are defenses against the insurance company when they allege that your loved one committed fraud in the insurance application.

First, your loved one may have misunderstood a question on his/her life insurance application, and provided an ambiguous or confusing answer. However, that does not mean that they were attempting to mislead the insurance company. The insurance company should know that confusion sometimes does occur during the application process. As a general rule, insurers have a duty to investigate potential ambiguity in insurance applications. See, e.g., Bujak v. Old Line

Life Ins. Co., 1998 U.S. Dist. LEXIS 16831 (E.D.Pa. Apr. 14, 1998), at *4–5 (observing that, under Pennsylvania law, when an insurer issues a policy based on an ambiguous, unresponsive or incomplete answer, the insurer waives the right to assert the falseness or materiality of the question and answer).

Attorney O’Neill recently handled a case where a married man with children applied for life insurance, but failed to disclose on his application that he had taken a blood test within the previous six (6) months. The blood test revealed facts that may have been important for assessing the man’s risk of premature death. In fact, the man died during the two (2) year contestability period. Since the man was the bread-winner of the family, his wife and children were counting on the several million dollar policy.

Unfortunately, the life insurance company conducted an investigation following the claim and discovered the blood test of which they were not previously aware. The company then denied the wife’s claim, alleging that had they known about the blood test, they would have obtained a copy, and would not have issued the policy.

This was a tough case, because the man would have certainly known about the blood test when he failed to disclose it on his application. However, under the law, the insurance company still had to show that the misrepresented fact was “material.” In other words – did it matter that the company did not know about the particular blood test, when compared to all of the other things they did know about the applicant.

Pennsylvania case law has established that “a misrepresented fact is considered material if the insurer would have refused to insure the risk or would have demanded a higher premium had the fact been disclosed.” Wilson v. Metropolitan Ins. and Annuity Co., 1995 WL 11983, at *3 (E.D.Pa. Jan.4, 1995).

In essence, Attorney O’Neill had to establish that the failure to disclose the existence of the blood test did not affect the decision of the insurance company to issue the life insurance policy. To do this, an exhaustive analysis of the internal underwriting guidelines of the company was completed. Afterwards, depositions of the key underwriters of the particular policy were completed at the company’s headquarters, including the executive in charge of underwriting. During the case, Mr. O’Neill was able to develop evidence that the company might have issued the policy even if it had known about the blood test, and may not have even charged the man any additional premiums. The case eventually was resolved without a trial.

If you have a life insurance claim denied, it is important to remember that there are defenses to the life insurance company’s decision. Do not hesitate to call Philadelphia Life Insurance Claim Denial Attorney Francis O’Neill with any life insurance claims questions.

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