Life insurance policies are marketed to consumers as a form of financial protection. The promises made by life insurance carriers are designed to ensure loved ones are not left with preventable financial struggles because a family breadwinner passes away. When a stay-at-home mom suddenly is faced with the death of her spouse, the family’s standard of living and financial security can be placed in jeopardy.
The case of Ian Weissberger serves as a tragic example. When Mr. Weissberger purchased life insurance, he presumably did so in case a terrible injury or fatal disease caused a premature death. Despite his foresight, his wife did not receive the benefits for which her husband had been paying premiums prior to succumbing to Lou Gehrig’s disease. To the wife’s chagrin, the carrier not only refused to pay the $250,000 death benefit, but the insurer actually rescinded (retroactively canceled) the policy.
Mr. Weissberger paid all of the premiums and no foul play was suspected in his death. The insurance company did not dispute that the widow was the sole beneficiary of the policy. The insurance company also did not contest the fact that the fatal disease that claimed Mr. Weissberger’s life was not diagnosed until several months after the policy was purchased.
Ultimately, the policy was denied based on the insurance company’s claim that the insured failed to provide a complete application. After the insured’s death, the insurance company rescinded the policy because the policy did not disclose pulmonary disease or bipolar disorder. The insurer used this rationale to deny the death benefit even though the policyholder’s physicians denied the insured suffered from these conditions.
Although the $250,000 death benefit was a drop in the bucket for an insurance company that collected $2.3 billion in premiums the year it denied the claim, the amount was a significant sum for a surviving spouse. While life insurers often deny coverage for legitimate reasons, the most common justification, which accounts for two-thirds of claims disputes in a typical year, is “material misrepresentation”. While the definition of information that is “material” can vary depending on the jurisdiction, the term generally refers to facts that would materially impact the scope or degree of risk under the policy.
Most people presume that insurance carriers generally pay life insurance claims. Admittedly, life insurance companies pay approximately $38 billion in death benefits during a typical year. However, five thousand beneficiaries were denied death benefits in a recent one-year period. The total value of unpaid death benefits during a typical year exceeds $370 million, which the Los Angeles Times indicates amounts to double the amount of annual unpaid benefits just a decade earlier.
While there are legitimate justifications for denying death benefits, such as foul play by the beneficiary or unpaid premiums, insurance companies often offer coverage immediately upon receipt of an application. This approach allows the insurer to start accepting premiums immediately without taking the time or expending the effort to undertake a proper underwriting process. Florida and many states impose a 2 year limitation period during which material omitted information or false answers on an application can be used to rescind a policy, referred to as the “contestability period.” However, insurance companies can and do exploit the 2 year window. Carriers often exploit a death inside the contestability period to take advantage of errors that could have been discovered before the policy was issued. The story involving Mr. Weissberger and his widow had a happy ending because she fought the insurance company and ultimately reached a confidential settlement.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].