Life Insurance – Be Aware!

Your Life Insurance Company May Not Pay Benefits If There Is Incorrect Information On The Life Insurance Policy Application – Even If It Was Your Agent – And Not You – Who Made The Mistake!

Be Aware!

Be careful when completing Life Insurance Policy applications!  This is vitally important.

Did you know:  Some insurance companies instruct their agents: (1) to ask the application questions, and insert the answers themselves; and then (2) not to release the application except to have the prospective insured sign the application.

This leads to potential confusion, only to allow the insurance company to later claim that the application response was erroenous, and that the insurance company therefore could refuse to honor the promises in the Life Insurance Policy.

If your Life Insurance Company denies coverage – you may have important recourse.  You can fight Life Insurance Companies’ wrongful coverage denials!

A Sampling Of California Case Law Regarding Life Insurance Policy Issues: 

In Thompson v. Occidental Life Insurance Company of Calif. (1973) 9 Cal.3d 904, the husband/insured purchased a life policy naming his wife as the beneficiary. After the husband’s accidental death, the life insurance company denied coverage and returned the policy premium.

Defendant Occidental claimed, among other things, that the husband had made a material misrepresentation on the application, because he did not reveal various medical consultations regarding leg vain inflammation and leg pain, which included 10 medical consultations with five different doctors. Defendant Occidental further claimed that if the husband had revealed this information, it would not have issued the policy.

The trial court awarded judgment to the plaintiff/beneficiary wife against Occidental. The California Supreme Court affirmed the award in favor of the wife. In affirming the award in favor of the plaintiff/wife, the Court first discussed the general rules regarding life insurance applications and misrepresentations:

● An insurance company has a right to know all of the information that the applicant for insurance knows regarding the state of his health and medical history.

● Material misrepresentation or concealment of such facts are grounds for rescission of the policy – actual intent by the insured to misrepresent need not be shown.

● There is a presumption that if there is a question on a life insurance application, the information sought is in fact material. If the insurance company would not have issued the policy had the insured truthfully provided all of the information requested, then the information is considered material.

● If the insured is given the application to sign, it is the insured’s responsibility to ensure that the information is correct. Where the insured is given the application as part of the policy, it is the insured’s responsibility to read the application. If there are any incorrect answers, the insured must notify the insurance company.

However, with the above foundational principles in mind, the Court continued:

The burden is on the insurance company to prove misrepresentation.

The insurance company bears the burden of negating an insured’s plausible misrepresentation defenses.

Plausible misrepresentation defenses, the Court reasoned, may include:

● The agent failed to record the information correctly. The agent intentionally or inadvertently did not record the proper information (which implies an agent’s intentional or inadvertent failure to properly ask the pertinent questions).

● The insured provided the agent with the information, but was informed that the information was not important. And, the agent fails to include the information in the application.

● The insured may have been led to believe, or did honestly believe, that the undisclosed information was not material to his overall health issues.

Furthermore, the Court in Thompson v. Occidental Life Insurance Company of Calif., supra, affirmed the award in favor of the plaintiff/wife, despite the fact that the insured had the obligation to read the application, and had signed the application stating that he had read the application.

The Court held that because the examining doctor taking the information gave the impression that the insured’s review of the application, or provision of additional information, were unnecessary, there was no showing of an affirmative misrepresentation.

With respect to which party bears the burden of explaining the alleged application misrepresentations, the California Supreme Court stated:

“[U]nder the authorities, the burden of proving misrepresentation rests upon the insurer. (See, Farmers Auto., etc. Exch. v. Calkins 39 Cal.App.2d 390, 393; Mayfield v. Fidelity & Casualty Co. 16 Cal.App.2d 611; Evid. C. § 520.). . . Thus, the burden was on Occidental to negate to the satisfaction of the trier of fact the various plausible explanations for the incomplete answers on Thompson’s application.”

See, Thompson v. Occidental Life Insurance Company of Calif., supra, 9 Cal.3d at 919.

Lastly, an Occidental officer testified that the carrier would not have issued the policy if the true information had been disclosed. However, the trial court was entitled to disregard the evidence because of the witness’ potential bias, and his demeanor or manner of testifying.

Importantly, the person taking down the application information in Thompson was a medical care provider – the insured only signed the application (as here). The Court found that the medical care provider’s alleged omissions were chargeable to the insurance company – resulting in coverage.

In Rutherford v. The Prudential Ins. Co. of America (1965) 234 Cal.App.2d 719, the Court again found in favor of the plaintiff/beneficiary wife where the life insurance company had withheld policy benefits based on alleged misrepresentations on the life insurance application.

The Court concluded that the facts supported a finding that the insured had been as truthful as possible when the application was completed, and that any omissions were the result of the examining physician’s carelessness.

The Court further found that the fact that the insured had signed an authorization releasing all of his medical information and records supported the finding that the insured had a good faith belief in the accuracy of the information on the application.

The Court additionally deemed significant the physician’s testimony that “he was not interested too much in detail,” and if an insured mentioned a fact he believed unimportant, he would not include the information on the application.

In Rutherford, the Court gave weight to the fact that the physician’s entire examination of applicants “customarily takes about 25 minutes, the physical examination occupying less than one-half of that time.”

Often – prospective insured’s application process takes about 15 minutes.

As in Thompson v. Occidental, the Court in Rutherford concluded that there was sufficient evidence that the insured believed he was providing truthful answers to the questions posed.

In Boggio v. California-Western States Life Ins. Co. (1951) 108 Cal.App.2d 597, the Court again held in favor of the plaintiff/beneficiary wife in this case, because the agent informed the insured that he did not need to disclose certain information on the application. Here, the insured specifically told the agent about the omitted information (medical incident while in military service). However, the agent informed the insured that because he had an honorable discharge, the insured did not need to reveal that medical event. The insurance company later denied policy benefits based on material misrepresentation.

The Court concluded that because it was the agent who caused the information to be omitted, there was coverage. The misconduct was chargeable to the insurance company – not the insured. Importantly, the Court noted as “essential to explain the judgment” in favor of the plaintiff/beneficiary wife, the fact that:

“The insurance was sold by Louis P. Angelino who had been an agent of defendant for 25 years. Angelino had known the Boggio family for 12 years, had handled all of their insurance needs, and they had faith and confidence in him. As a friend of the family he was fully acquainted with Robert’s naval hospitalization. The application was entirely in the handwriting of Angelino – – only the signature being written by Robert. . . .”

In Scroggs v. Northwestern Mut. Life Ins. Corp. (1959) 176 Cal.App.2d 300, 303, plaintiff widow filed suit because the life insurance company’s refused to pay benefits due to alleged application misrepresentations. The Court of Appeal affirmed the trial court’s judgment in favor of the plaintiff widow.

The application inquired whether the husband had been treated by a physician within the last five years. The husband responded “no.” After the policy was issued, the husband died from thrombosis. It was discovered that three years before he completed the application, the husband had been seen by his doctor.

The Court found that the alleged misrepresentation was not material. More importantly, the husband had stated on the application in the next line the name and address of his treating physician. This, the Court reasoned, demonstrated a lack of intent to mislead or conceal.

Be aware!  Different states place different burdens on the insurance company versus the insured in negating the insurance company’s refusal to pay the claim because of purported application misrepresentation. The discussion above sets forth California law.

If your Life Insurance company denies your claim because of alleged misrepresentations in the Life Policy application – you may still have recourse, and may still be entitled to receive the Life Insurance Policy benefits.  If you have questions, or for more information, give us a call at (800) 663-1095, or contact us at www.vklawyers.com – we are here to help.