Life insurance provides a financial safety net for surviving family members when someone dies unexpectedly. Life insurance proceeds must be paid to the beneficiaries in a timely manner. But there are circumstances which can excuse an insurance company from the obligation to pay benefits.
The person on whose life the insurance policy is underwritten has entered into a contract with the insurance company. In that contract, the insurance company has promised to pay a certain sum of money to beneficiaries designated by the policy owner upon the owner’s death. However, in order to trigger the insurance company’s obligation to pay, the policy owner must comply with certain conditions and no policy exclusion can apply.
Life insurance companies are allowed to avoid paying the benefits on a life insurance policy if one of the coverage exclusions permitted in Texas applies. Insurance companies may sometimes argue an exclusion applies when the claim is actually legitimate.
It can be devastating to families to have a life insurance claim denied after the already harsh impact of losing a loved one. Life insurance companies need to be held to the commitments made to policy owners. A Houston life insurance lawyer can help beneficiaries collect the life insurance proceeds they are entitled to.
Permissible Life Insurance Policy Exclusions Under Texas Law
With limited exceptions, life insurance companies operating in Texas cannot exclude coverage based on a particular cause of death. The Texas Insurance Code’s life insurance section, 1101.055, lists the causes of death that insurance companies are allowed to exclude:
- Death by suicide whether the decedent was mentally competent or not
- Death as the result of a hazardous occupation
- Death as the result of aviation activities
Death by Suicide
Exclusions of coverage, when the cause of death is self-inflicted, are aimed at discouraging financial benefit as a motive for suicide. The exclusion of coverage when death is by suicide only lasts for two years after a policy is issued. After two years, a life insurance policy must pay benefits regardless of how the policy owner died except for a beneficiary who was involved in willfully bringing about the policy owner’s death.
Hazardous Occupation
Life insurance policies may exclude coverage when death is the result of engaging in an occupation where the risk of death is greater than average. Occupations are to be distinguished from hobbies and recreational activities which cannot be excluded.
Military service and occupations such as construction, oil and gas extraction, law enforcement, and commercial fishing are among some of the occupations a life insurance company may choose not to underwrite. For the exclusion to apply, the excluded hazardous occupation must be listed in the policy.
Aviation Activities
Life insurance policies may exclude coverage when death is caused by certain aviation activities stated in the policy. The Texas Department of Insurance says the following types of aviation activities are acceptable to exclude:
- Duties aboard an aircraft as a pilot or member of a flight crew
- Assisting in the operation of an aircraft
- Giving or receiving training regarding an aircraft
- Being aboard an aircraft for any purpose other than as a passenger
- Hang gliding
- Para-planing
Death by descending or falling from an aircraft is not considered an excludable aviation activity. Thus, skydiving cannot be an excluded cause of death in a life insurance policy but hang gliding could be.
Insurance Companies Have A Two-Year Window to Contest Coverage
Limiting the amount of time a life insurance company has to challenge the obligation to pay benefits protects consumers from having coverage voided years after a policy is issued. Life Insurance policies in Texas are required to contain language stating they will be uncontestable if the insured lives two years from the date the policy is issued and pays the premiums.
After the contestability period, life insurance companies generally cannot deny the payment of claims based on misrepresentations made by the policyholder. But there is no limit on the contestability period when a policyholder has committed fraud. Fraud voids the contract and the obligation to pay.
There are some circumstances under which the contestability period may be extended. Life insurance companies can choose to include policy language that extends the contestability period for challenging the violation of policy conditions relating to military service during a time of war.
Misrepresentations May Reduce Proceeds but Rarely Void Life Insurance Contracts
A misrepresentation as to age in a life insurance application will not void the insurance company’s obligation to pay but the payout will be reduced to the amount of insurance that the policy owner could have purchased with the premiums paid had the correct age been given.
The Texas Insurance Code says a misrepresentation made in an application to an insurance company will only void the contract if it is material to the risk or contributes to the circumstances triggering the insurance company’s obligation to pay.
The Supreme Court of Texas recently clarified when a misrepresentation made on an application would be sufficient to excuse a life insurance company from paying the policy amount during the contestability period. The policy owner had indicated ‘no’ on a medical history question. Upon reviewing the policy owner’s medical records, it was discovered that the question should have been answered ‘yes’. The insurance company tried to deny paying the benefits based on the insured’s misrepresentation.
The issue was whether a misrepresentation need only be of a material fact affecting the risk assumed or whether the applicant must also intend to deceive the insurance company. The Texas Insurance Code makes no mention of intent as necessary for a misrepresentation to void a life insurance contract; however, common law does.
The Texas high court upheld the longstanding principle that there must be an intent to deceive in order for a material inaccuracy to void an insurer’s obligation to pay.
What Happens When Your Life Insurance Claim is Denied?
The problem with insurance companies is that they are for-profit businesses. The more claims they pay, the less money they make. Insurance companies have a strong incentive to limit the payment of claims as much as they can legally get away with. To protect against the perverse incentive to deny clains, insurance companies are required by Texas law to settle claims in good faith. An insurance company that acts in bad faith can be held liable for damages – often beyond the value of the actual policy.
Misrepresentation is a common reason life insurance companies attempt to deny paying claims. If a life insurance claim is denied based on a misrepresentation by the policy owner, the insurance company cannot avoid paying the claim unless the misrepresentation was both significant to the insurance company’s decision to underwrite the risk and made with the intention to influence the company into issuing the policy.
There is typically an appeal process where life insurance claimants can refute the insurance company’s reasons for denying the claim. Getting legal help at this stage of the process can help persuade the insurance company to reverse its decision and pay the claim. It will also lay the foundation for a more successful claim in court should you need to move into civil litigation to recover what you are rightfully owed.
Where To Get Help Fighting the Wrongful Denial of a Life Insurance Claim
After a loved one has passed, the last thing a grieving family needs is a hassle with an insurance company over paying a claim. Unfortunately, life insurance claim denials are all too common and can create hardships, adding more anguish to an already difficult situation.
At Berg Plummer Johnson & Raval, LLP, we help life insurance beneficiaries challenge claim denials and force insurance companies to honor their contractual obligations to pay claims.