Claims are denied for specific legal reasons. As I review files I will report them here, with a brief synopsis of what happened. Reports will be filed under the headings of the main legal reasons for non-payment of a claim. Names are fictitious. The cases are real.
Policy Not in Force at Time of Event
This occurs if there was a change of insurability between time of application and time of policy delivery. If the applicant had a serious heart attack a month before the time of application, the insurer would probably consider him uninsurable and would decline to issue a policy. If the applicant is healthy, applies for a policy and then has a heart attack before the policy is delivered – the agent is not supposed to deliver the policy because it will be considered void. If he delivers the policy the policy is still void – forever.
If a premium is not paid, the policy will be in force for only another month or two (the grace period). Then the policy lapses and is not in force.
Change of Insurability
Joe Nungasso. Joe applied for$1,000,000 of life insurance with Agent Fumble on August 1st. Fumble did not submit it to Evergreen Life until August 10. Only then was a medical ordered. The policy was issued on September 11, received by Fumble two days later, but not delivered until September 20.
When Fumble went to Joe’s office, he was advised that Joe had died the day before. Agent Fumble was sued on the grounds that if he had been more diligent in his duties, the policy would have been delivered and in full effect at the time of death. His malpractice insurance settled without going to court.
Gus Naxos. Gus and his brother, Lex, insured each other for $500,000 so that if either died, the other could buy out his share of their busy muffler shop.
Their 10 year term policy was up for renewal. The premium doubled and Gus’s accountant asked him why the premium had gone up so much. Gus phoned Agent Fumble and was advised that it was the new renewal rate, but if he and his brother could pass a new medical, the increase would only be 20%, not 80%. Of course Gus and Lex thought this was a good idea. Agent Fumble cancelled the expensive policies, took their new applications and arranged new medicals. Lex had to post-pone his medical because he was having minor surgery (gall bladder). There were complications, an infection and Lex died before the new insurance was put in place.
Gus was presented a demand from Lex’s wife for the immediate cash buy out of Lex’s share of the business. The contract was valid – but the insurance intended to fund the purchase was no longer in force. Gus sued Agent Fumble for agent negligence, allowing the old policy to lapse before the new policy was in force. His malpractice insurance settled without going to court.
Melisa McLean. Melisa is a 60 year old widow. She developed a close relationship with Jack, who lived with her. From time to time Jack borrowed money from Melisa to help expand his custom printing business. When the total loan became significant, Melissa made it clear that her estate was going to her children and that Jack would have to be life insured to protect the estate from a loss. She arranged life insurance on Jack’s life with Agent Fumble. She owned the policy and the deal was that Jack would pay for it.
Over the years there were several times the premium was not paid. Agent Fumble contacted Jack about the missed premium and it was paid. Then Jack had a heart attack and once again the premium was not paid. He died and the policy was considered void for non-payment.
Melisa sued Agent Fumble for agent negligence. She owned the policy and the agent owned her a duty to advise her that the premium had not been paid. She claimed that knowing that Jack was in the hospital with a heart attack, she would have paid the premium on her policy. Agent Fumble’s malpractice insurance settled without going to court.
The decision to offer insurance at a specific price is made on the basis of assessing the underwriting information. If any of the information is inaccurate or incomplete (by deception, ignorance or error) the policy can be voided.
Jocko Smith was an avid and accomplished SCUBA diver. He took diving trips around the world and logged over 200 dives per year. His wife insisted he buy life insurance, which he did. Agent Fumble asked him the question on the application about any hazardous sports activity, and Jocko said he was a SCUBA diver, which Fumble noted on the application.
A policy was issued. Two years later Jocko died in a cave-diving accident. The claim was denied because Jocko had not disclosed that he was involved in deep diving, cave diving and wreck diving. Mrs. Smith sued the agent for negligence. He was supposed to ask follow-up questions about the disclosed SCUBA diving and complete a SCUBA Questionnaire for the insurer. Agent Fumble’s malpractice insurance settled without going to court.
Margaret Trumble was a single mother. She bought life insurance to help provide for her twin daughters, in case something happened to her. She was killed in a skiing accident and the insurer denied the claim because she had not disclosed that she had hemorrhoids during her pregnancy. A report from an independent insurance underwriters said that hemorrhoids during pregnancy is common and in no way an extra risk. The claim was paid.
Jim Paton applied for a disability insurance policy. Agent Fumble administered the application. One of the questions on the application asked if Jim had any diagnostic test in the last five years. It was answered “no”.
After Jim was badly injured in a chain saw accident, the policy was cancelled because a copy of his doctor’s notes indicated that Jim had had two eye exams, several blood and urine tests, several blood pressure checks and some dental X-rays.
Virtually every 40 year old Canadian has had a number of diagnostic tests. Who has not had a stethoscope on their chest or a blood pressure cuff on their arm? The agent was blamed for failing to challenge an answer that was clearly improbable. Agent Fumble’s malpractice insurance settled without going to court.