life insurance

Waiver by Insurance Companies Resulting from Acceptance of Premium Payments and/or the Providing of Benefits

Published on: June 4, 2021 | by Matt Pulle

An insurance company may waive its right to deny benefits when it accepts premiums for coverage that its policy did not actually provide. It may also waive its right to deny benefits where, even for a short period of time, it provides the very benefits it later seeks to deny and discontinue.

In O’Connor v. Provident Life & Acc. Co. (E.D. Mich. 2006), an employee received, through his employer, a life insurance policy covering his life with a death benefit of $273,000. After the insured employee died, the insurance company declined to pay $273,000 to the insured’s beneficiary. Under the terms of the policy, the insured was only eligible to receive basic and optional coverage of up to five times his annual salary. Because his salary rounded up to $24,000, he was eligible for a maximum death benefit of no more than $120,000.

Two years before the insured passed away, however, he filled out an enrollment form in which he opted for $250,000 in supplemental coverage, plus a core benefit equal to his annual salary, adding up to a total death benefit of $273,000. Importantly, the enrollment form the insured completed stated that premiums would not be deducted from his paycheck unless the coverage was approved. Nevertheless, the insured’s employer deducted premiums from his paycheck based on the $273,000 death benefit he elected to receive, even though he wasn’t eligible to receive it. As a result, the insured had no reason to believe that he did not qualify for the full amount of the benefit he selected.

Whether a Life Insurance Case is Decided Under Common Law or Federal ERISA Law Can Make a Big Difference

Published on: April 16, 2021 | by Matt Pulle

In Travelers Ins. Co. v. Webb (1996), the Court of Appeals of Tennessee noted that a life insurance policy is a contract between the insured and the insurance company and, as such, courts will construe insurance policies from their “four corners.” In Webb, the decedent had a life insurance policy through his employer and named his wife at the time as his beneficiary. Later, the decedent and his wife divorced and the decedent re-married. At the time of his death, he never changed the beneficiary of his life insurance policy from his ex-wife to his subsequent wife.

The insurance company interpled the policy proceeds with the court on the grounds that both the ex-wife and widow of the decedent had competing claims to the proceeds of the insurance policy. After the trial court ruled in favor of the ex-wife, the decedent’s widow appealed arguing that the decedent intended to name her as a beneficiary.

In upholding the decision of the lower court, the Court of Appeals held that the parties’ intent is “irrelevant” when the language of the policy is clear and unambiguous. It found there was no ambiguity in the policy language at issue. The decedent had named his ex-wife as a beneficiary to his insurance policy and there was nothing in the four corners of the document suggesting any contrary intent.

The Webb opinion is at odds, somewhat, from the decision in S. Elec. Ret. Fund v. Gruel, (M.D. Tennessee 2019), an ERISA case decided by the federal district court for the Middle District of Tennessee which was the subject of a previous blog post. In Gruel, the district court upheld a plan administrator’s decision to deny benefits to a beneficiary designated by the decedent. At the time of the designation, the beneficiary was the decedent’s girlfriend. The decedent and the beneficiary later ended their relationship and, at the time of the decedent’s death, the beneficiary was married to someone else.

In denying benefits to the decedent’s girlfriend, the plan administrator stated that the decedent described her as his “girlfriend,” which meant that he intended her to be his beneficiary until, and unless, that status changed. In explaining its decision not to reverse the decision of the plan administrator, the district court found that the plan administrator’s decision was “sufficiently grounded in reason.”

Why Determining the Proper Beneficiary of a Life Insurance Policy Is Not Always Simple

Published on: January 18, 2021 | by Matt Pulle

Many life insurance lawsuits involve disputes over the designation of beneficiaries. In Humana Ins. Co. of Kentucky v. O’Neal (2018), the Sixth Circuit Court of Appeals had to evaluate two competing claims for life insurance proceeds under an ERISA plan (“Plan”).

Under the Plan, the decedent (“Decedent”) could name a beneficiary. If the Decedent did not name a beneficiary, Humana, the administrator of the plan, would pay the benefit at its option to either the surviving spouse or the estate of the Decedent. One year prior to the Decedent’s death in 2015, he named his then girlfriend as his beneficiary (“Prior Beneficiary”). The following year, during the re-enrollment period, the Decedent did not select any person or entity to be his beneficiary.

Shortly after the Decedent’s death, Humana received claims from both the administrator of the Decedent’s estate (“Estate”) and the Prior Beneficiary. After the district court determined that the Estate was entitled to the Decedent’s life insurance benefit, the Prior Beneficiary appealed.

How Insurers Rely on Exclusions to Deny Coverage Under Accidental Death and Dismemberment Policies

Published on: March 19, 2020 | by Matt Pulle

Many life insurance policies provide for benefits, in addition to the face amount of the policies, when an insured dies as a result of an accident. These extra benefits can be significant, as many policies will pay twice the face amount of the policy, where the insured’s death is by accident.

While insurance companies market accidental death benefits as a way to provide families and dependents with extra security, many policies include clauses (or exclusions) that allow them to deny coverage for these benefits even if the insured died of an accident. As a result, claims for accidental death benefits can be complex and fact-intensive.

For example, in Duncan v. Minnesota Life Ins. Co. (S.D. Ohio 2020), the Decedent was insured under a policy issued by Minnesota Life. While hospitalized for complications of leukemia, he stood up from his wheelchair and fell to the floor. He died later that day at the age of 65.

The Decedent’s death certificate stated that the immediate cause of death was a subdural hematoma, while describing the manner of death as “accidental.”

ERISA and The Fiduciary Duties of a Plan Administrator With Respect to Life Insurance

Published on: November 1, 2019 | by Matt Pulle

Maintaining life insurance through an employee benefit plan can be a difficult process. Many plans set out complicated administrative requirements that can trip up an employee, resulting in a loss of coverage.

The good news is that, under ERISA, plan administrators must discharge their duties solely in the interests of participants and beneficiaries. In the context of life insurance, plan administrators cannot take an employee’s premiums for years, and then, upon that employee’s death, rely on technical arguments as a basis for not paying out the proceeds to a beneficiary.

Recently, the Sixth Circuit discussed the fiduciary duties of a plan administrator in Van Loo v. Cajun Operating Co. (2017). In that case, a corporate attorney (the “Employee”) for Church’s Chicken (the “Employer”) had an employee benefit plan that offered her life insurance. Throughout her employment, she gradually increased her coverage, eventually seeking to be insured at over $600,000. However, the Employee failed to submit an “evidence of insurability” form as required to obtain supplemental life insurance coverage over $300,000.

The Employee consistently paid her premiums for her supplemental life insurance until her death from cancer. After she died, the insurance company only paid her parents (the Employee’s beneficiaries), the guaranteed amount, and not the $600,000 the Employee thought she had obtained.

Seeking the remaining amount they believed they were owed, the Employee’s parents filed a lawsuit against the insurer and the Employer, which administered the plan. The parents argued that the Employer made material misrepresentations to their daughter with respect to her life insurance benefits when it led her to believe that she had the full amount of coverage that she had requested. The federal district court granted the plaintiff’s motion for summary judgment on the basis that the Employer breached its ERISA fiduciary duty to administer the group life-insurance policy in the sole interest of the employees and their beneficiaries.

The Tennessee Slayer Statute: How It Applies to Life Insurance Litigation

Published on: December 19, 2018 | by Matt Pulle

Like most states, Tennessee has a slayer statute that prevents a person who intentionally caused the death of a victim from inheriting personal or real property from the victim’s estate. Codified at Tenn. Code Ann. § 31–1–106, the statute also prevents the killer from recovering life insurance proceeds from the victim, even if the killer was a named beneficiary under the policy. The statute is based on the principle that “a wrongdoer will not be allowed to benefit from his crime.”

Under Tennessee case law, a criminal conviction of first-degree murder will allow a third-party to use the slayer statute in civil court to prevent the killer from receiving property or money from the victim. However, even in the absence of a criminal conviction, a person will not be able to recover from the victim if it is shown by a “preponderance of evidence” that he or she caused the victim’s death.

The preponderance of evidence standard is the evidentiary standard used in civil court, and it is easier to meet than the “beyond a reasonable doubt” evidentiary standard used in criminal court. The differences between the two standards are important. A party challenging the killer’s right to a recovery of life insurance proceeds can successfully invoke the slayer statute in civil court, even if the killer was found not guilty of murder in criminal court.

The slayer statute applies not only to someone who kills, but also, to someone who conspires to kill, or hires someone else to kill. It does not apply to acts of self-defense. For example, if a battered wife kills her husband in self-defense, the slayer statute will not prevent her from recovering proceeds from his life insurance policy.

The slayer statute also does not apply to accidental killings, even if the person who caused the death is at fault. The Supreme Court of Tennessee dealt with this issue in Moore v. State Farm Life Ins. Co (1994). In that case, the victim was killed after her husband lost control of the vehicle. The husband was intoxicated at the time and pled guilty to vehicular homicide.

Incontestability Provisions in Life and Disability Policies

Published on: August 7, 2018 | by Matt Pulle

Under Tennessee law, all life and disability insurance policies must include an “incontestability provision” stating that, after a period of no more than two years, the policy “shall be incontestable.” In essence, an incontestability provision prohibits an insurance company from voiding the policy because of misrepresentation in the policy application (other than an intentional or fraudulent one). Although Tennessee law requires the incontestability period to begin no more than two years after the issuance of the policy, insurers may allow for shorter periods in their policies.

Why are incontestability provisions required under law? Tennessee courts have explained that the purpose of an incontestability provision is to provide a “statute of limitations in favor of the insured” by setting out a limited period for the insurer to examine the validity of the policy. An incontestability provision gives an insurer an incentive to scrutinize an application carefully on the front end, before it begins accepting premiums. Without incontestability provisions, an insurer could overlook questionable statements on an application for coverage knowing that, years later, if the insured makes a claim for benefits, it could rely on any misstatements to deny coverage.

Even with an incontestability provision, an insurer may be able to void a policy and deny coverage based on any intentional misstatement in an application for insurance. For insurers, however, it can be difficult to prove that the person who completed the application intentionally provided incorrect information, as is necessary to establish fraud. Often, claimants and beneficiaries will be able to argue successfully that any misrepresentations made on an application for life insurance were oversights or misunderstandings.

An incontestability provision can make a critical difference in a claim for benefits. Say, for example, the owner of a life insurance policy incorrectly states in the application that the person whose life is insured by the policy has not been diagnosed with hypertension. Until the incontestability provision is triggered, the insurance company may be able to withhold death benefits on the basis that the owner’s misrepresentation voids the policy. Once the incontestability provision is in effect, however, the insurance company cannot use the owner’s misrepresentation as a reason to deny benefits, unless they can show that the misrepresentation is covered under an exception to the incontestability provision for fraud.

Challenging a Life Insurance Beneficiary Designation Based on Undue Influence

Published on: April 23, 2018 | by Matt Pulle

Under Tennessee law, a party can establish that a beneficiary of a will procured the making of the will by undue influence. If undue influence is proven, the will is invalidated and the beneficiary of the invalidated will receives nothing by virtue of the will. What holds true for beneficiaries of wills procured through undue influence also holds true for beneficiaries of life insurance policies whose beneficiary status was the result of undue influence. A party can challenge a beneficiary’s right to recover under a life insurance policy by showing that the person who owned the policy (“Decedent”) changed the policy’s beneficiary designation because of undue influence.

Tennessee courts recognize that it is difficult for a party to establish undue influence through direct evidence. As a result, in a life insurance policy case, a party seeking to set aside a beneficiary designation can do so by showing “suspicious circumstances.” These suspicious circumstances usually involve the following: (1) a confidential relationship; (2) the Decedent’s physical or mental infirmity; and (3) the beneficiary’s active involvement in causing the designation of a beneficiary or beneficiaries under the life insurance policy.

Of the three circumstances above, establishing the existence of a confidential relationship is arguably the most important part of an undue influence case. So what exactly is a confidential relationship? To start, any fiduciary relationship (attorney-client, guardian-ward, conservator and incompetent) is a confidential relationship.

Familial relationships may also be confidential relationships if one party had a relationship of dominion and control with respect to a weaker party. An example of this might be a nephew taking care of an ailing uncle, who depends on the nephew for basic life care like meals and transportation to medical care providers. If the uncle removed his children as the beneficiaries of his life insurance policy in place of the nephew, a court will likely presume that the change in beneficiary designation came about due to undue influence.

That presumption of undue influence can be a game-changer. In a life insurance policy case, a beneficiary seeking to rebut a presumption of undue influence must do so by “clear and convincing” evidence, which is the highest burden of proof in most kinds of civil litigation. Despite that high bar, parties can—and do—overcome the undue influence presumption by offering evidence showing that Decedents, despite their dependence on stronger parties, made independent decisions when changing beneficiaries of life insurance policies.

Suicide Exclusions in Life Insurance Policies: What Happens When the Cause of Death is Uncertain

Published on: February 2, 2018 | by Matt Pulle

Many life insurance policies contain exclusions that prevent the recovery of any benefits if the insured commits suicide. (In many policies, the suicide exclusion is only effective for two years from the date of issuance of the policy.) Under Tennessee law, if there is inadequate proof to determine if the death was by accident or suicide, or if the proof is conflicting or equally balanced, courts will presume the death was an accident. This is an important rule because, in many cases, it is not clear how the insured died.

For example, in Smith v. Prudential Ins. Co. of Am., 2012 WL 405504 (M.D. Tenn. 2012), facts in the record indicated both that Gary Smith, the life insured (“Smith”), committed suicide, and that he died accidentally. The Defendant (“Prudential”) argued that Smith staged his suicide to make it look like a hunting accident, and noted that the medical examiner ruled Smith’s death a suicide. In further support of its theory that Smith took his own life, Prudential also pointed to the nature of the contact wound, the location and direction of the shot, and to the fact that Smith was an experienced hunter who Prudential asserted was too skilled to have shot himself accidentally.

Prudential also argued that Smith had a motive to take his own life because he was faced with sudden and overwhelming debts triggered by a disastrous business partnership. The insurer also rested on the fact that he died just five weeks after doubling the limits on his life insurance policy.

The Futility Exception to the ERISA Requirement that Claimants Must Exhaust Their Administrative Remedies in Order to be Able to File a Lawsuit

Published on: December 22, 2017 | by Matt Pulle

If you have an ERISA long-term disability claim, you cannot file a lawsuit challenging an insurer’s denial of benefits until you have exhausted your administrative remedies. So, even if the insurer, or plan administrator, denied your claim for long-term disability benefits, you still need to take the time to file an administrative appeal, unless you do not want pursue your right to disability benefits.

There is an exception, however, to the rule that you must appeal the initial denial. If filing an appeal would be “futile,” a court will allow a disability lawsuit to proceed even if the claimant did not exhaust his or her administrative remedies. This exception is called the “futility doctrine,” and it is recognized by the United States Court of Appeals for the Sixth Circuit (the circuit that includes all the federal courts in Tennessee).