Estate Planning Newsletter – December 2016

BE THOROUGH AND COMPLETE IN FILLING OUT APPLICATIONS FOR INSURANCE

  In the case of Lane v. American General Life & Accident Insurance Co., the Tennessee Court of Appeals denied a claim for life insurance benefits on the grounds that the insured made a material misrepresentation on the life insurance policy application.  In the Lane case, Mr. Lane applied for and was issued a $100,000.00 life insurance policy in October, 2002.  Less than two years later, on July 20, 2004, Mr. Lane died from a massive heart attack.   In his application for life insurance, Mr. Lane responded to questions by submitting that he had experienced no chest pains or any other disease or disorder of the heart, blood, or blood vessels within the last ten years.  Additionally, he responded that he had not consulted with a doctor nor been treated at a hospital, clinic, or treatment facility within five years of the date of the application.  Because Mr. Lane died within the two year contestability period listed in the policy, American General’s Claim Department conducted a routine contestable investigation.  That investigation discovered that Mr. Lane had been treated at an emergency room less than one month before filling out his application for life insurance complaining of right shoulder and back pain and chest pain.  Mr. Lane received an electrocardiogram and stress test which revealed he had suffered a small heart attack.  None of this information was made known to American General.   Mrs. Lane defended the case by stating that Mr. Lane answered the questions “to the best of his knowledge and belief” and insofar as he had been informed, he had never been diagnosed with chest pain or COPD, and that he did not know that a treadmill test had shown that he had suffered a small heart attack.   The Court of Appeals gave Mrs. Lane the benefit of the doubt on her affidavit about the knowledge and belief of Mr. Lane as to the diagnosis of his health condition.  However, because Mr. Lane failed to list on the application the fact that he had been treated in an emergency room and by a heart surgeon just a few weeks before making the application, this failure to identify the treatment was a material omission or misstatement; and that fact resulted in American General not obtaining pertinent medical records which correspondingly increased the insurance company’s risk of loss.  None of this treatment was listed on the application when Mr. Lane was asked to list all doctors and hospitals where he had been treated in the last five years.   MY RECOMMENDATION:   Be thorough, complete, and intentional on insurance applications.  Failure to disclose medical information can be grounds for denial of a claim if the insured makes a misrepresentation that increases the insurer’s risk of loss.  The courts have ruled that the insurance company’s risk of loss is increased if the relevant event naturally and reasonably influences the judgment of an insurer in making the contract. Yours very truly, RAINEY, KIZER, REVIERE & BELL, P.L.C. William C. Bell, Jr., Attorney at Law