Incontestability Provisions in Life and Disability Policies

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.

The application of incontestability provisions is not always straightforward. Take, for example, the case of Corrington v. Equitable Life Assur. Soc. of U.S. (W.D. Tenn. 2003).  At first glance, the facts of Corrington seem to indicate that the insurer’s denial of disability benefits violated the policy’s incontestability provision.  In that case, the insurer justified its voiding of the policy in question on the basis that the plaintiff had been diagnosed and received treatment for a pre-existing condition. In his application for the policy, the plaintiff denied that he had ever been treated for a mental disorder, even though, previously, he had been hospitalized multiple times as a result of a mental illness.

The plaintiff later submitted a claim for disability benefits due to his mental illness, more than two years after the policy was issued and the incontestability provision became effective.  Although the plaintiff plainly misrepresented his medical history on his application, the insurer did not attempt to void the policy.  Because of the incontestability provision, the insurance company could only attempt to void the policy by arguing that the omissions in the plaintiff’s application were intentional.

Instead of attempting to void the policy for intentional misrepresentation, the insurer argued that the policy, by its terms, only covered a disability stemming from “a sickness or disease which is first diagnosed or treated while this policy is in force.” The plaintiff’s mental illness, however, had been diagnosed and treated prior to his disability policy going into effect, argued the insurer. In response, the plaintiff argued that the policy’s incontestability provision prohibited the insurance company from denying coverage because of his pre-application treatment for mental illness.  The court ruled in favor of the insured, and explained that the plaintiff was attempting to use the incontestability clause to expand coverage by requiring the policy to pay for a disability that was diagnosed and treated before the policy had gone into effect.

One important caveat: Although the incontestability period can last for no more than two years, it may begin anew if the policy lapses and is reinstated.  Currently, our firm has a case in which the insurer is denying a claim for death benefits under a life insurance policy on the basis that the owner of the policy (“Decedent”) purportedly did not disclose a pre-existing condition.  Although the policy first went into effect around ten years before the Decedent passed away, the policy had lapsed shortly before his death after he fell behind on his premium payments.  As a result, the insurer is arguing that, even though the Decedent later reinstated the policy, the incontestability provision restarted and was not in effect at the time of the death of the insured.

In sum, incontestability provisions are not always game changers, but they can allow a beneficiary or claimant to recover benefits, even if the application for coverage includes inaccurate information.  If you believe that you have been denied coverage in violation of an incontestability provision, contact an experienced life or disability insurance law firm to determine your rights under the policy.


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