Under Tennessee law, a life insurance company can deny a claim for benefits if the insured individual was less than honest in his or her insurance application. Specifically, Tennessee Code Annotated § 56–7–103 provides that a misrepresentation in an application for an insurance policy can void the policy if the misrepresentation “increases the risk of loss.”
So what exactly does that mean?
Let’s take an easy example: If the applicant fails to disclose a known heart condition on his or her application, and then dies of a heart attack, the life insurance company likely will be able to deny any claim for the proceeds.
What happens, however, if the applicant dies of a heart attack after failing to disclose a DUI conviction? The Tennessee Court of Appeals dealt with these same facts in Smith v. Tenn. Farmers Life Reassurance Co. (2006) and held that the insurance company’s refusal to pay benefits under the policy was allowed under Tennessee law. As the court noted, the misrepresentation in that case did not need to involve a “hazard that actually produced the loss in question.” Rather, the issue was whether the misrepresentation would have increased the risk of loss. In Smith, the court determined that the insured’s misrepresentation influenced the insurance company’s decision to issue the policy and, therefore, increased its risk of loss.
It may seem like, based on the ruling in Smith, that it is fairly easy for life insurance companies to use a supposed misrepresentation on an application as a reason to deny benefits. Another Tennessee Court of Appeals decision, however, indicates that life insurance companies will have to support their misrepresentation claims with direct evidence, and cannot simply ask the court to infer that the applicant was less than forthcoming on his or her application.