A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

A Wall Street Journal article tells of how a new trend in life insurance is for customers to submit their applications and buy their life insurance online.

Obviously, this development bypasses the traditional agent-customer relationship where the agent visits with the customer and submits the paperwork.

Insurers are culling information from other online databases, such as motor vehicle and prescription drug records, and using it along with the online application answers to estimate risk and issue policies. A motivation for this new business model is the general decline in the sale of life insurance policies over recent decades.

For the customer this means no blood pressure reading, no blood and urine test, and it is more likely that the customer can lie about his weight!

From the standpoint of a life insurance attorney, I have mixed feelings about this model. On the one hand, I have seen situations where agents will instruct or assist customers in filling out incomplete or misleading information on the life insurance application. Later, when the insured dies within the two-year contestability period, the insurance company can claim that a material misrepresentation was made and deny coverage. With the new model, on the other hand, it is just the customer completing a questionnaire via computer in the privacy of his home or office.

Agents are available to explain how policies work. Some agents are better (and more accurate) than others. Bypassing the agent can be a good or bad thing, depending on who the agent is. Some are great, while for others what is paramount is their own interest in making a commission.

Finally, I think that the medical testing is a good thing. It may uncover health information that the insured forgot about it. The more information that is out there for the insurer to view, the better the chance the beneficiary later has of defeating a material misrepresentation defense.

It seems everything is going online these days, from buying books to buying groceries and to trading stocks. It seems inevitable then that life insurance would follow suit.

The Bamboozled column in the New Jersey Star-Ledger frequently provides actual relief and restitution for consumers who are out of luck and the end of the road dealing with an insurance company, retailer, bank, or other corporation, stepping in to set matters straight and correct an injustice. It’s a valuable feature of the paper that one does not see much anymore in dailies across the county.

A recent column tells of the travails of a retired couple whose life insurance coverage lapsed even though they made the premium payment, and who were afterward caught up in the web of customer service representatives and bureaucratic dead-ends that we have all experienced when calling company 1-800 numbers.

Bamboozled was able, as it often does, to right this particular wrong.

What resonated with me after reading the column, however, was how many of my clients have suffered from lapsed life insurance policies because of a single missed payment or through no fault of their own, but rather due to sloppy practices by the insurer in sending and receiving mail.

With many bills we receive, it is no big deal if a payment is made late or even if a payment is missed. You can make up the deficit the next month. Even with credit cards and the exorbitant fees and penalties charged, you can still emerge from an unpaid bill (but with lesson learned). But it’s a whole different matter with life insurance payments, because the insurer will not hesitate to cancel your coverage if the policy terms are not strictly complied with, no matter how long you have had the policy.

While I have been successful in winning cases for clients in this type of situation, it is often not an easy feat to accomplish. Many of the laws on the books favor insurance companies and not consumers. The best advice is to keep that insurance bill in mind and make sure you take action instead of letting the insurance company do so first.

Chris Huntley, an independent life insurance agent, is striving to raise consumer awareness about the marketing and sales of whole life policies. These are cash value policies that can last a very long time, whereas your typical term life policy lasts anywhere from 5 to 30 years. But, notably, they are more costly than term life policies and agents are incentivized to sell them because they provide much greater commissions. These products are not infrequently sold to consumers even though not suitable for their life insurance needs.

Check it out here: insuranceblogbychris.com/whole-life-rebellion-kickoff


Here is a link to an informative article written by Amy Bach of United Policyholders, a non-profit that advocates for the rights of insurance policyholders. It focuses on the insufficient remedies available to New York insureds when their insurance claims are wrongfully denied.

In most all cases, the insured can only sue for breach of contract for the amount that should have been originally paid by the insurance company. That means if an insurer refuses to pay a $100,000 life insurance policy, the most that the insured can hope to receive in court is that same amount. Likewise, if an insured files suit against an insurance company for denying a $250,000 claim under a homeowner’s insurance policy, courts will not usually award anything beyond that amount to a prevailing insured.

Without the ability to win punitive damages or attorney’s fees, the insurance company has an incentive to deny or lowball claims, and insureds are often without the resources or will to fight in court. This is obviously an unfair dynamic. What makes insurance claims different from other types of business transactions are that insureds who suffer losses are often in a vulnerable position and that insurance companies are uniquely able to incorporate a “delay, deny, defend” approach into their business model.

The only way to change this state of affairs – and put New York in line with other states that provide meaningful remedies for insureds – is to get politicians to understand that a change needs to be made.

A recent WSJ article highlighted a persistent problem that I have previously noted on this blog: universal life insurance policies that become unaffordable for insureds, lapse due to insufficient funds, and leave their estate planning in shreds.

The article is by Leslie Scism who writes about the industry for the Journal. Really, it should be required reading for anyone who either has a universal life policy or is thinking about purchasing one. Chances are, if you have been talking to a life insurance agent, he or she may have tried to sell you one of these products, heralding how it is the best of both worlds in that it provides a life insurance death benefit and has an investment component.

But while universal life policies do have their place, and are useful for some investors (usually those with a high net worth), they come with the peril that their costs can increase exponentially over time making them unaffordable, or at least non-worthwhile investments.

You can guess who wins in this scenario–yes, the insurance company. As always, read the fine print because you can bet the insurance company will rely on it later on.

United Policyholders and other pro-consumer groups have been advocating for the New York State Legislature to pass a bad faith bill that allows for insureds who are successful in litigation against their insurance companies based on a claim denial to recover attorney’s fees.

New York is one of the least insured-friendly states in the nation, and as a Newsday article points out, insurance companies have taken advantage of this fact to pay out less in claims comparatively to other states with stronger consumer protections built into their laws. One would hope that the controversies surrounding Hurricane Sandy payouts at the expense of homeowners will serve as the impetus for change.

The New York Times published a fascinating article about risky investments made by life insurance companies that can put their insureds, as well as taxpayers, at financial risk. The gist of the story is that life insurance companies are supposed to plunk their money–essentially, the premiums they receive–into rather dull, safe investments so that there is a guarantee they can pay death benefits when a claim is made. But that is not what is happening.

For instance, Athene did the opposite by investing in Caesar’s Casinos which was on the verge of bankruptcy. Actually, it was not Athene that made the investment, but its parent company Apollo Global Management, a large private equity firm. I know these characters – I litigated against them (and won) when they tried to cancel a client’s life insurance policy after he paid late when his mother passed away.  Anyway, the operating company that runs Caesar’s later went bankrupt. Investing in Caesar’s was not exactly the same as, say, investment-grade bonds.

The article is interesting because it sets forth the unsavory history of life insurance, such as “feeble, penniless old men” having to auction their policies to speculators so that they could survive, prompting a later reform that insurers must pay a surrender value to insureds with cash value policies. Reforms were enacted early in the 20th century, but now we see insurers become public companies and produce a vast, overwhelming array of products that are difficult to understand even more the seasoned life insurance adviser. Meanwhile, as insurers put their assets into more risky investments, state insurance regulators have more or less given the green light.

The latter half explores the complex world of captive insurance companies into which, through dizzying financial machinations and subterfuges, insurance companies create subsidiaries into which they funnel assets for tax and regulatory purposes. The books look different for insurers who create captives, but since the captive is under the control of the insurer, the risk remains the same.

Take a look, the article is well worth a read.



News of the Day

A couple interesting items that I saw in the news:

First, as Reuters reported, life insurance companies may start issuing applications that include questions about whether or not you engage in or intend to engage in space travel. Yep, I’m not making this up. Presently, most applications inquire if the applicant is a pilot or skydiver because these are considered to be inherently dangerous activities. This does not encompass space travel. But after the tragic Virgin crash, this may change so that space tourism becomes part of the question.

Next up is that the Rolling Stones are in court in London after its insurer denied payment for cancelled performances in Australia and New Zealand after Mick Jagger’s long-time girlfriend, ex-model and fashionista, L’Wren Scott, committed suicide. Perhaps you didn’t know, but famous performers are often heavily insured because so much is riding on their ability to complete their work and live up to their commitments. Think about it: if an actor dies part way through filming, it means that the film has been a total waste with millions of dollars down the drain.

The insurer is making a material misrepresentation claim that Scott’s mental and psychological history was not fully disclosed, thus allowing it to escape its payment obligation. This is called post-claim underwriting – when an insurance company does its underwriting not before, but after a claim is made. It is an unsavory and anti-consumer practice that, unfortunately, many courts give the green light to. I am currently trying to appeal this same issue to the New York Court of Appeals. If I am successful, you’ll surely be hearing about it on this blog.

We’ve all seen strange television commercials. One shown in the U.K. for Beagle Street Life Insurance Company takes the cake. It involves — and I’m not making this up — a Gremlin-type creature seemingly urinating on a middle-aged male insured in a bathtub.

Don’t believe me? You can see for yourself at this link.

I don’t know where the idea for the Gremlin came from. Maybe it’s derivative from the Geico Gecko. Anyway, the ad has been controversial in the U.K. as it has allegedly caused young children to suffer nightmares.

All I can say is that I’ve seen life insurance companies do worse — put it this way, some claim denials are so egregious that the policyholder or beneficiary would prefer to instead have a Gremlin pee on them.




Reuters reports that New York insurance regulator Benjamin Lawsky has launched an investigation into indexed universsal life insurance products. These are life insurance policies that invest the cash value in index funds such as the s&P 500.

The issue is with how the policies are marketed to the general public, as it is suspected that prospective customers are given illustrations that overstate performance. They probably sound a whole lot more attractive than a policy that invests more conservatively. Apparently, these types of policies are the fastest growing component of the life insurance industry.

Although not a life insurance salesman, I will comment from the perspective of a policyholder attorney – these types of policies may be appropriate and appealing to a certain market share who is willing to accept risk, but they may not be right for everyone. Many people expect a solid, dependable performance from their life insurance policy – meaning, that it will not sputter out before maturity due to a depletion of cash value, and that it will be there for their loved ones.

As always, life insurance applicants should carefully ask questions of their agents and, importantly, read the fine print.

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