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

I recently read a New York Law Journal article that, prompted by the March 16, 2011 Eastern District of New York decision, American General Life Insurance Company v. Salamon, discussed how the principle of waiver can preserve a life insurance policy that the insurance company has attempted to cancel.

In the decision, the insurance company continued to receive and cash premium payments, after attempting to cancel the policy in a letter to the insured in which it alleged that a material misrepresentation was made in the policy application. Obviously, in this case, the investigation conducted by the insurance company occurred while the insured was still alive. The court held that the insurer waived its right to rescind by continuing to receive and cash the payments.

The court rejected the insurer’s claim of inadvertence based on the automatic design of its computer system that continued to identify the policy as active and hence cash the payments.

As the article points out, if there is a rescission of the policy, the insured would have to apply again for insurance – that is, if insurance is rescinded while the insured is still alive. The insured may not be able to obtain another policy on the same terms, for instance if the insured’s health declined. Parenthetically, rescission in New York must occur within two years of the issuance of the policy based on the incontestability provision contained in New York law.

In sum, if an insurance company rescinds a life insurance policy within the contestability period, the insured may be advised to continue to make payments in the hope that the insurance company will cash them.

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