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

Kay Park was the beneficiary of a $1,000,000 life insurance policy from MetLife and was denied payment after her husband died of lymphoma on the grounds that a material misrepresentation was made in the application.  He died just one month short of the two-year contestability period that governs New Jersey life insurance policies.

The Third Circuit Court of Appeals upheld the denial of the policy.  The decision is Park v. Metropolitan Life Insurance Company and it was decided on March 30, 2011.

Mr. Park, the insured, was a successful businessman of Korean origin who was proficient in both Korean and English. The agent claimed that he sat next to Mr. Park, requested that Mr. Park read each question, asked if he understood each question, and recorded Mr. Park’s responses. Mr. Park signed the application.  However, several questions were answered incorrectly.  One question asked if he had “ever used tobacco products,” to which he responded in the negative. Other questions inquired about cardiac treatment, medication, and family history for certain diseases – all of which indicated no prior disease or condition.

Mr. Park also had a paramedical exam, conducted in Korean, and in response to a tobacco-related question, stated that he last smoked on “5/2003.” This is obviously inconsistent with the questions answered with the agent, raising the spectre that the agent did not properly read or record the application questions, or that Mr. Park did not understand them.

A medical record review performed by MetLife showed that Mr. Park had a chest x-ray one month prior to the application that contributed to a diagnosis of pneumonia and was taking antibiotics at the time, and that he smoked over a pack per day.  He also had made complaints in the past about chest pain and EKG’s were performed. So it denied the policy, even though the alleged misrepresentations did not relate to the cause of death.

In litigation the plaintiff claimed that the agent was at fault for the misstatements in the application.  But the court determined that they were Park’s fault because he spoke English, signed the application, and also due to “the inconsistency between the answers given to [the agent] and those given to [the paramedic], who interviewed Mr. Park in Korean.”  Accordingly, Mr. Park was held to have knowingly misrepresented his medical history – and those misrepresentations were deemed material.

This decision reinforces how difficult it is for insureds to prevail in material misrepresentation cases involving life insurance policies.  The insured is deceased and not available to testify, and, as such, the only admissible testimony about what occurred during the application process comes from its agents and employees.  The chances that they will admit to negligence are quite slim.

Strikingly, this decision automatically placed the blame on Mr. Park for the inconsistent answers about his smoking history.  It makes no sense, however, for an applicant to intentionally give inconsistent answers in a life insurance application.  At worst, it would cause the insurer to deny coverage on the grounds that the applicant is not telling the truth.  Moreover, there is no benefit that can come from it, because the insurer will underwrite the policy based on the least favorable answer.  In other words, if an insured answers that he is a smoker in one part of an application and that he is not a smoker in another part of the application, the policy will be rated based on the answer that he is a smoker.  So there is nothing to be gained for claiming not to be a smoker in one part.

The inconsistent answers should have indicated that the agent and/or paramedic did not accurately take the application—or at least raised a question of fact on that point. Further, just because Mr. Park signed the application does not mean that he agreed with its contents. The vast majority of people sign documents blindly without reading and understanding them. Yet, somewhat unrealistically, the court reached the opposition conclusion.

The inaccuracies in the application may indeed have been of a “material” nature, justifying the outcome on those grounds alone under New Jersey law. But it is arguably unfair that the law allows for rescission of life insurance policies even if the condition misrepresented has no relationship to the cause of death.

In any case, I believe the court was in error—as is too often the case—for automatically attributing misrepresentations to the insured and not scrutinizing whether the agent was negligent and for assuming that an insured who signs an application has reviewed it and agrees with its contents.  This is an example of the law not meshing with the reality of the life insurance application process.

One Response to “New Jersey Life Insurance Policy Denied for Material Misrepresentation”

  1. Michael Gerace says:

    How do you determine whether a person who died had a life insurance policy? What if someone, a child, was supposed to be a beneficiary of such a policy and never got paid? Is there a way to discover this?
    Thanks.

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