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

The Third Circuit Court of Appeals in Mendez v. American General Life Insurance Company has upheld a New Jersey District Court’s denial of a $1.2 million life insurance policy to a widow because her husband failed to disclose a cancerous brain tumor in his reinstatement application.

The policy was initially issued in December 2006. Due to a failure to make premium payments, the policy lapsed in April 2007. On April 20, 2007, the insured submitted a reinstatement form, representing that he had no serious illness, along with the owed premium payments. Commonly, as in this case, if a policy lapses the life insurance company will request that the insured confirm if he is in the same health as before and thus still insurable.

However, the insured failed to answer a question that asked about the date of his last medical treatment and the findings therefrom. American General sent the form back to him and he answered it saying his last treatment was with his personal physician in February 2006 with normal results. The written answer to this question was submitted in May 2007. The actual facts were different. The insured had just recently visited a neurologist and an MRI revealed that he had a large mass on his frontal lobe that was an aggressive form of cancer.

The plaintiff-widow argued that there had been a binding contract when the reinstatement application was sent to American General and it accepted the premium payments. This occurred after the misrepresentation was made. In effect, she was avoiding the misrepresentation argument and focusing solely on contract principles. The issue of whether or not there was a material misrepresentation was one that she clearly would not win.

The Third Circuit held that the rules concerning material misrepresentations voiding a policy equally apply to reinstatement applications. Principles of contract law do not override this analysis.

As a post-script, American General filed a counterclaim against the widow for insurance fraud under New Jersey Law pursuant to N.J. Stat. Ann. 17:33A-1 for “knowingly assisting [or] conspiring” to defraud an insurance company. This was an aggressive move by the insurance company, which really only had an interest in having her claim denied. Without doing the research, it appears at first glance that this law was probably the result of lobbying efforts by the insurance industry. Why else would it have a special protection carved out of the law? In any event, the Third Circuit upheld the dismissal of this counterclaim.


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