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

Fox Business must have had a slow news day, because in a recent article it entertained the hypothetical question of whether a prison inmate can obtain a life insurance policy. Basically, the answer–to those who are curious, and you are quite likely few in number–is negative.

According to the article, 7 million Americans, or 2.9% of the adult U.S. population, are circulating in the criminal justice system. So the issue does affect a large number of people. But essentially all life insurance companies will not consider an application from a prison inmate. The reason why is pretty obvious: prison is a dangerous place, and many people in prison do not have safe lifestyles. Interestingly, there are some insurance companies who will offer policies to active-duty military personnel, even though they may also find themselves in harm’s way.

If you think about it, how would a life insurance company conduct a medical test on an applicant who is in prison? It’s probably not feasible for a paramedic or nurse to go to the prison and draw blood and take urine from a prisoner.

Not only is prison an unsafe place, which increases the mortality risk for a prisoner-applicant and makes them an unattractive risk, but there is the moral hazard issue. If someone is incarcerated for a serious crime like murder or child molestation, an insurer is probably not going to want to insure them based on their past actions and also that such a person will foreseeably run into various types of trouble whether in or out of prison.

All that said, if a person with an existing life insurance policy enters the prison system, he will get to keep his policy so long as the premiums are timely paid. Generally speaking, policies do not contain a clause invalidating them once a person enters prison.

Getting back to how insurers will offer policies to persons in the military, it presents an interesting issue because, as I pointed out, they also find themselves in unsafe environments. Similarly, life insurance companies will offer insurance to daredevils such as skydivers even though they put their lives on the line in a way most of us do not. It seems that with prisoners the key difference, in the eyes of life insurance companies, is the moral aspect, the uncertainty of prison life, and that prisoners are more likely to make enemies.


A few months ago, the NY Court of Appeals put the insurance industry into a tizzy by holding that if an insurer wrongly refuses to defend its insured in a lawsuit, it will later not be allowed to raise policy exclusions as a defense to providing coverage. More specifically, if the insurer refuses to hire lawyers to defend the insured, and a judgment is subsequently entered against the insured, the insurer will be responsible for satisfying it. The case was K2 Investment Group v. American Guarantee & Liability Insurance Company.

In a February 18, 2014 decision, the Court of Appeals reversed itself – something that happens very rarely. Now when an insurance company wrongly refuses to defend its insured, it can still raise a policy exclusion as a defense to its obligation to indemnify the insured and satisfy the judgment. You may ask, does that mean there aren’t any adverse consequences if the insurer wrongfully decides to leave its insured in the lurch? If you answered yes, you are correct.

The specific question in K2 that confronted the court was if the insured, who was both a lawyer and the principal of a company, committed acts that were covered under his lawyer’s professional liability insurance policy or instead were solely done in a business capacity. This was significant because his policy contained an exclusion for business activities. If the insured was acting as a lawyer, he would be covered; if he was acting on behalf of his business, he would not be, and hence an exclusion would apply.

In dissent, Judge Graffeo made a convincing argument that if the liability insurer breaches its duty to defend, it should not be allowed to subsequently invoke policy exclusions. Rather, it should have to satisfy the judgment entered against its insured. “This rule makes sense,” she wrote, because “[a]n insurer should be subjected to some legal consequence for breaching its duty to defend its insured.” This creates an incentive for the insurer to provide a defense in the liability case. Further, “[i]t also encourages the initiation of a declaratory judgment by an insurer that seeks judicial authorization to rely on a policy exclusion to avoid indemnification.” In other words, if the insurer seeks not to defend its insured in a lawsuit, there will be an incentive for it to first ask the court for permission to escape its obligations, instead of simply bailing on its insured.

Judge Graffeo, in my opinion, has it right. If an insurer takes such a bold and momentous step as to leave its insured on its own to defend a lawsuit, there should be consequences. It shouldn’t later be allowed to raise policy exclusions because that creates a double standard. The insured has suffered from the insurer’s refusal to defend, seeing that, at least in K2, a judgment has been entered against him. But the insurer is not in a disadvantaged position as it can argue for policy exclusions. In my view, the court had it right the first time.


The deadline for homeowners to submit their Hurricane Sandy flood insurance claims is 3 months away, landing on April 29, 2014.

The “Your Money” section of the New York Times contains a very informative article about the claims process that provides an overview from start to finish, that is, from filing a claim to perhaps even hiring an attorney to litigate.

No need repeating the points here: the article is concise and packed with information. The moral of the story is that the companies administering flood claims are frequently not doing right by their customers. And restrictive laws don’t give policyholders a meaningful remedy for bad-faith conduct.

Currently, we are in a period of low interest rates that is unprecedented in our nation’s economic history. That is, I think it’s unprecedented. I’m a lawyer, not an economist, so I don’t possess that type of financial knowledge and don’t know if that statement is really true.

I suppose I could fact-check it on google. Yeah, I could do that. But it’s Sunday night, the Patriots-Broncos game just started, Boardwalk Empire is on in a half hour, and my first priority is to complete this post, interest rate history be damned.

Anyway, let’s agree–interest rates are really, really low.

Consequently, cash-value life insurance policies are not performing well. Many that were sold in the back in the 80’s, 90’s, and early 2000’s are in danger of lapsing. This is because the cash value is earning a low interest rate. When the policies were sold years earlier, rates were high (remember that?) and so were the performance projections given at the time, since no one imagined rates would ever be so low.

I previously wrote a post entitled “The Exploding Universal Life Policy” that addresses this same issue of how low rates have impacted the performance of life insurance policies. Why am I doing it again, you might ask? My first response is that I don’t mind repeating myself. I don’t mind it in the least.

My second is that it is covered in an article I recently came across in Investment News, which discusses how these cash value or universal life insurance policies (for the purpose of this blog post, the two are basically the same) were used by estate planning attorneys to fund irrevocable life insurance trusts to help alleviate estate tax obligations.

According to the article, years ago “[e]ven the most conservative agents and brokers were projecting 7% to 10% long-term interest rates.” See the problem? Policyholders were told they could pay “x” each year to keep $”y” in coverage in effect. But then they found out that they needed to pay twice the amount of “x” to keep that same $”y” in coverage.

Unfortunately, I’ve seen more than my share of these cases…

Slayer Statute cases are those where the life insurance beneficiary is accused of killing the insured. Most states, if not all, have laws on the books that prevent a life insurance beneficiary from collecting the insurance policy if he or she is responsible for the death of the insured.

A typical scenario is where one spouse kills the other spouse and tries to collect the life insurance.

This only makes sense. Otherwise, it makes murder a very lucrative enterprise. Certainly, we do not want our society to allow such wanton and despicable conduct.

I’m writing about this topic because I recently came across an article where a Nebraska man who spent two years in prison for killing his wife received half of the $150,000 life insurance proceeds.

My first thought, before finishing the article, was how did this happen?

The man, Patrick Cain, 61, told police that his wife’s death was an accident. They were both drinking heavily, got into an argument, and he pushed her down the stairs. However, of note, when the police arrived, they found her body stuffed inside a closet. To my mind, that shows a guilty state of mind, but at any rate, he pleaded no contest to manslaughter and spent two years in prison.

Nebraska law says that a person who “feloniously and intentionally” kills a spouse is not entitled to life insurance benefits. Cain argued that he didn’t intentionally kill his wife, and, in fact, the manslaughter charge provided that he killed his wife unintentionally while committing an unlawful act.

A suit was filed in federal court and Cain and his wife’s estate agreed to split the policy 50/50.

The case ultimately depended on Cain’s state of mind when he killed his wife. This is because the standard requires a felony, which manslaughter qualifies as, and in addition, an intentional killing–with intentionality going to state of mind. The estate’s lawyers no doubt saw a hurdle in trying to show that there was an intentional killing. It appears that Cain was the only person present at her death, making the task that much harder.

Many would consider this to be an unjust result. Under any circumstances, how could a man who pushes his wife down the stairs to her death collect her insurance policy? It doesn’t sound just to me. This shows how laws, even if well-drafted, sometimes do not fairly and justly apply to the facts of a case.

On the other hand, what is the alternative, because if the standard was loosened to encompass, say, any act that “involved the death of an insured,” we can foresee that an automobile driver who is 5% at fault for a car accident that results in the death of his wife would not collect anything at all, and that may not be a just result.

We have an imperfect system in which theoretical legal standards sometimes do not mesh well with the ugly reality of everyday life.

Readers of this blog, and those who are familiar with life insurance, know what the contestability period is: a two-year time period after the issuance of a life insurance policy when the insurer can cancel or rescind the policy if the insured made what’s called a “material misrepresentation” in the application, such as in response to a medical or financial question.

But, in most states, if the insured lives past the two-year mark, the insurer has to pay the policy, no matter what misrepresentations were made.

A recent article is floating around the web on this subject and I’m linking to it here: Life Insurance Contestability: 7 Things to Know. Take a look, it’s a good primer on the subject.

The first point made, and it’s one that I wholeheartedly agree with, is that people should be honest when completing the application. I’ve seen too many instances where, for whatever reason, incorrect information is submitted and the insurer later ends up cancelling the policy when the insured dies within the two-year period. If the agent fills out the application for you, which sometimes happens, make sure that you carefully review it before signing. You can’t always count on the agent to be conscientious.

Now, there are two statements made in the article that I’ll take issue with. It says that insurers don’t investigate each and every claim where the insured dies within the contestability period. There’s no way really to know if that is or isn’t true, since each life insurance company maintains its own records, but I tend to doubt it. Trust me, if insurers can get out of paying a claim, they’ll do it.

The article goes on to say that if the insured dies in a car accident, the insurer probably won’t perform a contestability investigation, but it will if the insured dies from a health-related condition.

This isn’t correct.

Life insurance companies will investigate no matter what the cause of death, and if they find that a health condition was misrepresented, they will cancel the policy, even if the condition didn’t relate at all to the cause of death. In many states, such as New York, they can do this. Only a handful of states require that, for a policy to be cancelled, the misrepresentation must have some relationship with the cause of death.

That’s why it’s important for insureds to make sure their application is correct–to prevent a cancellation from occurring. In the first place, as a general principle, everyone should be honest, anyway, but when it comes down to cost-benefit and the need for a secure life insurance policy, it’s simply just not worth the risk to either lie or be careless in the application.

In many ways, New York and New Jersey can be considered almost like two different parts of a single state, at least insofar as North Jersey is concerned. Just as two examples, many NYC commuters live in New Jersey, and the NYC TV stations feature news stories from the Garden State.

But when it comes to the law, the states have many differences, with New Jersey generally more favorable to consumers as opposed to business. This is especially true in how the states treat insurance agent and broker negligence.

Indeed, for those who felt the fury of Superstorm Sandy and suffered property damage, whether they lived in New York or New Jersey can make a big difference in their efforts to obtain a recovery.

For instance, say the insurance agent or broker failed to advise the insured about the availability of flood insurance or was otherwise negligent in providing advice and other services regarding the procurement of an insurance policy.

In New Jersey, the legal standard is that an insurance broker has to exercise good faith and reasonable skill in dealing with the insured. He is expected to have knowledge of the types of policies available and their terms. He may also even be expected to advise the insured of additional coverages that the insured should purchase. Put simply, the agent or broker is considered to be in a fiduciary relationship with the insured.

By contrast, in New York the insurance broker is considered to be more akin to an “order taker,” not charged with having a fiduciary duty to the insured. That means the agent or broker does not have to properly advise the insured regarding coverage, and really, is not charged with having in-depth knowledge of insurance policies.

Under this schema, generally, the agent or broker is only held negligent if he fails to obtain the requested policy. For instance, if the insured requests a $100,000 coverage amount, but only $50,000 is ordered, there would be negligence. Only if the insured can demonstrate that it had a “special relationship” with the agent or broker — which can require a sophisticated legal argument that there was a more in-depth and involved relationship — will the agent or broker be imputed with a greater measure of responsibility.

This is a general overview of the differences between New York and New Jersey when it comes to agent or broker negligence. Often, the devil is in the details, and a sophisticated legal analysis of the insurance transaction can make all the difference. It may seem arbitrary and unfair that a short geographic distance — say how long it takes a NY resident to cross over to the NJ border — can make such a big difference with respect to a person’s legal rights and remedies. But, well, that is the law ….


A recent article published in Life Health Pro put the spotlight on a South Carolina case that involved the cancellation of a life insurance policy for non-payment of premiums, otherwise known as a lapsed policy case. I highlight it here because it is something that I frequently come across as a life insurance attorney.

Although the beneficiary lost the case, there are instances where she can prevail if the facts are on her side and a smart, knowledgeable attorney works hard to develop available arguments.

The facts of the case, venued in a South Carolina federal court, were sympathetic to the beneficiary. Her husband, the insured, had been diagnosed with Parkson’s Disease and dementia in the time frame when the premium payment was due, was hospitalized and died about six months later. Further, just before he died, his widow called the insurer to ask if she could pay any missed premium payments, but was told that the insured would have to contact the company to reinstate the policy (which he lacked the capacity to do) or he would have to authorize her to communicate with it (which he also was incapable of doing).

The court ruled that, despite the widow’s contention that proper cancellation notices had not been sent, the policy was no longer in effect on the date of death. South Carolina law does not contain requirements for the termination of life insurance policies for non-payment of premiums and the policy did not impose any special requirements.

The court also held that because the insurer had previously accepted 22 premium payments during the grace period (a short period of time after the premium due date during which an insurer will still provide coverage if a premium payment is made) did not mean that it had waived its right to terminate the policy in this case, because the grace period had expired.On the 22 prior occasions, the payment was made during the grace period, but again, in this case, it had expired. Thus, according to the court, the previous course of conduct did not create a reasonable expectation that premium payments would be accepted after the grace period expired.

In my experience, it is frequently the case that life insurance companies will accept late premium payments when it suits their financial interest to do so, such as early in the life of the policy, even when the grace period has expired. But when the insured is of advancing age, and of course when the insured dies, they will suddenly tighten up their standards for timely payments.

This waiver argument was rightly made by the widow’s attorney, but unfortunately it did not prevail.

Finally, the court rejected the argument that because the widow had contacted the insurance company to try to make payment, the policy should not have terminated. This is particularly tough to swallow, because this was not a simple case of non-payment, but rather, the widow was trying to salvage the policy. Under equitable principles and basic fairness, I think the policy should have been honored.

It’s not often that the life insurance industry is prominent in the news, but it was on June 11, 2013 when the New York Times reported how New York State regulators are calling for an end to tricky financial transactions used by life insurers to inflate their assets by billions of dollars.

By making secret and dubious transactions that make them look richer than they are in reality, insurers are putting life insurance policies at risk because there may not be sufficient reserves to cover them.

Think of how in the run-up to the 2008 financial crisis the banks were engaged in fraudulent practices that ultimately boiled over and almost wrecked the entire financial system. Well, it’s pretty much the same concept that’s at work here–companies making bigger and larger bets without sufficient capital to pay them off when they go bad.

We don’t know if it will happen with the life insurance industry, but it appears that insurers’ widespread practices, especially among publicly-traded companies who are under more pressure to increase profits, raise the risk of danger.

According to New York Superintendent of Financial Services, Ben Lawsky, it took his team of investigators nearly a year to follow the paper trail left by insurers. He said that New York-based life insurers inflated their books to the tune of $48 billion.

One technique used is for insurers to create shell companies and then utilize them as reinsurance vehicles for risk accumulated by the insurer. Reinsurance involves spreading insurance risks to other entities. But that does not occur when reinsurance is done through a shell company created by the same insurer, as opposed to a reinsurance transaction through an independent entity that is responsible for the risk and performing its own underwriting. The risk remains with the insurer. When the appearance is that valid reinsurance arrangements are in place, however, that is a problem.

Read the article for more details. You’ll see what I’m talking about in more detail. Be forewarned, however, that reading about financial transactions made by insurance companies is not exactly the most exciting reading out there. It ain’t John Grisham or David Baldacci. Beforehand, you may want to have a strong cup of coffee.

An overarching problem with the insurance industry is that it is regulated by the 50 states and not the federal government. Consequently, insurers can flock to states with the most favorable laws (and New York is a pro-insurance state) and also more easily evade regulation because, naturally, the regulators are more diffuse, than if there was a single, centralized agency performing monitoring and oversight.

We’ll see what happens. Hopefully, it won’t be 2008 redux.

Homeowners in the New York and New Jersey area have met with frustration, defeat and disgust in trying to get their Hurricane Sandy insurance claims adjusted by their insurance companies.

The New Jersey Star-Ledger recently looked into what these homeowners have experienced, from getting raw deals from insurance adjusters who evaluate their claims with inaccurate computer software to the perhaps conflict-laden relationship between FEMA and insurance companies handling flood claims, as FEMA will take back the sum of wrongly paid claims from the insurer.

Homeowners have been sucked into a bureaucratic nightmare dealing with their insurance companies, sometimes waiting for weeks and months to receive responses to simple queries. When they file claims with the New Jersey Department of Banking and Insurance, little help comes their way.

Homeowners, often stretched to the breaking point both emotionally and financially, are left in a quandary as to whether to accept trifling settlements or fight daunting battles against insurance companies with seemingly limitless resources.

After reading the article, you hopefully will agree with me that stronger consumer laws are needed on the books to provide for punitive damages and attorney’s fees against insurance companies that act in an unfair or deceptive manner. Presently, when insurance companies take unfair advantage of their customers – which translates into the general public, because essentially all homeowners carry insurance coverage – there is no effective remedy available to them.


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