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Applicant's Material Misrepresentations in Life Insurance Application Precluded Recovery of Temporary Insurance


ERISA and Life Insurance News
(June 6, 2013)

Noel sought to purchase a $1 million life insurance policy from Banner Life Insurance Company. As part of the application, Noel completed a Temporary Insurance Application and Agreement (“TIAA”), which allowed for temporary insurance coverage pending approval of the application. The TIAA provided: “The Insurer’s liability will be limited to a return of the Amount Remitted if . . . any part of the life insurance application or this TIAA contains a misrepresentation material to the Insurer.”

During underwriting, Banner discovered that Noel had failed to provide accurate information about his medical history. Among other omissions, Noel did not disclose a history of elevated liver function tests, an abnormal abdominal liver ultrasound, and that his primary physician had referred him to a gastroenterologist. Banner’s medical director recommended postponing approval of the policy pending additional follow-up and diagnosis for the cause of the liver tests.

Noel died before Banner was able to notify him that it was postponing issuance of the policy. Banner then denied a claim for benefits under the TIAA due to the misrepresentations about Noel’s medical history and refunded Noel’s premium payment.

Banner filed a declaratory judgment action seeking to rescind the TIAA or to have the court declare that its obligations were limited to a return of the premium payment.

The court affirmed the district court’s grant of summary judgment to Banner. Citing Jefferson Standard Life Ins. Co. v. Clemmer, 79 F.2d 724, 733 (4th Cir. 1935), the court reaffirmed the principle that “[m]ateriality is assessed from the vantage point of the insurance company and the effect of a misrepresentation on the company’s ‘investigation and decision.’” The court found that Noel’s undisclosed medical history caused Banner to postpone issuing the policy. Thus, Noel’s misrepresentations were material under Virginia law. See, e.g., Parkerson v Fed. Home Life Ins. Co., 797 F. Supp. 1308, 1314-15 (E.D. Va. 1992) (postponement of issuing policy shows materiality).

The court rejected the proposition that the misrepresentation must be material to the issuance of the TIAA itself. The court found that the express language of the TIAA only required that a misrepresentation be material to Banner, and that a material misrepresentation in any part of the application would preclude recovery of the temporary insurance benefit. Finally, the court affirmed that Banner’s obligations were limited to refunding the premium remitted by Noel.

Click here to view the full June 2013 Edition of the ERISA and Life Insurance News.

Authors
H. Sanders Carter
T (404) 962-1015
F (404) 962-1220
Kenton J. Coppage
T (404) 962-1065
F (404) 962-1256
Dorothy H. Cornwell
T (404) 962-1096
F (404) 962-1246
Jennifer Noland Rathman
T (404) 962-1074
F (404) 962-1213
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