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Incontestable Clause Runs from Original Policy Date, Despite Misrepresentations in Renewal Applications

Incontestable Clause Runs from Original Policy Date, Despite Misrepresentations in Renewal Applications


ERISA and Life Insurance News
(February 6, 2012)

Flynt, a crop duster, died when his plane crashed in 2008. At the time of his death, Flynt had three outstanding loans with a bank. The bank made credit life insurance available to its borrowers under a group policy issued by Life of the South, and Flynt obtained coverage under the group policy in 2003 and 2004 when he took the loans.

In 2006, Life of the South revised the group policy and the application for coverage by including in the application a statement that the borrower had not been diagnosed with or treated for various illnesses, including diabetes. When Flynt applied for coverage in 2003 and 2004, his application did not include a representation regarding diabetes.

Flynt renewed his loans in 2006 and 2007. He also renewed his credit life insurance by signing new applications, resulting in the issuance of new certificates of insurance. In the new applications, Flynt represented that he had not been diagnosed with diabetes, although his doctor had diagnosed him with Type II diabetes in the late 1990s.

After Flynt’s death, his widow submitted claims under his three certificates of credit life insurance. Life of the South denied her claims and sought to rescind the coverage, contending that Flynt had misrepresented his health when he submitted applications to renew his coverage in 2006 and 2007.

The widow sued, contending that Life of the South was precluded from denying or rescinding coverage by the incontestability clause in each certificate, which provided: "We cannot contest the insurance evidenced by the Certificate after it has been in force two (2) years during your … lifetime."

The trial court granted summary judgment to Life of the South, concluding that each renewal certificate was a separate and distinct contract of insurance and that the two-year contestability period began to run anew upon the issuance of each new certificate. Because Flynt’s death occurred within two years after the renewal certificates were issued, the court ruled that the coverage had not become incontestable.

The Georgia Court of Appeals reversed, holding that Flynt’s coverage became incontestable two years after his original certificates were issued in 2003 and 2004, and that a new contestability period did not begin to run each time the group policy was revised or a new certificate was issued.

The court concluded that the incontestability clause, when construed with another provision of the 2006 group policy, was not intended to begin running anew each time the policy was revised. The other provision dealt with early discharge of the borrower’s indebtedness before the scheduled maturity date, and stated: "Nothing in this provision shall preclude the Incontestability Clause."

This language, the court said, showed the parties’ intent that the two-year contestability period would begin to run from the time Flynt first obtained credit life insurance from Life of the South in 2003 and 2004.

"It follows," the court said, "that the incontestability provision had become operative by the time of [Flynt’s] death in 2008 and precluded Life of the South from denying or rescinding insurance coverage based upon his representations in 2006 and 2007 concerning his health."

Click Here to view the full February 2012 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
Associated Attorneys
Associated Industries
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