What Laws Govern Life Insurance Disputes?
Most life insurance policies – and most life insurance disputes – are governed by a federal law called ERISA. If ERISA applies to your life insurance policy, then you’ll need to follow specific timelines and procedures to pursue a wrongful denial of your claim or other dispute. In non-ERISA plans, state law will govern the procedures for resolving a conflict regarding your life insurance policy.
ERISA Covers Most Private Employer Life Insurance Policies
The Employee Retirement Income Security Act of 1974 (ERISA) governs employee welfare benefit plans issued by private (non-government) employers, including retirement plans, health plans, disability insurance, and life insurance. Government employers and churches are exempt from ERISA, although government employees may be covered under other laws, such as FEGLI for federal employees or SGLI for servicemembers.
For covered employers, ERISA applies to individual insurance policies or benefit plans that are sponsored by the employer and “pre-tax” under section 125 of the Internal Revenue Code. ERISA also applies to “voluntary policies” that are endorsed by the employer and allowed to be marketed and sold in the work environment, even though they are not paid for or supplemented by the employer.
If your plan is covered by ERISA (and it likely is), then the law requires you to first exhaust your administrative remedies before suing your employer or their insurer over a life insurance dispute. What this means is that you must first go through the insurance company’s internal appeals process before you can go to court.
Don’t take the internal appeal process lightly; this is a crucial stage of your life insurance dispute. If you later file a lawsuit in federal court, you could be limited to the evidence used in the appeals process. Therefore, thoroughly preparing your case for an internal appeal is critical to the success of your claim. Bring an attorney into the process before you submit your appeal to make sure you present your best case and include all relevant documentation and evidence.
If you purchased your life insurance as a private individual and ERISA does not apply, you might not be required to submit to the insurance carrier’s internal appeals process. In this situation, you could go straight to court with your dispute.
California Life Insurance Laws
Generally speaking, California is a consumer-friendly state. Laws in the California Insurance Code, as well as rules and regulations of the California Department of Insurance, protect the consumer when it comes to purchasing life insurance. These laws and regulations provide the following protections, among others:
Consumers have a right to cancel coverage for a full refund of any premium paid within ten days of purchasing a life insurance policy
Policyholders have a thirty-day grace period to make-up a missed premium before the insurer can cancel a policy for nonpayment of premium
Insurance companies must pay claims within 30 days of receipt of proof of death. The insurer is liable to pay interest and penalties on late payments that extend beyond this date.
The law prohibits discriminatory practices related to issuing or canceling life insurance policies.
Life Insurance Denials Can be Disputed
When the insurer denies a claim, they have to tell you why, and the burden is on them to prove their grounds for denial. When you’ve recently lost a loved one, you might be in desperate need of life insurance money to pay the mortgage or necessary living expenses. However, you might not be in the emotional or mental state to deal with an insurance company turning down your claim. You do have rights, and an experienced California life insurance lawyer can help assess if the insurance company is wrong or acting in bad faith.
The policy lapsed for unpaid premiums. Were you given the appropriate grace period to make up a missing premium? Were you informed that a premium was missing? Many life insurance policies allow you to skip premiums based on the cash value built up in the policy. You may have been confused about whether a premium was due, or the insurance company may have it wrong, or you may have been lied to or misled by the insurance agent selling the policy.
The application contains a material misrepresentation. Insurers can sometimes deny a claim if they find one or more material misrepresentations on the life insurance application. Applications for life insurance are very detailed, and sometimes applicants don’t fully disclose every piece of their health history, job history, income and finances, hobbies and lifestyle, etc. A misrepresentation might be entirely innocent, but if it’s material – meaning the carrier would not have issued the policy on those terms had it known the correct information – then they might have grounds to deny the claim and cancel (rescind) the policy.
Insurance companies can’t wait around forever until a claim is made and then go back and pore over the application for misinformation (a practice known as post-claim underwriting). Under California law, insurers have a two-year “contestability” period to bring up any concerns they may have over the information in the application. If the death occurs outside that two-year period, the insurer does not have the right to rescind for a misrepresentation.
If they rightfully rescind the policy, they owe you a refund of the premiums you paid but not the life insurance benefit. If their rescission was wrongful, however, you might be able to recover the full benefit under the policy as well as money damages for any harm their denial and delay caused you.
Life Insurance Dispute in California? Call Gianelli & Morris for Help.
If you are a California policyholder or beneficiary struggling to get the life insurance benefit you paid for, call the insurance law attorneys Gianelli & Morris for a free consultation regarding your claim.