A case in California, reported on by Lisa Girion and Sandra Poindexter for the November 20, 2010 edition of The Los Angeles Times (“Flaws Can Cancel Life Insurance — After Death”) highlights the use of limitless rescission by insurers in California and elsewhere to deny death benefits for highly questionable reasons.
Life insurance claims may be disputed for a number of legitimate reasons including failure to pay premiums, foul play, and death by suicide. However, the leading cause of benefit denials in 2009 was “material misrepresentation.” As defined by the industry, this is the failure to disclose information that is vital to assessing risk.
In the case of Ian Weissberger, a mortgage broker from Cathedral City who died of Lou Gehrig’s disease in 2005, his widow was denied $250,000 based on the fact that his life insurance application was incomplete. The disease that killed him was diagnosed months after the policy was issued, but after his death, the company claimed Weissberger suffered from bi-polar disorder and chronic pulmonary disease — conditions his doctor certified were not present.
The insurer, American General, a subsidiary of American International Group Inc., denied more death benefits in 2009 than any other insurer in the nation, disputing 79 claims for a total $36 million. Critics say that companies like American General are eager to fast-track policies for premium dollars and to make up expenses by denying claims.
Amy Bach, an advisor to the National Association of Insurance Commissioners, was quoted in the article. “Regulators need to come down hard on companies that are rushing applications through in order to gain premium income without taking time to screen the risks, then using rescission to control payouts and increase profits.”
Weissberger’s widow reached a settlement with the company for an undisclosed amount, but not before she lost her home. In 2009 insurers paid out $38 billion in death benefits, withholding only $372 million, but to each individual or family, those refusals have devastating consequences. Minnesota Life Insurance Co., which had no rescissions in 2009, routinely takes 2 months to vet an application before granting coverage.
Craig Frisvold, vice-president of the insurer’s parent company Securian Financial Group, said, “The more information you get, the less surprises there are and the less rescissions there are.”