Life Insurance Litigation: Actor's Death Within Contestabilty Period Leads to Lawsuit
The West Virginia Business Litigation Blog summed up the situation well when the Estate of the late actor Heath Ledger sued a life insurer for $10 million:
Not even the rich and famous (or their beneficiaries) are immune from the decisions of insurance companies.
The quote and post is by Jeffrey V. Mehallic and entitled “Actor’s Estate Sues Insurance Company for $10 Million Policy” and the case, with a link on the WVBLB post is LaViolette v. ReliaStar Life Insurance Company, Civil Action No. 2:08-CV-05514 (C.D. Cal. 2008).
The Estate alleges “post-mortem underwriting, delaying payment on the policy while it investigates whether the death was a suicide within the “contestability period” and, therefore, not covered. In brief, the insurer is investigating whether there were misrepresentations about drug use on the insurance application. As reported by WVBLB, the actor’s death was ruled accidental although abuse of prescription medications was mentioned. The insurer claims that since the actor died within the “two-year incontestability period,” its investigation is legitimate.
Here’s our “takeaway” from this sad story: Clients should remember that the “incontestability clause” of life insurance policies creates a two-year period within which life insurance claims can be contested for the exclusion of suicide and fraud in making the application. This two-year period is a safeguard against “adverse selection,” for example, against the possibility that an individual contemplating suicide buys a policy and then commits the act. In addition, however, if the life insurance policy application was not completed accurately and with care, the company can investigate for other reasons why it should not be required to pay the claim if death occurs within the two years after the policy was issued. If a proper cause is found, it can return the premiums paid and deny the claim for the benefits of the policy.
Thus, it is important to complete the policy application carefully. When purchasing life insurance, one hopes it is never needed and certainly not needed within the first two years. Unfortunately, unexpected tragedies do occur.
