Life Insurance Overview

Most insurance companies pay most life insurance claims as they should. Life insurance exists to ease the financial burden of losing a wage earner. Insurance companies are aware of their public image and of how they will look to a jury if they deny a widow or children of a deceased wage earner the benefits for which he has paid. They are also aware of state bad-faith laws that can end up costing them several times the amount of benefits that are wrongly withheld. This is especially true if the benefits are provided by individual policies, that is, policies that are not provided through or connected to employment.

Sadly, it is another story if the benefits are supposed to be paid by the underwriter of a life insurance policy provided by an employer. Those are governed by ERISA (the Employee Retirement Income Security Act). This law applies not just to traditional retirement benefits but to all benefits provided by an “employee welfare benefit plan” and include life insurance, health insurance and disability insurance benefits.

Insurers have more of an incentive to deny claims (or perhaps we should say have less of an incentive to pay them) in ERISA cases because of the following factors:

•ERISA preempts state laws, so that state’s bad-faith laws do not apply to benefits provided by ERISA plans, and the worst thing that can happen to an insurer who wrongly withholds benefits is that it will have to pay them eventually, if it loses;

•Most life insurance beneficiaries are not experienced in ERISA litigation, so, unless they have retained an attorney who is, the insurance company will get to control the evidence that is ultimately provided to the court, an on which the court’s decision will be based; and

•No jury will ever hear the case. The case will be decided by a federal judge, sitting without a jury, and his or her decision will be based on the record produced by the insurance company. That record can be supplemented by a
savvy ERISA attorney, and the sooner one gets involved, the better.


Insurance companies spend billions of dollars annually to project the image that they want to be in the public’s mind. This image-building advertising obscures a hard fact: Every dollar an insurer pays out in benefits is deducted from their profit. They stay profitable by limiting the number of claims they pay out. Because they have vast resources at their disposal, years of experience and a stable of high-priced lawyers, they know every trick to protect their profits throughout the process - from drafting the language of the policy through investigation of the claim and defending their actions in court.

So, what tactics do insurers use to deny claims:

1. Defenses arising from the original insurance application:
An insurer might not carefully scrutinize an application for insurance at the time it is presented, but will subject it to intense scrutiny at the time of a claim (this practice is sometimes called “claims based underwriting”). The investigation may focus on

• a claimant's failure to disclose required information
• allegations of fraud or misrepresentation
• failure to disclose pre-existing conditions

2. Defenses arising from the claim application process:
Insurers will carefully scrutinize the claim application (or “application for benefits”) to ferret out anything that can provide a defense. These may include:

• failure to provide required information
• fraudulent information
• failure to timely file the application

3. Defenses arising from the circumstances of death:
Insurance policies typically exclude benefits that are partially or wholly caused by certain named causes, such as:

• death resulting from alcohol or drug use
• death arising from criminal activity
• death arising from war or terrorist actions
• automobile deaths while participating in a speed contest
• suicide

4. Policy defenses:
Other reasons for insurers to refuse to pay claims are sometimes referred to as “policy defenses”. That is to say that because of the language of the policy the insurance was not in effect. These defenses can include:

• death that occurred before the effective date of coverage
• death that occurred after employment was terminated
   (after the effective dates of coverage)
• non-payment of premiums

5. Miscellaneous defenses:
There are numerous other tricks insurance companies have learned to deny coverage, They are numerous but some of the more familiar ones include:

• denial that the claimant is the proper beneficiary
• denial of employment status (i.e. claiming that the decedent    was an independent contractor or worked for a subsidiary)
• defenses that arise from mergers of separate corporations

However, an experienced ERISA lawyer can assist you by

• Insuring that the application is prepared properly and includes all the information the insurer needs to pay the claim
• Preparing the appeal in the event of a claim denial; and insuring that the claim file contains every scrap of evidence favorable to the claimant
• Filing and vigorously prosecuting a federal lawsuit
• Filing an appeal in a Federal Circuit Court in the event of an unfavorable decision in the Federal District Court.
• Negotiating with the insurer

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