Question

Swalm, who suffered from cystic fibrosis, contacted Dennis, who was authorized by a life insurance company to take applications for its insurance policies, and requested a life insurance policy for $200,000. Dennis provided Swalm with an application form that included a number of questions concerning the applicant’s health, and any existing or prior medical conditions. Dennis reviewed the form with Swalm and his spouse, and his spouse mentioned to Dennis that Swalm suffered from cystic fibrosis, but the condition was under treatment and control by certain drugs. Dennis, acknowledged the comment, but entered a ‘none’ on the form with respect to existing medical conditions for Swalm. Swalm signed the form, and the application was sent to the insurance company. A policy of insurance was then issued to Swalm. Some months later, Swalm’s cystic fibrosis could no longer be controlled by drug treatment, and a year later he died. Swalm’s spouse, as the named beneficiary in the life insurance policy, claimed payment under the policy. When the insurance company discovered the cause of death and Swalm’s medical history, it refused to pay

If Swalm’s spouse took legal action against the insurer, what would be the basis of her claim? What defences might the insurer raise?

Answer 1

Answer to 1)

In this case, swalm’s spouse has the right to sue the insurance company for the payment of the insurance amount.

This is because; insurance companies want to save lot of money on their application costs. This type of “post claim underwring” should not be encouraged. Hence swalm’s spouse can sue the insurance company under “for not doing due diligence” on its part. The insurance company has to exercise due diligence is before it agrees to issue the policy and not after collecting premiums for years from its customers.

Answer to 2)

The insurer can raise the defenses saying that there has been “misrepresentation of facts”. This is because the insurance company can deny the fact that swalm’s pre existing disease was not disclosed to insurance company at the time of availing the policy. Because the company is not responsible for the payment of the insurance amount to the beneficiary for the death arising as a result of pre existing disease. Similarly, there is a waiting period in case of pre existing disease and in case if swalm had died before the waiting period, in that case also the insurance company can defend itself saying that it need not pay the amount to the beneficiary.