Life insurance claims can present unique challenges because of the heightened emotions involved, and the fact that the person who may know the most about a disputed issue has passed away.
A common issue involved in the denial of a life insurance claim is an insurance company's attempt to rescind the policy after the death of the person insured because of a claimed misrepresentation or untruth in the policy application. Scrutinizing an insurance policy application after a loss has occurred and a claim is made is sometimes referred to as post-claim underwriting, and is a suspect insurance practice which can occur in a number of contexts.
When an insurance company seeks to rescind the policy, it has a number of options. It can simply deny the claim, or it can file a legal action for a declaration that the policy is rescinded. Either option requires the beneficiary under the policy to fight the insurance company's determination that a rescission is proper. When an insurance company rescinds a policy, it is required to refund paid premiums. A beneficiary who intends to challenge the rescission general should not cash the refund check.
Rescission claims often involve issues or discrepancies on the policy application which the insurance company makes the basis for the claimed misrepresentation and decision to rescind the policy. It could involve a health condition that wasn't disclosed, or an answer that the insurance company now believes was not entirely forthcoming. Policy application issues, and whether misinformation could result in loss of life insurance benefits, could raise issues of agent negligence, to the extent the agent was involved in the insurance application.
In California, life insurance policies have incontestability clauses, which provides that a life insurance policy cannot be contested other than for failure to pay premiums after it has been in effect for two years. Thus, rescission claims are usually involved within a couple of years after the policy began, or new application was submitted.
Other issues that can arise in connection with a life insurance claim is the improper application of a policy exclusion to wrongfully deny a claim. For instance, some policies exclude coverage if death was related to a criminal act, or if the insured person is engaged in certain activities. Many denials can be based on improper interpretation or application of a policy exclusion, but again will often involve information best known by the deceased.