There has been a trend in recent years for insurance companies to join with large institutions or employers, and sell accident, disability and life insurance to their customers or employers under group insurance plans. I have previously blogged about this in connection with Occupational Accident policies issued to misclassified truck drivers through trucking companies. Another group that is targeted are bank and credit card customers, who are also sold accident injury, disability and life policies, including what is referred to as Accidental Death and Dismemberment policies. The customers or employers of the financial institution or employer are sometimes referred to by insurers as a “captive market.” Many of the policies sold through this kind of group coverage turn out to be inadequate, a fact which an insured often learns of only after a loss.
The way the practice frequently works is that insurance companies make an agreement to sell insurance with a bank, credit card company, employer, or other entity with a large pool of potential insurance consumers. The customer or employee list of the financial institution or employer is turned over to the insurance company, who markets the insurance coverage directly to those customers or employees. Generally, there are separate insurance programs for each financial institution or employer. The insurance company issues one group or master policy to the financial institution or employer, and then issues certificates of coverage under that policy to each customer or employee who signs up as an insured. (See Reiner v. U.S. Life Ins. Co. in the City of New York (10th Cir. 2003) 69 Fed.Appx. 965, 969.) The premium for the coverage is usually deducted directly from the insured’s bank account, credit card, or paycheck.
There are many problems with this practice of insurance companies issuing a group policy to a large institution, and selling coverage to the institution’s captive customers. First, insurance companies are using an entity in a position of trust (either a bank, credit card company, or employer) to solicit the sale, in itself creating potential conflicts of interest. The marketing of coverage under these group policies is often less than forthright. Frequently the accident, disability and life insurance coverage under these group policies provide very limited coverage, a fact which is often not disclosed to the consumer. For instance, the Accidental Death and Dismemberment policy, as its name implies, typically only cover disability caused by dismemberment, or other loss of similar severity, like total paralysis. This is very limited coverage, that is not standard for individual disability policies negotiated directly by insureds with insurance companies. During marketing, consumers are frequently not told they are purchasing an Accidental Death and Dismemberment policy, but instead it is often referred to generally as disability or life insurance. Most typically, the customers who actually purchase the insurance are not provided with a copy of the policy or notice of the policy’s limits and exclusions, and only learn of them after a claim is made. It is unlawful under California law not to disclose a disability insurance policy’s exclusions or limitations, but it nevertheless occurs in connection with group policies.
Persons in California who have purchased disability or life insurance coverage under a master policy through their bank, credit card company, employer, or other large institution, and have had a claim denied, may have been sold a limited policy, without adequate notice. Because there are legal challenges that can be brought to the denial of a claim based on exclusions or limitations in group policies like this, persons who find themselves in such a position may want to consider seeking legal advice.