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NY state claims some life insurers improperly challenged claims

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A circular letter last month from the state Department of Financial Services is “reminding” life insurers of the conditions required to reject a life insurance claim, after the department investigated what it says were improper claim denials. An announcement from Gov. Andrew M. Cuomo’s office says the letter will help shield low- and middle-income New Yorkers from unfair claim denials.

The announcement from the governor’s office stated that the Department of Financial Services action reminds life insurers that policyholders should not be required to furnish medical records and that insurers are required to make prompt payments to beneficiaries within the two-year period after a policyholder dies.

An investigation by the Department of Financial Services found that insurers, which it did not name, “contested numerous life insurance claims following the death of the insured during the two-year contestable period, in the absence of actual evidence of misrepresentation, and improperly have shifted the burden of proof to beneficiaries,” according to the circular letter.

The letter states that, under New York Insurance Law, an insurer may contest a life insurance claim made during the two-year contestable period only if the insurer establishes that there was a material misrepresentation on an application for life insurance.

The investigation found some insurers improperly attempted to shift the burden of proof regarding misrepresentation to beneficiaries by requiring them to produce the medical records of the covered policyholder. The letter points to a 1981 state Supreme Court ruling that found a beneficiary has “no legal obligation to cooperate with an insurer by providing the insurer with the deceased insured’s medical records.”

“Insurers are on notice of their obligations and that this administration has zero tolerance for those who seek to sidestep their responsibilities,” Cuomo said. “With this action, we are holding insurance companies accountable, helping to ensure beneficiaries receive what they are entitled to, and are working to create a more fair and more just New York for all.”

In the press release, Cuomo’s office provided the following advice for policy holders:

• A life insurer may only challenge a beneficiary’s claim for benefits on the basis of material misrepresentations on an application for life insurance within a two-year contestable period from the policy’s date of issue. After the two-year contestable period, an insurer cannot claim material misrepresentation on an application as a basis for denying a beneficiary’s claim.

• Following the death of the insured during the two-year contestable period, when an insurer investigates potential misrepresentation on the application for insurance, beneficiaries may assist the insurer with its investigation and provide medical records, but they are not required to do so.

• If an insurer has actual evidence of a material misrepresentation, the insurer may obtain a rescission of the policy through a court action and return premiums to the covered policyholder’s estate. Alternatively, if the parties wish to avoid litigation, an insurer may reach a settlement providing for rescission with all beneficiaries who are fully informed of their rights to challenge the insurer’s claims in court.

• Although beneficiaries are not required by law to provide medical records of the deceased to the insurer, persons who obtain benefits under life insurance policies through fraud or misrepresentation on claims forms may be investigated and prosecuted for insurance fraud.

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