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Insurer's ability to contest claims after the contestability cutoff.

Most states in the United States allow by statute a two-year contestable period for voiding life or health policies,[1] and some insurers require only a one-year contestable period.[2] Because the normal period for rescinding policies is two years from the date of issue, this article refers to that period. Courts have evolved several doctrines to elongate the contestable period to prevent the raiding of the insurer's treasury. This article discusses these doctrines and cases.


The standard contestability clause provides:

This policy shall become incontestable after it has been in force during the lifetime of the insured for 2 years after the date of issue.[3]

If an insured under a life insurance policy dies within the two-year period but the beneficiary delays suit until the two-year period has elapsed, the insurer nevertheless may seek rescission of the policy.[4] The rationale for this result is that the courts are just, enforcing the clause, as written. Even though beneficiaries urge that the strict construction of the policy against the insurer should lead to ignoring the language extending the deadline, that plea has not been successful.


A. Posing as Insured

Assume a very ill man with an understandable desire to buy life insurance. How can he achieve that goal? Several individuals have sent someone else to the medical examination or the blood test. The courts have thwarted this sort of gross fraud and rescinded the policies although two years had elapsed after the delivery of the policy. Take the seminal case of Maslin v. Columbia National Life Insurance Co., for instance, in which the U.S. District Court for the Southern District of New York reasoned as follows:

I think it equally clear, however, that the other defense, the alleged impersonation of Samuel Maslin by another who is said to have made the application and, more important still, to have taken the physical examination, is not barred by the incontestability clause. In substance, the [insurer's] position is that it never insured the life of the [applicant] at all and never had any contract or contractual dealings with him, that the man it insured was another person altogether, a healthy man whom the [insurer's] medical examiner saw and accepted as a risk and who chose to call himself Samuel Maslin, further that there is nothing to show that this man is dead or that the plaintiff had any insurable interest in his life. In reality, this is not an affirmative defense at all, it may be proved under the denial that the defendant insured the life of Samuel Maslin. If the facts pleaded are borne out by the proof, the [insurer] is under no liability to the plaintiff. There cannot be the slightest doubt that the person whom an insurance company intends to make a contract with and intends to insure is the person who presents himself for physical examination.[5]

More succinctly, as the Pennsylvania Supreme Court said: "Insurance companies do not insure names. They insure lives."[6]

In 1993, the U.S. District Court for the Southern District of Florida in Fioretti v. Massachusetts General Life Insurance Co.[7] rescinded a life insurance policy in a situation in which an applicant with the human immunodeficiency virus sent a friend to a walk-in clinic to give blood in the name of the applicant. Needless to say, the impostor's blood was clean. The HIV-positive man paid a substantial premium to get a predated policy for $1,914,111. He died within two years of the date of delivery of the policy but more than two years after the date shown on the policy as "the date of issue." If the contestable period were to run from the "date of issue" as listed on the policy, the contestable period allegedly cut off the insurer's fraud defense.

The court held, however, that:

* The insurer relied on the blood test and never would have issued the policy if the truth had been known about HIV in the body of the named insured.

* The insurer insured the impostor, not the named insured.

* The imposture is,markedly worse than "garden variety fraud," because, the court said, "it is stealthily ingenious - piercing right to the heart of the deal and virtually impossible for the insurance company to detect through reasonable and ordinary business procedures."

Although all the impostor cases have been decided in favor of insurers, the California Court of Appeals recently refused to follow Fioretti in Amex Life Assurance Co. v. Superior Court (Slome Capital Corp.)[8] and distinguished the impostor decisions by holding that a cheat who signs the false application and who thereafter sends the impostor to the medical examination successfully cheats the insurer after the elapse of two years.

The court stated that (1) it found no impostor decision where the insured signed the application (but Fioretti was such a case); (2) the insurer did intend to deal with the applicant-in-sured, (3) the use of the impostor for the medical exam did not affect that intent; and (4) the situation was akin to a law firm's hiring a law graduate who proffered writing samples of others to induce his hiring and whose valid employment contract resulted (without citation).

This analysis is flawed, because:

* Parties make many statements or assert positions that are rejected and not placed in a final contract and are not part of a deal.

* Focusing on a statement made at the start of the application process does not obliterate the most important "statement" or event - "This is my blood that you may test."

* The law firm analogy fails, because (1) the firm could rescind the contract of employment as void from its inception;[9] (2) the firm could sue the associate for damages, if the supervisor of the associate had to spend an abnormal amount of time correcting his work; (3) the firm might be entitled to a refund of the salary paid to the associate, and (4) the partial completion of a fraudulent contract does not mean that the contract must be completed.

Most important, the analogy also fails because courts should not stretch to aid fraud. Courts extend statutory limitation periods in many situations.[10] Extending a contractual deadline should be easy, especially when it prevents an egregious fraud from succeeding.

Dictum in Bankers Life Insurance Society v. Kane[11] suggests that Florida would not follow the impostor doctrine, but that opinion cited no case on point to support that proposition and did not refer to a Florida decision that cited an impostor case with approval.

B. Posing as Medical Examiner

Although impostors usually impersonate applicants, sometimes they impersonate medical examiners. For example, in Unity Mutual Life Insurance Co. v. Moses,[12] a medical doctor knew that he suffered from a fatal form of skin cancer. When he applied for life insurance, he denied having cancer and listed as his personal physician a doctor who had worked in the same building as he did. That doctor had never examined the applicant. When the medical questionnaire arrived in the mail addressed to the applicant's co-worker, the applicant intercepted it. He falsely filled out the form and forged the signature of the other doctor. The policy issued of course, and the applicant-insured lived more than two years before his death.

In rejecting the widow's claim for the death benefit, the federal court held:

The insurers should not be put in the position where not only must they examine the truth of the application, but also the truth of the physician's statements. There is no method short of hiring a private detective to delve into the entire history of the life insurance applicant that could be more effective in uncovering lies. The law does not require absurdity to displace common sense. Both the Ludwinska and Petacio decisions share in common with these facts the important and practical concept that the type of fraud that was committed was simply not capable of detection absent extraordinary measures.. Normal business practices would not uncover an artful substitution of a treating physician at a verification examination.

I find that the protection of the incontestability clause does not extend to a wrongdoer who thwarts the investigation into the truth of his statements by posing as the independent verifier of the accuracy of the applicant's health. I will grant [the insurer's] summary judgment motion and enter final judgment in [its] favor.[13]

C. Forgery

The most common form of impersonation is forgery. Courts have voided policies after the contestable period when the beneficiary signed the name of the insured to the application.[14]



Insureds are ingenious when it comes to trying to cheat insurers. In Spear v. Guardian Life Insurance Co.[15] a wife was insured under her employer's health plan, but her husband was not. When the husband suffered severe injuries in an auto accident, the wife promptly enrolled him in her employer's plan and predated the application. She filed a claim for his large medical bills. Guardian was suspicious and sent an investigator to check the employer's payroll records. The wife was ready for that examination and presented an edited payroll book to the investigator showing that the husband had been enrolled well before the accident. Guardian paid the bills.

A few years later, in a suit for personal injuries, the insurer was able to review the husband's tax return. It showed that he had never worked for the employer in question. Guardian sued to recover its payments, although the two-year contestable period had run.

In permitting the suit, the New York Appellate Division held that the invocation of the contestability clause in reference to Guardian's claim for a refund could be estopped. The estoppel resulted, the court stated, because the wife provided false information during the investigation and thereby prevent Guardian from commencing an action to rescind coverage within the applicable time period under the inconstestable clause. The court did not cite authority for its conclusion, but the insurer's brief cited cases in which late discovery of fraud tolled the deadline set by a normal statute of Iimitations.


Insurers may delimit risks covered. For example, a life insurance policy may exclude death due to an airplane crash. In Metropolitan Life Insurance Co. v. Conway[16] the New York Superintendent of Insurance rejected a proposed rider that excluded coverage for deaths in airplane crashes, except as to fare-paying passengers. The superintendent reasoned that the rider was inconsistent with the state's mandated contestability clause.

Ruling for the insurer, the New York Court of Appeals in an opinion by Chief Judge Cardozo stated:

The provision that a policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years is not a mandate as to coverage, a definition of the hazards to be borne by the insurer. It means only this, that within the limits of the coverage the policy shall stand, unaffected by any defense that it was invalid in its inception, or thereafter become invalid by reason of a condition broken. Like questions have arisen in other jurisdictions and in other courts of this state....

Where there has been no assumption of the risk, there can be no liability.... The kind of insurance one has at the beginning, that, but not more, one retains until the end.[17]

A New Jersey Supreme Court case, Paul Revere Life Insurance Co. v. Haas,[18] involved an applicant for disability insurance who deliberately concealed his retinitis pigmentosa, a disease that causes blindness. The policy specified that:

After your policy has been in force for two years, excluding any time you are disabled, we cannot contest the statements in the application. ... [We cover] ... disease which first manifests itself after the date of issue.

The second sentence was of crucial importance. The court held that the insurer could limit the risks to be covered, holding that (1) the contestability clause did not extend coverage to a pre-existing disease, and (2) the insured had no valid claim for disability on the basis of his concealed prior illness, which did "manifest itself" before the date of issue.

Other courts follow this reasoning.[19] New Jersey codified the rule legislatively, the statute providing that the "contestable period shall preclude only a contest of the validity of the policy and shall not preclude the assertion at any time of defenses based upon provisions in the policy which restrict coverage."[20]

The leading case holding that the contestability clause indeed does enlarge the scope of the risk is Simpson v. Phoenix Mutual Life Insurance Co.,"[21] a New York case in which an employee did not work the required 30 hours per week to be deemed a full-time employee. Nevertheless, the employer reported the employee to the insurer as full time. After the contestability period ran, the employee died.

Requiring the insurer to pay the death benefit, the New York Court of Appeals stated:

If the additional risk to the insurer of issuing a policy to a particular applicant could have been discovered at the time the contract was entered into, the insurer is precluded from raising this fact as a defense after the period provided for in the incontestable clause has elapsed. It is only those risks which could not be ascertained at the time of contracting which can properly be viewed as a limitation on the risk of insurance. Where the insurer cannot guard against assuming a risk it does not desire to insure by the simple expedient of investigating, such as risks of death in non-commercial aviation and while on active military duty, then the risk is properly classified as a limitation for purposes of analysis with respect to the incontestable clause.

The hallmark of the distinction between conditions and limitations is discoverability. Undoubtedly, eligible employment is ascertainable when a group policy is issued. Therefore, unless some distinctive characteristic exists between group life and individual life insurance, there is no logical reason to find employment a limitation rather than a condition.[22]

The assumption that the insurer could cheaply and quickly learn of the hours worked by each employee is highly questionable. If an employer will lie on one form about the hours of an alleged employee, would it be any more candid in an interview? Moreover, interviews are more expensive than most medical examinations. Unfortunately, Simpson has been followed in other cases.[23]


Most states permit health or disability income policies to contain the following contestability clause:

After this policy has been in force for a period of two years during the lifetime of the insured, (excluding any period during which the insured is disabled) it shall become incontestable as to the statements contained in the application.[24]

This language follows the Uniform Individual Accident and Sickness Policy Provisions, as drafted in 1950 by the National Association of Insurance Commissioners.[25] The language in parentheses has been widely honored, thereby affording insurers more time to rescind in health insurance cases.[26]


The contestability clause in a life insurance policy does not enable a murderer-beneficiary to recover the death benefit under a life insurance policy.[27]


When a person procures a life insurance policy on the life of another but lacks an insurable interest on the other person's life, the policy is against public policy and will not be enforced. It is void ab inition.[28]


If a policy provides for an accidental death benefit but excludes that coverage as to suicide, the policy may be contested after the elapse of the contestable period.[29]


Where an insurer is asked to insure a wife but wrongly issues the policy on the husband, the insurer is entitled to a decree of reformation, although the contestable period has run.[30]


Often state statutes bar employers from being named as beneficiaries of a group life policy.[31]


When a scrivener's error stated that the benefit was $57,098.26 instead of the correct $5,798.26, the court reformed the policy, although the two-year contestability period had run.[32]


Courts depend on truth to decide cases correctly. Similarly, insurers depend on truth to administer the life and health insurance system effectively. That system depends on random selection to work.[33] If seriously ill applicants are allowed to thwart accurate self-disclosure, the insurance system becomes more expensive for the honest applicants.

Judges should not strive to condone cheating by strictly construing policies in favor of impostors and gross cheats or their beneficiaries. True, they want the peace of mind afforded by incontestability clauses but that does not mean they should get such peace. Courts do not always strictly construe policies. Why should they bend over backwards to help cheats? Judges extend statutes of limitation until the victim discovers the fraud.[34] If statutes can be tolled, so can contractual deadlines.

Courts should strictly construe policies in favor of the insurer when confronted with a gross fraud.

[1.] See, e.g., Cal. Ins. Code 10206; Fla. Stat, Ann. [section] 627.560; 215 ILCS 5/226 (life insurance), 5/357.1 (accident and health insurance); Mass. Gen. Laws Ann. ch. 175, [section] 134(1); N.J. Rev. Stat. [section] 17B:25-4; N.Y. Ins. Law [section] 3202(a)(3). [2.] See , e.g., Stroehmann v. Mutual Life Ins. Co., 300 U.S. 435 (1937). [3.] Language taken from N.J. Rev. Stat. [section] 17B:25-4. [4.] Kosierowski v. Madison Life Ins. Co., 31 App. Div.2d 930, 298 N.Y.S.2d 810 (2d Dep't 1969); William Penn Life Ins. Co. v. Spilker, 251 N.J.Super 480, 598 A.2d 929 (App.Div. 1991); Ferguson v. Unionmutual Stock Life Ins. Co., 673 F.2d 253 (8th Cir. 1982); cf. McLawhorn v. Am. Central Life Ins. Co., 208 N.C. 709 132 S.E. 139 (1935) (five-year delay in demanding waiver of premium and unpaid disability). [5.] 3 F.Supp. 368, 369 (S.D. N.Y. 1932). See also Strawbridge v. New York Life Ins. Co., 504 F.Supp. (D. N.J. 1980); Obartuch v. Sec. Mut. Life Ins. Co., 114 F2d 873 (7th Cir. 1940); Pettacio v. New York Life Ins. Co., 125 Pa.Super. 15, 189 A. 697 (1937). [6.] Ludwinska v. John Hancock Mutual Life Ins. Co., 317 Pa. 577, 178 A. 28, 31 (Pa. 1935). [7.] 892 F.Supp. 1495 (S.D. Fla. 1993), aff'd, 53 F.3d 1228 (11th Cir. 1995), cert. denied, 116 S.Ct. 708 (1995). The 11th Circuit's affirmance was on the narrow ground that New Jersey's unique pronouncements about the contestability deadline permitted a belated rescission. The author of this article represented Massachusetts General. [8.] 43 Cal.App.4th 1588, 51 Cal.Rptr.2d 354 (Cal.App. 1996), certified for partial publication, review granted, 918 P.2d 998 (Cal. 1996). [9.] See Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 432 A.2d 521 (1981) (employment contract rescinded where rabbi hired without his disclosing conviction for mail fraud). [10.] See, e.g., Garvia v. Truck Ins. Exch., 36 Cal.3d 426, 434, 682 P.2d 1100 (Cal. 1984) (insured had bargaining power; clauses negotiated); Owens-Illinois Inc. v. United Insurance Co., 264 N.J.Super. 460, 488, 625 A.2d 1 (App.Div. 1993) (same); Travelers Indem. v. United States, 543 F.2d 71, 74 (9th Cir. 1976) (insured suggested language); Eastern Associate Goal Corp. v. Aetna Casualty Co., 632 F.2d 1068, 1075 (3d Cir. 1980), cert. denied, 451 U.S. 986 (1981) (insured used sophisticated lawyers in purchase of insurance). [11.] 885 F. 2d 820 (11th Cir. 1989). [12.] 621 F.Supp. 13 (E.D. Pa.), aff'd, 780 F.2d 1017 (3d Cir. 1985). [13.] Id. at 17, 18. [14.] See, e.g., Guarantee Trust Life Ins. Co. v. Wood, 631 F.Supp 15 (N.D. Ga. 1984) (seriously ill child did not sign the application); Logan v. Texas Mutual Life Ins. Co., 121 Tex. 603, 51 S.W.2d 288, 292 (Com.App. 1932) (son forged mother's name to application); Loughran v. Prudential Ins. Co., 88 N.Y. Misc. 11, 150 N.Y.S. 153 (App.Div. 1st Dep't 1914) (impostor signed applicant's X to application while latter was elsewhere); Valant v Metropolitan Life Ins. Co., 23 N.E.2d. 922 (Ill.App. 1939) (someone forged insured's name to application). [15.] 112 App.Div.2d 904, 493 N.Y.S.2d 322 (1st Dep't 1930). [16.] 252 N.Y. 169 N.E. 642 (1930), aff'g 226 App.Div. 408, 235 N.Y.S. 501 (3d Dep't 1929). [17.] 169 N.E. at 642-43, citations omitted. [18.] 137 N.J. 190, 644 A.2d 1098 (1994), aff'g in part, rev'g in part 266 N.J.Super. 35, 628 A.2d 772 (App.Div. 1993). [19.] Washington Nat'l Ins. Co. v. Burch, 270 F.2d 300 (5th Cir. 1959) (deceased not eligible for larger amount of coverage); Fischer v. United State Life Ins. Co., 249 F.2d 879 (4th Cir. 1957) (president was paralyzed and not "regularly performing the duties of his occupation"); Wilmington Trust Co., v. Mut. Life Ins. Co., 177 F.2d 404 (3d Cir. 1949); Home Life Ins. Co. v. Regueira, 313 So.2d 438 (Fla.App. 1975) (employee had to work 30 hours a week); Rasmussen v. Equitable Life Assurance Soc'y, 293 Mich. 482, 292 N.W. 377, 380 (1940); Norman v. Plateau Ins. Co., 1989 WL 28775 (Tenn.App. 1989); Annotation, Misrepresentation as to Employer-Employee Relationship as Within Incontestability Clause of Group Insurance, 26 A.L.R. 3d 632 (1969). [20.] N.J. Stat. [section] 17B:25-16. [21.] 24 N.Y. 262, 247 N.E.2d 655 (1969), aff'g 30 A.D.2d 265, 291 N.Y.S.2d 532 (1st Dep't 1968). [22.] 247 N.E.2d at 658. [23.] See, e.g., Provident Life & Accident Ins. Co. v. Altman, 795 F.Supp. 216, 221-22 (E.D. Mich 1992); Wischmeyer v. Paul Revere Life Ins. Co., 725 F.Supp. 995, 1003 (S.D. Ind. 1989); Fischer v. Massachusetts Casualty Co., 458 F.Supp. 939, 944-45 (S.D. N.Y. 1978); Bernier v. Pac. Mut. Ins. Co., 173 La. 1078, 139 So. 629 (1932); Rapak v. Companion Life Ins., Co., 424 S.E.2d 486 (S.C. 1992). [24.] N.J. Rev.Stat. [section] 17:38-13(A)(2). [25.] Haas, 137 N.J. 190, 644 A.2d 1098 (requiring two years of good health after issuance of policy). See also Manzella v. Indianapolis Life Ins. Co., 814 F.supp. 428 (E.D. Pa. 1993). [26.] Velez-Gomez v. SMA Life Assurance Co., 8 F.3d 873 (1st Cir. 1993); 18 Couch on Insurance [section] 72:48 (2d ed. 1983). [27.] Protective Life Assurance Co. v. Linson, 245 Ala. 493, 17 So.2d 761 (1944); Matter of List's Estate, 176 N.J.Super, 342, 423 A.2d 373 (App.Div. 1989) (insurer relieved of all liability where murderer-beneficiary had sole interest in policy); Austin v. United States, 125 F.2d 816 (7th Cir. 1942); Annotation, Killing of Insured by Beneficiary as Affecting Life Insurance or Its proceeds, 27 A.L.R.3d 794 (1969). [28.] Beard v. Am. Agency Life Ins. Co., 314 Md. 235, 550 A.2d 677, 689 (Md.App. 1988); contra New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74, 535 N.E.2d 270 (1989); Bocracki v. Great-West Life Assurance 253 Mich. 253, 234 N.W. 865 (Mich. 1931); but cf. Annotation, Phoebe Carter, Estoppel of, or Waiver, by Issuer of Life Insurance Policy to Assert Defense of Lack of insurable Interest, 86 A.L.R. 4th 828 (1969). [29.] Monahan v. Mut. Life Ins. Co., 108 F.2d 841, 843 (10th Cir. 1939). [30.] Bruckert v. Nat'l Home Life Ins. Co., 77 Ill.App.2d 307, 222 N.E.2d 195 (1967). [31.] See, e.g., N.J. Rev. Stat. [section] 17:34-31(A)(4); Tulipano v. United States Life Ins. Co., 57 N.J.Super. 269. 277, 154 A.2d 645 (App.Div. 1959) (contestable clause does not permit violation of statute "or good morals"). [32.] Mut. Life Ins. Co. v. Simon, 151 F.Supp. 408 (S.D. N.Y. 1957); Annotation, C.T. Drechsler, Incontestable Clause as Applicable to Suit to Reform Insurance Policy, 7 A.L.R.2d 504 (1949). [33.] Leland v. Fed. Ins, Adm'r, 934 F.2d 524, 530 (4th Cir. 1991); Harold M. Provizer & Noel F. Beck, Making Sense of the Fortuity Doctrine, 38 For the Defense 20 (Feb. 1996); Robert E. Keeton & Alan I. Widiss, Insurance Law: A Guide to Fundamental Principles, Legal Doctrines and Commercial Practices [section] 1.3(c) (1988); but cf. Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 897 P.2d 1 (1995). [34.] Horn v. Mazda Motors of Am., 265 N.J.Super, 47, 625 A.2d 548 (App. Div. 1993); Dreier Co. v. Unitronix Corp., 218 N.J.Super. 260, 274, 527 A.2d 883 (App.Div. 1986); Agristor Fin. Corp. v. Van Sickle, 967 F.2d 233, 239 (6th Cir. 1993).
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Author:Hughes, Mark F., Jr.
Publication:Defense Counsel Journal
Date:Oct 1, 1996
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