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What law governs life insurance disputes?
What timelines govern a life insurance claim?
In making a life insurance claim, the insured will first want to clarify whether he/she has an individually-purchased policy or an employment-based group plan. If the insured has a non-governmental employment-based group policy, the plan will be governed by a federal law called the Employee Retirement Income Security Act of 1974 or ERISA, which sets the standards for the party responsible for administering an ERISA plan. ERISA has stringent requirements for processing life insurance benefit claims. If the insured owns an individual life insurance policy, any required deadlines and standards in processing a life insurance claim will be administered according to state law. California law is particularly beneficial to life insurance claimants.
General Timeline for ERISA governed life insurance policies under group plans:
A claim should be approved or denied within 90 days of receipt of the claim. See 29 C.F.R. § 2560.503-1 (f)(1).
Should more time be necessary to review a claim, the plan can extend the time frame for up to 90 days, but the plan must inform the insured within the initial 90 days that additional time is needed, why the additional time is needed, if there are any unresolved issues or additional information needed, and when a final decision will be rendered. Id.
If a claim is denied,the insured has 6 0days to file an appeal. See 29 C.F.R.§ 2560.503-1 (h)(2) (i).
A decision on the insured’s appeal must be made not later than 60 days after receipt of the insured’s request to review a denied claim. See 29 C.F.R. § 2560.503-1 (i)(1).
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Should special circumstances require an extension, the plan may take up to 60 extra days, but the plan must provide an explanation in writing of the special circumstances along with providing a date by which the plan expects to make a decision on the insured’s 29 C.F.R. § 2560.503-1 (i)(1).
General Timeline for individual policies governed by California law:
A claim should be approved or denied within 40 calendar days of receipt of all necessary information to determine liability for the insured‘s claim. See 10 C.C.R. § 2695.7 (b).
The 40-day period does not begin to run until all relevant information has been received. See 10 C.C.R. § 2695.7(b).
Should the insurer require additional information to conclude the claim investigation, then it must notify the insured in writing within 40 days after the claim is filed, and provide a written list of all information reasonably needed to investigate the claim. See 10 C.C.R. § 2695.7 (c) (1).
An insurer must continue to send the insured an update every 30 days if additional time and materials are still required, while continuing to clearly set forth what is needed to process the claim. See 10 C.C.R. § 2695.7 (c) (1).
California law provides four years to sue on a contract. SeeCCP. §337 (1). However, an insurance contract may set forth a shorter time limit in which a suit must be brought in the policy, if the policy provision is clearly stated and reasonable in the time it provides. See Frazier v. Metropolitan Life Ins. Co., 169 Cal.App.3d 90, 103 (1985) (Two year statute of limitations was found to be reasonable).
How does a claimant file a life insurance claim?
The most important document in filing a life insurance claim is the life insurance policy, or if the insured is a member of a group insurance program for which ERISA applies, the summary plan description and group insurance certificate. These documents typically provide a detailed overview of how the plan or policy works, what benefits it provides and how to file a claim for benefits. If the insured is a member of a union or a plan associated with a collective bargaining agreement, he/she should also check any applicable collective bargaining agreement’s procedures for filing, claims, grievances and appeals. If the insured does not have a copy of the life insurance policy or summary plan description, the insured should immediately make a written request for a copy of his/her policy, summary plan description and/or group certificate that contains the claims procedures. The plan administrator in ERISA matters is required by law to provide the insured with a copy upon written request. The insured will also want to contact his/her insurance agent, insurer or plan administrator to obtain claim forms.
At the very minimum, an insurer will require that the insured provide the death certificate of the insured person. In some situations, a copy of a marriage certificate may also be helpful, particularly if there are ex-spouses that use names from former marriages. An owner or beneficiary may also need to have access to current mortgage or loan paperwork, credit card statements and employee benefits information.
Remember, a life insurance claim is a very proof intensive process, and a claimant should document all interactions with insurer, plan administrators, employers and representatives of the insurance company (such as insurance agents) every step of the way. Always memorialize all telephone or in-person conversations by letter summarizing what was discussed, and send it to all parties involved in the processing of the claim to confirm the communication occurred. Also, the claimant should maintain a file of everything related to the claim and keep a chronology of claim related events. This way, should the insured be forced into litigation, there is a clear and definitive record of how the claim was handled.
What are the typical exclusions in a life insurance policy?
What is the difference between a STOLI transaction and a life settlement?
Stranger-owned life insurance, or STOLI, is the practice or plan to purchasea life insurance policy for the benefit of a third party investor who, at the time the policy is created, does not have an insurable interest. An insurable interest exists when loss or damage to a person or object would cause the third party to suffer a financial or personal loss, and usually is created by property rights, contract rights or potential legal liability. In these cases, insurers seek to have the policy declared void ab initio (void from the beginning of the contract) for lack of an insurable interest or due to the misrepresentation by the applicant.
In contrast, a life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. Typically, a life settlement is sought when the insured decides he or she no longer wants or needs the life insurance policy the insured previously purchased, which happens for various reasons, including an inability to pay premiums, the opportunity to obtain a superior insurance policy, changes in estate planning needs and rising healthcare costs. Therefore, a life settlement offers the insured the option of gaining value.
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The critical factor in terms of determining whether a transaction is a life settlement rather than a STOLI transaction is whether the life insurance policy that is being settled was initially purchased for a legitimate insurance purpose. Therefore, the court will endeavor to closely analyze the material facts to determine whether the intent was to create an insurable interest or to sell to a third party investor. Some of the factual circumstances that indicate a STOLI transaction include: the purchase of a life insurance policy for an insured between 65 years old and 85 years old in exchange for an immediate lump-sum payment, selling policies initially after they were purchased or purchasing a policy at no cost to the insured individual in exchange for a partial payment on the policy’s face value to the insured’s beneficiaries upon the owner’s death. Typically, an insurer will request to keep the premiums paid should a STOLI arrangement be found; although currently, case law is unclear as to whether an insurer has the legal right to retain premiums paid on STOLI transactions.
What is an incontestability clause and how does it work?
What should an insured do if his/her insurer improperly lapses a life insurance policy?
A lapse or termination in coverage typically occurs from a failure to timely pay a scheduled premium or otherwise results from the insured manifesting an intent not to renew a life insurance policy. Express provisions in a life insurance policy will discuss when the insurer is allowed to lapse a policy for failure to pay premiums. All life insurance policies include a grace period during which coverage remains in effect although the renewal premium has not been paid before expiration of the policy period. Payment of the renewal premium during the “grace period” will prevent any lapse in coverage.
If an insurer lapses a life insurance policy and if the insured believes this was improper, it is important to take immediate action. The first step is to contact the insurer to confirm that the policy has indeed lapsed and is not currently in a grace period. If the policy has indeed been lapsed, then the insured should inform the insurer of the impropriety of the policy lapse, and request that it reinstate the policy. Where a policy has lapsed for nonpayment of premiums, the insurer may offer to reinstate upon receipt of the unpaid premiums. Typically, an insurer may condition such an offer on receipt of a new application, and it often will exclude coverage for losses between the lapse date and reinstatement date. An insurer may be estopped from refusing reinstatement where it retains premiums tendered with an application for reinstatement for an unreasonable amount of time. See Madirosian v. Lincoln Nat’l Life Ins. Co, 739 F.2d 474, 478 (9th Cir. 1984) (applying California Law).
Furthermore, should the insurer act as if the policy is still in force through misleading representations or conflicting notices for past due payments, then it may be deemed to have waived its right to cancel the policy. If the insurer attempts to exclude coverage for losses as a result of improper lapse, it is important to remind them of the circumstances that caused the lapse, and document the entire chain of events in a formal letter to the insurer. The insured should also contact his/her insurance agent/broker (if there is one) to determine why the policy lapsed and what can be done to reinstate it. It may be possible to force the insurer to take responsibility for the agent’s actions if the agent acted negligently. If all else fails, the insured should consult with an experience life insurance attorney about exploring his/her legal rights further.