"Material misrepresentation" as the basis for rescinding life insurance coverage
The Los Angeles Times recently published an article regarding the increasing practice of life insurance companies to cite misrepresentations in applications as a basis to cancel or "rescind" coverage after the insured dies. According to the Times, the amount of money life insurers withheld from beneficiaries more than doubled over the last decade, to $372 million in 2009:
"Insurers can dispute claims for a number of legitimate reasons — unpaid premiums, suicide, foul play by the beneficiary. But the No. 1 reason, accounting for about two thirds of disputes last year, is "material misrepresentation." That's failing to disclose information that insurers deem important in assessing risk, and it allows insurers to rescind coverage altogether. To stop abuses by insurers, most states long ago banned limitless rescissions, but in California and elsewhere, they are allowed during the two years immediately after a policy is signed. Experts and consumer advocates say some insurers have turned that into a "gotcha period," seizing on flaws after claims are made that they could have looked for before issuing coverage."
Texas, like California, allows a life insurer to rescind coverage within two years of the policy issuance. Texas law does provide increased protection for policyholders by requiring the insurance company to prove that the applicant intended to deceive the insurance company when providing the allegedly false and/or incomplete information during the application process. Texas Life Insurance Dispute Lawyers