Why Life Insurance Claims Get Denied - Conversion, Beneficiary Designation, and Policy Cancellation Issues

Life insurance claims can get denied for a number of reasons.  In Ohio, some of the most litigated reasons why life insurance claims get denied include (a) failure to properly convert the life insurance policy from employer provided to individual; (b) disputes over who is the proper beneficiary; (c) improper notification by the insurance company of termination or cancellation of the policy; or (d) disputes about the amount that is properly payable under the life insurance policy.

The law firm of Harris & Engler is located in Columbus, Ohio, and its attorneys help individuals who are listed as beneficiaries of life insurance policies fight for their right to the insurance proceeds.  Many people initially sign up for life insurance policies through their employer.  These life insurance policies are governed by a federal law known as the Employee Retirement Income Security Act of 1974 (ERISA).  For these life insurance policies, if something goes wrong and the beneficiary of the policy needs to go to court in order to force the insurance company to pay out the insurance proceeds, then the beneficiary has to take the insurance company to federal court.  For almost all other life insurance policies that were purchased individually, then those policies are governed under state law.  The attorneys at Harris & Engler only practice in Ohio, and accordingly, can only help those individuals who live in Ohio or where the insurance company that denied the proceeds is located in Ohio.  You can talk to an attorney at Harris & Engler about your life insurance claim by calling (614) 610-9988.

Failure to Properly Convert Life Insurance Policy

Most individuals originally sign up for life insurance through an employee benefit plan provided by their employer.  If that individual ever gets fired, retires, or changes jobs from the original employer with whom they signed up for the policy, then they have a certain period of time to convert the policy from a group life insurance policy to an individual policy.  In Ohio district courts, one of the most popular reasons why life insurance proceeds are denied to the beneficiary is where the insurance company claims that the individual did not convert their policy to be an individual policy within the applicable time limits after they left their place of employment.  

Because the application of law is different depending on whether the life insurance policy was provided as part of an employee benefit plan (where the federal ERISA law applies) or whether it is an individual life insurance plan (where state law applies), it is actually more advantageous to have state law apply and accordingly convert the policy to an individual policy.  This is because ERISA is notoriously favorable to insurance companies and it usually applies an Arbitrary and Capricious standard of review where the Court will simply look at whether the insurance company made an arbitrary or capricious decision in denying life insurance benefits.  Only if it was an arbitrary or capricious decision on the part of the insurance company will the Court be able to award the beneficiary the life insurance proceeds.  Under Ohio state law, the application of the law is much more favorable to individuals than under the federal law.  Under Ohio law, the courts will simply look to the insurance policy itself and look at what has been done and then award life insurance proceeds appropriately.  

Disputes Over the Proper Beneficiary for Life Insurance Proceeds

Lawsuits will also be filed against insurance companies for failure to properly pay over life insurance proceeds when there is a dispute about who is the proper beneficiary.  These cases often involve the case of the policy holder switching over the beneficiary at the last minute and failing to notify the previous beneficiary.  In case of a last minute change of beneficiary, sometimes the previous beneficiary will file a lawsuit against the insurance company in order to seek a declaratory judgment that they are the proper beneficiary.  A last minute change of beneficiary can be especially suspect if the beneficiary was changed from the policy holder's child or spouse to, for example, a caretaker who was providing medical care for the individual at the end of their life.  

Another reason there may be a dispute over the proper beneficiary is if the policyholder gets a divorce and remarries but never changed the beneficiary in their life insurance policy.  Usually in these types of cases where it is clear that either one person or the other is the proper beneficiary, then once a lawsuit is filed the insurance company will pay over the life insurance proceeds and deposit them with the Court and then let the Judge decide who the proper beneficiary is.

Improper Notication of Termination or Cancellation of Policy

Improper Notification that the life insurance policy is being terminated is similarly tied to failure to properly convert the policy from an employer provided group policy to an individual policy.  As a practical matter, if an individual is working, and then gets sick and has to take off work and uses whatever disability benefits are available, eventually if they are unable to return to work then they will get terminated from their employment.  Leaving employment is a trigger point for having to convert the life insurance policy to an individual policy.  If someone is sick and has been unable to work for some time, then having money to pay the premium is usually an issue.  However, if the insurance company never properly provided notice that the life insurance policy was going to be cancelled or terminated, or notice that the individual had the right to convert the policy, then that individual may still have a right to those life insurance benefits.  One of the fundamental obligations of a life insurance policy administrator is to provide notice about potential cancellation of the policy and obligations with regard to conversion of the policy.  See Vasu v. Am. United Life Ins. Co. (N.D. Ohio, 2017).  

Disputes Over the Proper Amount Owed Pursuant to a Life Insurance Policy

Another common reason lawsuits are filed against insurance companies for payment of life insurance benefits is because of a disagreement between the beneficiary and the life insurance company over the proper amount that is owed to the beneficiary.  In Brown v. United of Omaha Life Ins. Co. (S.D. Ohio, 2015), an individual signed up for life insurance with Omaha Life Insurance Company for an amount that was 3x their annual salary.  The individual went on to work at the company for a long time, and their salary increased many times of the years.  At some point, unfortunately, the individual died.  The insurance company offered to pay 3x their annual salarly at the time they signed up for the policy.  The beneficiaries argued that they were entitled to 3x the policy holder's annual salary at their time of death.  Ultimately, an insurance company has financial incentives to try to pay as little as possible on life insurance claims under the circumstances.  It is helpful for beneficiaries of a life insurance policy to have an experienced ERISA life insurance attorney look over the policy and determine what they should properly be paid.

Ohio Life Insurance Attorneys

If you are the beneficiary of a life insurance policy and you are having a dispute with the insurance company, then call an attorney at Harris & Engler who is experienced in both ERISA cases and in the state law application to life insurance policies.  You can talk to a life insurance dispute attorney today by calling (614) 610-9988.