A life insurance agent wrote a $25,000 life insurance policy on a nine-month-old infant. In applying for coverage, the parents responded “No” to the following question:
Has any person proposed for insurance consulted or been seen by a physician, psychiatrist or medically licensed practitioner in the last five years, or has any such person ever been declined for life insurance or offered a policy with an extra premium charge?
Three months into the policy, the infant passed away. Upon investigation of the claim, the insurer discovered that the child had been confirmed as having a terminal condition within days of the application being submitted for coverage. The parents had been advised of the probability of their child’s condition on February 22, and received test results confirming the diagnosis on March 3. They then applied for life insurance on the child on March 8. When the claim was tendered later that year, the life insurer denied the claim due to the material misrepresentation on the application.
The parents filed suit against both the life insurer and the agent. They alleged that the agent gave them negligent advice as to how to complete the life insurance application. The life insurance company was under no obligation to defend the agent as the applicant was not an acceptable risk and the agent’s E&O insurer defended the claim.