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September 29, 2010 at 08:00 PM
The incident
A term life insurance policy was written on a healthy, young male who, several years after purchasing the initial policy, wanted to increase the death benefit from $250,000 to $500,000. The window of time granted by the carrier to increase the death benefit had passed. In accordance with the company underwriting guidelines, the requested limits increase would mean a new policy with re-underwriting and a new two-year contestability period.
Shortly after increasing the death benefit on the policy, the policyholder committed suicide. In accordance with the contestability period, the insurance carrier rescinded the policy and returned all premiums paid.
The claim
The wife and beneficiary on the policy alleged that their life agent failed to advise them that a new 2-year contestability period would apply when the new policy with higher limit was written. She further alleged that had they been notified of this, they would have kept the original $250,000 policy in force. Damages were set at $250,000.
The outcome
Although liability on behalf of the agent may have been questionable, this was a sympathetic case involving a young widow with children as the plaintiff. The agent was found liable, and his E&O carrier paid a total of $287,655 ($250,000 in damages plus expenses of $37,655). The agent was responsible for his deductible of $2,500.
