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New York state tightens life contestability period rules

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Insurers in New York state should not count on life policy beneficiaries sending them the dead insureds’ medical records, even during a policy contestability period.

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Officials at the New York State Department of Financial Services make that point in a new circular letter about life insurance policy claim settlement practices.

Life insurance regulations typically give insurers much more freedom than usual to reject a life insurance death claim, based on evidence that the policy purchaser may have lied or left out important information, during the first two years after a new policy takes effect.

New York regulators say in the new circular letter that at least one insurer that sells life policies with low benefit levels seems to have added a new procedure for reviewing a claim submitted during a life policy contestability period. That insurer has asked many or all of the beneficiaries to provide the dead insureds’ medical records, to show that the insureds gave complete, accurate information about their health when applying for coverage.

An insurer may be able to ask the beneficiaries to get the medical records if there is some evidence of material misrepresentation, state officials say in the circular letter.

But, if no such evidence exists, and an insurer asks a beneficiary to provide the insured’s medical records, the state will view that as a sign that the insurer is not trying to “effectuate prompt, fair and equitable settlements of claims in good faith,” officials say. “Such activity also may be an unfair or deceptive act.”

Even if an insurer is investigating possible evidence of fraud, “the insurer must make prompt payment on a claim where there is no proof of an actual misrepresentation or that such misrepresentation is material,” officials say. “The failure or inability of a beneficiary to supply medical records is not proof of a material misrepresentation.”

One reason not to let insurers routinely require the beneficiaries to provide the insureds’ medical records is that the beneficiaries might not have any legal standing to get the records, officials say.

In other cases, officials say, the beneficiaries might be able to get the medical records but might not want to do so.

“In both scenarios, a beneficiary has no legal obligation to cooperate with an insurer by providing the insurer with the deceased insured’s medical records,” officials say.

Officials say a 1981 state court ruling supports the idea that the beneficiary has no obligation to provide the deceased insured’s medical records.


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