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When Disabled Policyholder Files a Claim for Benefits, Berkshire Tries to Rescind His Policy

Disability Claim Denials, Filing Disability Claims

The District of Connecticut case of Thal v. Berkshire Life Insurance Company is an example of a common tactic disability insurance companies may use to try and get out of paying a legitimate claim for total disability benefits: rescinding the policy.

Stanley Thal bought a Berkshire insurance policy in March 1992.  Four years later, Mr. Thal suffered a stroke that made him unable to continue running his insurance brokerage business.  He filed a claim for total disability benefits with Berkshire.  But rather than holding up its end of the insurance contract, Berkshire informed Mr. Thal that it was rescinding his policy altogether.  According to Berkshire, Thal supposedly misrepresented his annual income and existing disability insurance coverage in his original policy application.

What Berkshire ignored was the “incontestability clause” contained in Mr. Thal’s policy.  That clause, which is contained in most disability insurance policies, stated: “this policy will be incontestable except for non-payment of premiums after it has been in force for a period of two years from the date of issue.”  Essentially, after two years, Berkshire was not allowed to “contest” (i.e., try to rescind or take back) Mr. Thal’s policy for any reason other than Mr. Thal’s failure to pay the premiums.

 As the District of Connecticut Court explained,

Incontestability clauses are “enforced with particularity by the courts because … [they are designed] to put a checkmate upon litigation; to prevent, after the lapse of a certain period of time, an expensive resort to the courts-expensive both from the point of view of the litigants and that of the citizens of the state.” …. Thus, if an insurer fails to investigate an insured’s application for insurance, it waives its right to contest the policy even where there is fraud.

The Court found that in Mr. Thal’s case, “the two-year contestability period provided Berkshire more than enough time to ascertain the truth of the representations made by Thal and to take any necessary action to protect its rights.”  The Court found that since Berkshire failed to discover Mr. Thal’s alleged “fraud” within this two-year period, Berkshire could not rescind his policy.

How can disability insurance policyholders avoid being the subject of actions like these? The first, most important step is to always be truthful on disability insurance applications. Then, if your disability insurer attempts to rescind your policy later on based on an alleged misrepresentation, examine your policy for an incontestability clause. Ordinarily, if the time period outlined in that clause has already passed, the insurer can’t rescind your policy. Of course, if you have questions about rescission or an incontestability clause, you should consult with a disability insurance lawyer.

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