NY Gov. Cuomo Warns Life Insurers to Pay Beneficiaries Within Two-year Contestable Period
January 28, 2017 by Best's News Service
ALBANY, N.Y. – New York Gov. Andrew Cuomo has told life insurers to be prompt in paying beneficiaries even if the insured dies within two years of signing the insurance contract.
A guidance notice said Department of Financial Services investigations have uncovered some life insurers “have contested numerous life insurance claims following the death of the insured during the two-year contestable period, in the absence of actual evidence of misrepresentation, and improperly have shifted the burden of proof to beneficiaries.”
Under New York Insurance Law, an insurance company may contest a life insurance claim made during the “two-year contestable period” only if the insurer establishes there was a material misrepresentation on an application for life insurance to induce the insurer to issue the life insurance policy. Life insurers may not contest claims filed by beneficiaries within the two-year contestability period without actual evidence of misrepresentation, nor may they require beneficiaries to bear the burden of providing proof regarding an alleged misrepresentation simply because the covered policyholder dies within the two-year contestable period. If the insurer proves a material misrepresentation following an insured’s death, the insurer may obtain a rescission of the policy only in a court action or by agreement of all fully informed beneficiaries.
The DFS identified what Cuomo’s office called disturbing practices among some insurers in connection with small face-value life insurance policies that were marketed to low and middle-income consumers for expenses such as funerals and other final costs.
The Life Insurance Council of New York said the life industry is “deeply committed to ethical behavior and we share the governor’s desire to make sure New Yorkers who are owed payments receive them. More than 99% of all claims are paid in a timely fashion and in 2014 alone, the industry paid $32 billion to New Yorkers in the form of death benefits, matured endowments, policy dividends, surrender values and other payments.”
(By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)
