A bereaved widow puts her husband to rest. She has spent all of their savings in his medical care. Their business is lost without him and her home has been foreclosed. She thinks all is not lost; after all, she is the beneficiary of her husband’s life insurance policy. She contacts the insurance company. Instead of payment, she gets a denial letter from the company. These facts are from a real case. Does Mrs. Jane Doe have any relief?
Life Insurance companies can be subject to treble damages or punitive damages for making misrepresentations to a consumer and inducing her into forfeiting her insurance. State laws commonly known as unfair and deceptive trade practices (UDAP) laws provide this kind of consumer protection. For example, in North Carolina see N.C. Gen. Stat. § 75-1.1, § 58-63-15(I); in Maryland see Maryland Code Insurance § 27-102, Commercial Law §13-301.
For example, an insurance company first deposits a premium payment and then issues a refund check days after the husband’s death. The company also denies death benefits. In these circumstances, the insurance company can be liable under UDAP laws – for engaging in misrepresentations to the insured for the purpose of inducing the policy holder to lapse of forfeit the insurance policy. Insurance companies can independently ascertain a death of an individual quite easily. These companies have access to the Death Master File, a national database published by US Department of Commerce that lists every death registered in the United States. Insurance companies cannot use such knowledge to deceive a consumer.
Insurance companies also cannot automatically terminate an insurance policy for late payments. These companies have highly structured procedures by which they process payments, provide reminder letters, and notices for lateness. After conducting discovery, Mrs. Doe found that insurance company cannot explain processing delays and inconsistencies in her case. Such conduct may be deceptive under UDAP laws. Even when the insured fails to make payment, an insurance company must provide opportunity for the insured to reinstate the policy. In the lawsuit, Mrs. Doe discovered that the insurance company did not provide timely notice for reinstating the life insurance policy. Mrs. Doe can use UDAP laws to enforce her rights.
UDAP laws provide leverage to the consumer. A state UDAP law raises the financial stake for an insurance company for unfair denials of insurance coverage. Mrs. Doe, the consumer, if she prevails in court she not only gets her insurance benefit to which she was entitled but she may also get treble damages, or punitive damages, and attorney fees and costs for having to hire an attorney and file suit in the court.