An incontestability clause is a provision in a life or disability insurance policy that prevents the insurance company from canceling the policy based on misstatements in the policy application after the insurance has been in effect for a certain period of time, usually two years. Most states require the inclusion of such clauses in insurance policies. For example, Illinois has a statute entitled “Time Limit on Certain Defenses” (215 ILCS 5/357.3), that says the following:

(1) After 2 years from the date of issue of this policy no misstatements, except fraudulent misstatements, made by the applicant in the application for such policy shall be used to void the policy or to deny a claim for loss incurred or disability (as defined in the policy) commencing after the expiration of such 2 year period.”

(The foregoing policy provision shall not be so construed as to affect any legal requirement for avoidance of a policy or denial of a claim during such initial 2 year period, nor to limit the application of section 357.15 through section 357.19 in the event of misstatement with respect to age or occupation or other insurance.)

A policy which the insured has the right to continue in force subject to its terms by the timely payment of premium (1) until at least age 50 or, (2) in the case of a policy issued after age 44, for at least 5 years from its date of issue, may contain in lieu of the foregoing the following provisions (from which the clause in parentheses may be omitted at the company’s option) under the caption “INCONTESTABLE”:

“After this policy has been in force for a period of 2 years during the lifetime of the insured (excluding any period during which the insured is a person with a disability ), it shall become incontestable as to the statements contained in the application.”

(2) “No claim for loss incurred or disability (as defined in the policy) commencing after 2 years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or specific description effective on the date of loss had existed prior to the effective date of coverage of this policy.”

Relatedly, there is another Illinois statute (215 ILCS 5/154) that states:

No misrepresentation or false warranty made by the insured or in his behalf in the negotiation for a policy of insurance … shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor. No such misrepresentation or false warranty shall defeat or avoid the policy unless it shall have been made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company.

The Purpose Behind Incontestability Clauses

The purpose of incontestability clauses is to encourage insurance companies to underwrite policies prior to their issuance and not after a claim is submitted, and to prevent insurance companies from canceling coverage years after a policy issued. As the U.S. Court of Appeals for the Seventh Circuit explained in Equitable Life Assur. Soc. Of the U.S. v. Bell, 27 F.3d 1274, 1279 (7th Cir. 1994), the effect of an incontestability claims “is to preclude the insurer from attempting to rescind the policy after the requisite contestability period has expired on the ground that the insured made misrepresentations in the application.”

Examples Involving the Incontestability Clause

That does not mean insureds should lie on their applications for insurance and hope that if they lie low for two years, their coverage is guaranteed. Even after the incontestability period expires, a fraudulent misstatement could still result in the insurance being canceled. For a statement to be viewed as fraudulent, though, it must be a false statement made with the intent to deceive. Thus, someone who is diagnosed with a serious illness the day before applying for life or disability insurance who omits that information from an application is likely to end up having their insurance canceled if a claim is submitted and the insurer was not made aware of the diagnosis. On the other hand, a forgotten minor issue would likely not constitute grounds for rescission once two years have passed following the issuance of the policy. In most instances, though, the question of whether there was an intent to deceive is a fact question to be resolved by a jury or a judge sitting without a jury after hearing all the evidence on that issue. Our law firm recently won a ruling on precisely that issue – Standard Ins. Co. v. Vanlanduit, 2021 U.S. Dist. LEXIS 141202, 2021 WL 3209687 (N.D. Ill. July 29, 2021) (William Reynolds of DeBofsky Law represented the insured).

Another example is employer sponsored life insurance – failing to enroll upon the commencement of employment or adding additional coverage usually requires the submission of an “evidence of insurability” form showing the insured is in good health. It is not unheard of, though, for there to be a failure to request the submission of such a form. If the ensuing coverage has remained in effect for more than two years, the denial of eligibility may be precluded by the incontestability provision in the life insurance policy.

One important consideration is that a misrepresentation or omission does not have to be material to the basis of the claim. Someone who omits a history of cigarette smoking on an application and is subsequently murdered may have no coverage since the insurance company either would not have issued the policy or would have issued a different policy had it known of the omission.

Concluding Thoughts

Incontestability clauses serve an important purpose. They protect individuals who buy insurance from an unjustified claim denial and cancelation of their policy years after the insurance coverage has been purchased. Such provisions also give insureds peace of mind that once their coverage has been in effect for more than two years, an inadvertent misstatement or omission on their policy application cannot be used to defeat coverage unless the insurance company can prove the error was deliberate and made with the intent to deceive.

Anyone who is facing a challenge to their insurance coverage after the policy has been in effect for two years or longer should immediately seek legal assistance from an attorney experienced in addressing issues relating to incontestability of coverage.

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