Chad Jude replaced a $ 500,000 life insurance policy with $ 1.5 million insurance but explained incorrect facts to the insurer that allowed them to effectively cancel the $ 1.5 million insurance policy. However, his property claimed that the insurance that was replaced required the insurer to pay the limits of the original insurance regardless of Judah's agreement to cancel this insurance.
I American General Life Insurance Co. v. Estate Of Chad Jude et al ., No. 19-5950, United States Court of Appeals for the Sixth Circuit (August 21, 2020) applied Sixth Circuit Kentucky law proving that even a valid revocation can be dangerous to a insurance companies due to regulations and statutes restricting its rights in the state of Kentucky.
Chad Jude was not entirely forthright about his state of health when he received major life insurance to replace his existing insurance from the American General Insurance Company (American General). Mr. Jude's health changed between the time he applied for the new life insurance policy in August 201
Mr. Jude signed the application on August 4, 4015. On the same day, Mr. Jude also issued a "Notice of Exchange", acknowledging that the new life insurance policy was intended to replace the 2014 insurance.
Eleven days later, on August 15, 2015, Jude had a magnetic resonance imaging (MRI) scan and was diagnosed with Chiari I malformation, a condition in which the brain extends into the spinal cord. Mr. Jude then consulted a physician on August 20, who referred Mr. Jude to neurosurgery because of his neurological symptoms.
Sixteen days later, the American general sent a letter to Jude requesting that he replace his life insurance policy. the termination of the 2014 policy.
On September 4, 2015, US General Mr. Jude issued the new $ 1.5 million compensation policy (2015 policy). Ten days later, on September 14, 2015, Mr. Jude a second MRI, which confirmed his Chiari I malformation diagnosis. On September 21, Mr. Jude signed a “PAA (Policy Acceptance and Change of Application) form that was part of the 2015 policy. Although Jude had consulted several physicians, Jude represented that there have been no changes since the application date in his health or in any other condition.
A US general insurance company, Laura Stout, conducted a routine investigation. of Mr Jude's medical records. The investigation revealed that Judas' response to his application was incorrect and incomplete. On March 30, 2017, the US general therefore sent a letter to Jude seeking to revoke Judah's 2015 policy and invalidate the coverage because the company's insurance department would not have issued this policy if it had been aware of Judah's medical history. and diagnosis.
Mr. Jude refused to sign the voluntary revocation agreement. Mr Jude died on December 30, 2017 and Jude did not claim death benefits to the US general, the US general in August 2018 reintroduced the 2014 policy and paid Mrs Jude $ 533,424.21, which included $ 500,000 in death benefits from 2014 insurance plus interest but minus the repayment premiums was needed to reintroduce the policy for 2014.
The court concluded that the third condition – that there had been no change in Mr Jude's health that would change the answers to all questions in the application before the insurance was delivered and approved and before the entire first premium had been paid out – was a condition precedent. the formation was not fulfilled and therefore no insurance was formed. The Court therefore granted a summary judgment to the US General and ruled that the 2015 policy was invalid from the outset .
The court held that there was no real question of substantive fact that the US General would not have issued the 2015 policy had the application been truthful. Thus, the 2015 policy was invalid ab initio .
The court rejected the Jews' claim that the US general violated Kentucky's life insurance compensation statute by repealing the 2015 policy.
Kentucky Law states that: (2) No reimbursable insurer may issue any life insurance or annuity contract in a reimbursement transaction to reimburse an existing life insurance or annuity, unless the reimbursing insurer agrees in writing with the insured that: (a) the new life insurance policy or annuity contract issued by the reimbursing insurance company will not be questionable by it in the event of the death of such an insured to any greater extent than the existing life insurance policy or the annuity contract could have been contested by the existing insurer, this paragraph shall not apply to the insurance amount written and issued in excess of the existing life insurance amount. Ky. Reef. State. Ann. § 304.12-030 (2).
The district court ruled that there was no "new life insurance" to question so that the charter did not apply. Furthermore, the court concluded that even though the U.S. general had violated the life insurance compensation charter, the issue was difficult for Jude to receive the 2014 policy benefits when the U.S. general sent her a $ 533,424.41 check. .
Despite the US General's initial repeal of the entire 2015 Compensation Policy, failing to provide Jude with the necessary eligibility credit for the replaced 2014 policy for a significant period of time would violate Kentucky's life insurance policies and may therefore violate the Kentucky Charter prohibiting unfair competition and unfair competition. practice.
US General Contest on $ 1.5 Million Replacement in 2015 and Subsequent Payment of $ 500,000 2014 Insurance Amount After a Significant Delay, Rather Than Revoking Only 2015 Reimbursement Policy Up to the Replaced 2014 Insurance Value from the Beginning, Kentucky Life Insurance Compensation Ordinance Breached . Although in some circumstances this can only be a formal separation, it can be significant when, as in this case, there is a significant delay.
The US General was only allowed to repeal $ 1 million of Jewish policy in 2015 based on Mr. Judah's essential misrepresentations under this ordinance. The behavior of the American general led the Jews to worry that they would not receive anything from the American general, since Jude had terminated the 2014 policy when he received the 2015 policy. So the American general's efforts to repeal and annul the policy for 2015, the Jews seemed to leave them with no life insurance coverage at all.
The Sixth Circuit concluded that the district court erred in granting the U.S. general a summary judgment because it did not violate the ordinance. Therefore, an arrest was required to determine whether the judges can recover damages for damage suffered by this violation. To do this, the judges must show that a breach of the Regulation constituted a breach of the Insurance Code, and that Ky. Reef. State. Ann. § 446.070 provides for damages for such an infringement. If so, the Jews will probably have to show that the ordinance so introduced protects against the damage they claim.
When the US General learned of Judas' death, it eventually (albeit late) reintroduced the 2014 policy and paid Mrs. Jude benefits under that policy. Furthermore, the US general did not act unreasonably or ruthlessly disregard attempts to repeal the 2015 policy and have it declared invalid. The district court's ruling in favor of the U.S. general shows that the company did not act in bad faith – even though its actions ultimately violated the Kentucky Compensation Life Insurance Ordinance – as this shows that there was room for reasonable disagreement about the correct outcome of the disputed legal issues. in this case.
For the reasons mentioned above, the Sixth Circuit partially upheld and partially reversed and referred the case to the district court for further proceedings in accordance with the opinion to determine whether they are entitled to damages for late payment under the 2014 Jude policy claim. on had been completed.
Revocation is a fair remedy. The court's decision must therefore be fair and reasonable. Some states, such as Kentucky, have statutes and regulations that restrict the insurer's right to cancel an insurance policy. There is no doubt that Jude tried to cheat his insurance company and that fraud failed. If this case had occurred in a different state, the results could have been different. If the charter allows damages for late payment, the court will award it. If not, the court will not do so. Every insurer should learn from this case that before canceling the insurance, the insurer should consult with an experienced insurance protection lawyer to protect them from the type of error that can cost them a suit like this and the possibility of further damages for properly canceling an insurance policy but not follows the state statutes by letter.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to employment as an insurance consultant specializing in insurance coverage, handling insurance claims, fraud and insurance fraud almost equally for insurers and policyholders . He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and attorney management attorney and more than 52 years in the insurance industry. He is available at http://www.zalma.com and firstname.lastname@example.org.
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