Strategies, Challenges, and Answers

Investigating Death During A Life Policy’s Contestability Period Is Not Bad Faith

The story goes that bForeclosureack in the 19th century, some life insurance companies were not fond of paying claims.  Apparently, after the insured died, life insurance companies would regularly investigate and if a misstatement was found in the application, would then deny the claims.  According to Steven Rothschild of the LIFE Foundation, the various states responded by passing incontestability statutes.  Absent outright fraud, or failure to pay premiums, these incontestability statutes limited the amount of time in which a company could reach back and contest coverage. 

As applied to life insurance policies, Nevada has an “incontestability statute”.  NRS 688A.080 provides that:

NRS 688A.080  Incontestability.  There shall be a provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of not more than 2 years after its date of issue, except for nonpayment of premiums, and, at the insurer’s option, provisions relating to benefits in the event of total and permanent disability and provisions granting additional benefits specifically against death by accident or accidental means.

In 2009, Ronald Downs bought a special form of life insurance called mortgage payment protection insurance.  If Mr. Downs were to die, the insurance company would make the next 12 monthly mortgage payments.  Mr. Down passed away during the two-year contestability period.

Mrs. Downs made a claim to Minnesota Life, the insurance underwriter.  Minnesota Life asked Mrs. Downs to send along a copy of the death certificate, to fill out a questionnaire regarding Mr. Downs’ health and to provide an authorization to obtain Mr. Downs’ medical records.

Because Mr. Downs died within two years of buying the policy, the company decided to conduct an investigation.  The company ordered some of Mr. Downs’ medical records and spoke with his doctor.  Four months later, when the investigation was complete, the insurance company decided that it was appropriate to pay the claim.  Minnesota Life sent along a check for the four months mortgage that it had yet to pay.  It then went on to pay the remaining eight mortgage payments.

However, during the delay, Mrs. Downs was not making her mortgage payments.  The bank began foreclosure action against the property. Mrs. Downs file suit against the bank and the insurance company.  The Complaint alleged Emotional Distress, Breach of the Implied Covenant of Good Faith and Fair Dealing, Unfair Claims Settlement Practices, Negligence and Unjust Enrichment to name a few.  Downs v. River City Group, LLC, 3:11-cv-00885 LRH-WGC (D. Nev. Order August 22, 2013).

The insurance company filed a Motion for Summary Judgment.  It argued that it had every right to conduct a reasonable investigation because the death had happened during the contestability period.  One by one, the court considered and granted Summary Judgment in favor of the insurance company and against Mrs. Downs and her causes of action.

The court determined that a four month investigation during the contestability period was not outrageous.  Therefore, there was no emotional distress claim.  The proper application of the contestability clause in the insurance policy saved the company from the breach of contract claim.  The court acknowledged that insurance companies owe a duty of good faith and fair dealing.  However, the four month delay prior to paying all benefits did not constitute a breach of that duty.  Looking at the Unfair Claims Settlement Practices Act, NRS 686A.310, the court found that where the claim was timely processed, there were no violations.  The court also said that the timeliness of the investigation prevented a negligence claim as well.  Finally, the court rejected an unjust enrichment claim stating that such a claim cannot exist where there is an express written contact.

Mike at Mills & Associates would be glad to speak with you about the reasonableness of your company’s investigation following a death during the contestability period.  Please contact him at 702-240-6060×114.


  1. As a life insurance professional with 30+ years experience, and as an expert who has handled many cases involving the issue of material misrepresentation, the description of the generally accepted practices of life insurers by Mr. Mill is accurate. It is a generally accepted practice of life insurers to investigate all claims arising during the 2-year contestability period for evidence of material misrepresentation.

  2. Timoga Willie says

    May I refer you the case of my sister who bought a life insurance under Kaiser International last January 2014. She work as a nurse at UAE. She was well and healthy. She came home for vacation in the Philippines last April 2014. On November 2014, she was admitted in a hospital due to difficulty of breathing and was diagnosed of pericardial effusion. She recovered but at the end of December 2014 she was diagnosed of lung cancer and died on February 2015.
    We received a letter from the insurance company that death claims are denied due to contestability period and a substitute of the insured shall continue to pay premiums. I was wondering what was being contested by the company. I find no fraud or misrepresentation in the application.
    I sent a letter of reconsideration and requested settlement of the claims but was denied due to contestability period.
    Can you please enlighten me regarding this matter. Can the insurance company turn down our claim without due process of proving what is being contested? It seemed there was outright rejection of claim even if the disease was not preexisting nor does it belong to exclusions . Moreover, the insurance is telling us to provide substitute of the insured and continue to pay premiums. This premium should be waived as stated in the policy.
    I would be glad to hear from you.