BILL NUMBER: S3639

SPONSOR: BRESLIN
 
TITLE OF BILL:  An act to amend the insurance law, in relation to
representations by an insured

 
PURPOSE:

This bill would clarify that the beneficiary or anyone claiming a right
under a life insurance policy has a duty to cooperate with an insurer's
investigation of a death occurring during the two-year contestability
period.

 
SUMMARY OF PROVISIONS:

Section one would amend Section 3105 of the Insurance Law to address a
beneficiary or insured's obligation to assist the insurer in obtaining
the necessary information to determine whether a misrepresentation was
made by the applicant for insurance

Section two establishes the effective date.
              

 
JUSTIFICATION:

Section 3203 (a) (3) of the insurance law creates what is commonly
referred to as the "two year contestability period." This section, which
provides that a life insurance policy is incontestable by the insurer
after it has been in force for two years following its date of issue,
was created by the Legislature to ensure that insurers are able to
protect against the payment of fraudulent claims by fully investigating
claims that occur within the two year period following issuance of the
policy. When an insured's death occurs during the two year period
following the issuance of the policy, an insurer has the ability to
investigate the insured's death to ensure that the applicant did not
make any material misstatements on his or her application for life
insurance that led the insurer to issue a policy that they would not
have otherwise issued if the insured had not made the material misstate-
ment on the application. If the life insurer, as a result of the inves-
tigation of the claim, does not find evidence that there was any materi-
al misrepresentation made on the application, the insurer will pay the
claim in full. However, if the insurer finds evidence that the applicant
made a material misstatement on the application for life insuranc e the
insurer is permitted, under current law, to take legal steps to return
the premium paid to date and rescind the policy.

An insurer's ability to fully investigate a claim during the two year
period following issuance is a vital tool for insurers to detect fraud
and prevent the payment of fraudulent claims. Often as part of the
investigation to determine whether fraud has occurred, an insurer will
need to review the medical records of the deceased insured and will
request the beneficiary's assistance in obtaining information necessary
to complete the investigation. The Department of Financial Services,
however, in recent guidance, has stated that beneficiaries who are able
to provide access to the information necessary for an insurer to
complete an investigation, have no obligation to comply with the insur-
er's request. This proposal amends Section 3105 of the Insurance Law to
clarify that the beneficiary or anyone claiming a right under a life
insurance policy has a duty to cooperate with an insurer's investigation
of a death occurring during the two-year contestability period, and
would require these individuals to assist in obtaining information
related to an insurer's reasonable request for information, including a
request for medical records, to enable an insurer to appropriately
investigate a claim regarding a death occurring within the two-year
contestability period.

The ability to fully investigate a life insurance claim occurring within
the two years following the date of issuance is of particular importance
to life insurance companies who market and sell term life insurance
policies to the middle market. Some of these policies are traditionally
sold with limited medical underwriting, meaning that the insurer, in an
effort to offer lower premium rates and avoid barriers to purchase, does
not require full medical underwriting prior to issuance of the policy
(e.g., does not require a full medical exam, bloodwork, etc. prior to
issuance), but instead relies upon the truthfulness of an applicant's
disclosures on their application for life insurance. If a beneficiary is
able to refuse or block an insurer's reasonable request for information
necessary for the insurer to complete an investigation following an
insured's death during the two year contestability period, many carriers
may face the difficult decision of whether they are able to continue to
offer affordable and accessible products within the State.

 
LEGISLATIVE HISTORY:

S.8151 of 2017-18

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
This act shall take effect immediately.