Trust and Estate Counsel

Tennessee Estate Planning Law

Insight and commentary on estate planning issues impacting affluent residents of Tennessee

Widow Collects $1.9 Million From $1 Million Life Insurance Policy

In Kristen Cox Morrison v. Paul Allen et al, the Tennessee Supreme Court allowed a widow to collect $1.9 million on a $1 million life insurance policy. Shortly before his death, the husband applied for a $1 million American General life insurance policy. The agent who filled out the application checked “No” for the question asking whether the applicant had a driving violation within the previous 5 years. In fact, the applicant had been arrested for DUI.

After the decedent’s death, the widow applied for payment of the $1 million life insurance benefit. American General denied the claim due to the incorrect answer on the life insurance application. The widow then sued American General and the life insurance agents who assisted with obtaining the policy. Subsequently, the widow settled with American General and received $900,000.

The widow continued her suit against the agents and was awarded $1 million from the agents due to their failure to procure the policy that had been requested by the applicant. The agents were unsuccessful in their effort to get a credit against their damages for the amount paid to the widow by American General pursuant to the settlement. Even though the husband signed an incorrect application, the court decided that he was not accountable since the agents filled out the application.

The widow actually collected significantly more from the policy than she would have collected if the application had been filled out correctly! Apparently, the court decided that the agents needed to be punished for their sloppiness in filling out the life insurance application.

One lesson to be learned from this case is to be careful about switching from an existing life insurance policy to a new policy. As a general rule, there is a 2 year contestability period for new policies. Therefore, you should consider maintaining the old policy for 2 years to make sure that the new policy cannot be contested.

Another lesson is for both the agent and the applicant to make sure that all of the questions on the life insurance application are answered correctly. An incorrect answer may constitute grounds for the insurance company to deny benefits. Furthermore, the agent can be held accountable for failing to procure an incontestable policy.

A final lesson concerns sympathetic plaintiffs. American General was smart enough to realize that their attempt to deny benefits to a widow would probably not be well received in a trial. They settled for 90% of the claim despite an admittedly fraudulent application which gave them a sound legal reason for denying the claim. The agents took their chances against the widow and paid the price.