Fight for your rights after an insurance claim denial

By Tony Poland, LegalMatters Staff • Trauma-informed disability and insurance lawyer Leanne Goldstein says an insurance claim denial can be stressful. And your anxiety level is sure to rise even more if you have been accused of misrepresentation or fraud. 

However, she says an unfounded assertion of material misrepresentation is more common than many may believe – especially with mortgage disability and mortgage life insurance – and it should not dissuade you from pursuing your claim. 

“People are reluctant to fight for their rights when it comes to dealing with a claim that has been denied on the basis of misrepresentation. They may believe that their insurance company is accusing them of fraud,” says Goldstein, founder and senior lawyer at Leanne Goldstein Law Professional Corporation. “They back away because they are worried about how disputing the finding will affect them and some may be concerned that there could be criminal consequences, which can create a reluctance to dispute the denial of their claim,” she tells LegalMattersCanada.ca. “But I constantly remind potential clients that just because an insurance company suggests that they have done something improper, does not mean that they necessarily have.”

False statements can void an insurance policy

Misrepresentations are false or misleading statements that can nullify or void an insurance contract or policy, Goldstein says, adding they can take several forms: a fraudulent misrepresentation, a negligent misrepresentation or an innocent misrepresentation. Even making an innocent misrepresentation when applying for insurance can potentially lead to a denial of coverage, she says. 

Mortgage disability and mortgage life insurance products allow the policyholder to pay off their mortgage in the event of disability or death. However, as Goldstein explains, these policies technically benefit the financial institution holding the mortgage.

 “The insurance protects the bank or mortgagor in the event you cannot pay your mortgage due to disability or death. While you are the one paying the premiums,” she says, “the payout goes to the financial institution.”

Goldstein says the insurance is likely to be attractive to new homeowners who may not have much experience dealing with such matters and are encouraged to purchase this coverage by bank employees. 

One of the biggest problems she sees with mortgage disability and mortgage life insurance claims is the application process, she says. Typically, when someone applies for a personal life insurance or personal disability policy, they can expect a more thorough underwriting process with insurers who are engaged in the process of assessing risk, Goldstein says.

The goal of insurance underwriting is risk management

Based on the answers provided to certain pre-set questions, insurance underwriters decide on appropriate coverage levels and the requisite premiums, says Goldstein. The goal of insurance underwriting is essentially risk management – taking into consideration the probability of an event occurring and the consequences that would follow, she says. 

There is a duty on applicants for insurance to make a true and full representation of all facts that are material to the insurance risk, Goldstein says.

“You typically need to complete a medical questionnaire and may even be required to undergo a medical examination as part of the underwriting process,” she says. “With individual insurance, there may also be an opportunity for you to engage an insurance broker who is usually well-trained in completing applications and who fully understands what you may need to disclose.”

However, with a mortgage insurance application, it is likely to be a bank employee who oversees the application process” says Goldstein. 

“More often than not, these bank employees are not qualified, regulated insurance brokers,” she explains. “To be fair, most do not really have the requisite training to ensure that applications are completed properly. Many times, they may not even know the extent of disclosure obligations.”

“In some cases, they may not even engage with the applicants,” she adds. “I have had cases where a bank employee simply gives the individual the application to complete and does not provide any form of guidance.”

To be material to the insurance risk, a fact must be one which, if fully and truthfully disclosed, “would have influenced a reasonable insurer to decline the risk or set a higher premium to take on the risk,” Goldstein explains.

‘The test of materiality is objective’

“The test of materiality is objective and it is considered in the context of a reasonable insurer,” she says.

It is not uncommon for people to be approved for insurance and find out years later when they submit a claim that they have been denied on the basis of misrepresentation, says Goldstein.

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“This is largely because they may have failed to disclose something in their medical history or they had a pre-existing condition that they failed to mention,” she says. “However, because they were asked vague questions at the time of the application, they may not have realized that something in their past medical history was relevant or required disclosure.”

Insurer scours records for pre-existing conditions

Goldstein says unlike a personal life insurance or disability policy, where underwriting takes place at the time insurance is placed, the underwriting in a mortgage insurance policy is more often conducted after a claim is made. Once a claim is submitted the insurer requests medical records and scours them for pre-existing conditions that were not disclosed,” she says. 

“Because they had little guidance in the application process, it is logical to assume people might unintentionally forget to mention something or think something is unimportant, not realizing it could be material in the future,” Goldstein says. “By keeping the questions about medical conditions vague, it also opens the door for the insurance company to claim misrepresentation at a later stage.”

For example, a person with sleep apnea could be asked if they have a respiratory condition she says.

“That person may assume they just have a problem sleeping and say no to a respiratory condition,” Goldstein says. “But later the insurer could deny a claim on the grounds of a material misrepresentation. The vagueness of the questions asked in the application allows the insurer to be overly inclusive of multiple medical conditions.”

She says it is important to remember that when a claim is denied an insurance company “may try to make it seem like your claim has no merit.”

“They might find a number of alleged misrepresentations and set them out in a letter that suggests the case against you is overwhelming and that you are never going to be successful in your claim,” Goldstein says.

No reason to give up

However, despite a person’s trepidation about challenging an insurance company following a denial based on an allegation of misinterpretation, she says there is no reason to give up. 

“An insurance company is never going to capitulate immediately and you may have to litigate,” says Goldstein. “A lawyer can attack ambiguities in the application wording as well as materiality and despite the allegations of fraud by the insurance company, it is difficult for insurers to prove fraud in these cases.

“There are many things that have to be established to prove a fraudulent misrepresentation,” she adds. “Usually, we would retain an underwriting expert to give us an opinion on whether the information the insurance company is relying on is material and whether or not a reasonable insurer would have declined the risk when considering the application.”

In the end, Goldstein says people should not be intimidated into abandoning a legitimate insurance claim. 

“It is always worthwhile to seek an assessment of the merits of the claim,” she says.