The United States Court of Appeals for the Ninth Circuit in Salyers v. Metropolitan Life Insurance Company, ___ F.3d ___, No. 15-56371 (9th Cir. September 20, 2017) recently rejected an attempt by MetLife to avoid paying a $250,000 death benefit to a widow who had purchased $250,000 in life insurance coverage on her husband prior to his death. In what has recently become an increasingly common scenario, Susan Salyers purchased $250,000 in life insurance on her husband Gary Wolk through a MetLife plan offered by her employer and timely paid all of her premiums on the policy, but MetLife refused to pay the full amount of the death benefit after discovering that Ms. Salyers had not provided the required “evidence of insurability” when purchasing the insurance coverage.
According to the fine print in the MetLife policy, Ms. Salyers was required to submit “evidence of insurability” (proof that her husband was in good health) before any life insurance coverage greater than $50,000 would take effect. However, Ms. Salyers had originally applied for only $30,000 in coverage, and through a clerical error, her employer enrolled her in a policy providing $500,000 in coverage, for which she paid the full premium amounts to MetLife via payroll deductions. At the next open enrollment period, Ms. Salyers elected $250,000 in coverage for her husband, but no one ever told her that she needed to provide “evidence of insurability” in order to obtain this coverage. Nonetheless, MetLife happily accepted her premium payments while never insisting on “evidence of insurability.” Two weeks later, Ms. Salyers’ husband died.
After the death of her husband, Ms. Salyers submitted a claim to MetLife for the life insurance that she had purchased, but MetLife refused to pay the $250,000 benefit, insisting that she had failed to meet the terms of the policy by not submitting “evidence of insurability.” This was the first time Ms. Salyers had ever heard about a requirement for “evidence of insurability.” Neither the employer nor MetLife had notified Ms. Salyers that she needed to complete further paperwork to be eligible for the life insurance coverage. After MetLife denied the claim, Ms. Salyers sued Met Life, asserting that by accepting her premium payments in the amounts requested for the $250,000 coverage and failing to request evidence of insurability, it was bound to pay the $250,000 death benefit. At trial, judgment was entered in favor of MetLife, and Ms. Salyers appealed to the Ninth Circuit.
Generally, an insurer who accepts premium payments despite having knowledge that the insured did not qualify for the insurance policy waives its rights to deny coverage based on the prior failure to satisfy the policy requirements. However, MetLife argued that since it was the employer’s responsibility to collect evidence of insurability, MetLife had not waived its right to deny coverage. On appeal, the Ninth Circuit held that Ms. Salyers’ employer was acting as an agent for MetLife, and that because MetLife voluntarily delegated the responsibility of obtaining evidence of insurability to the employer, it could not escape liability for the full $250,000 death benefit based on the employer’s failure to collect evidence of insurability from Ms. Salyers.
In short, the Ninth Circuit’s opinion tells us that insurance companies cannot collect premium payments from their customers and later deny coverage for claims by arguing that the customers should not have been allowed to purchase the insurance policy in the first place – regardless of whether the policy was purchased directly from the insurer or through an employee benefits plan. If you have been denied life insurance benefits by an insurance company that accepted your premium payments, please contact the O’Ryan Law Firm so we can discuss a strategy for overcoming the denial of your claim.