Life Insurance Claims in North Carolina

This Article addresses life insurance claims in North Carolina, and some issues that frequently arise in these claims, including whether the death is accidental, and whether the insured made a misrepresentation in the policy application. Life insurance claims in North Carolina are governed by the policy itself, state statutes, and sometimes federal ERISA laws.

Many people choose to purchase life insurance to protect their family, or even their business, in the event of their death. Life insurance policies are often purchased by the person whose life is insured (the "insured"), or by a family member or the "beneficiary" of the policy, and is sometimes provided as a benefit by an employer. Upon the death of the insured, several types of insurance coverage disputes can arise.

One such dispute litigated in North Carolina is whether the insured died by "accidental" means. Some policies require that the death be accidental in order for benefits to be payable. Some of these cases involve multiple causes of a death. In one North Carolina case, for example, the insured, while driving a car, departed the roadway and entered a body of water, and died as a result of a coronary occlusion. The court held that even though the death was caused in part by the accident, it was also caused by an existing disease, and coverage was denied.

One defense that insurance companies often raise is that the insured made misrepresentations in applying for the policy. Under North Carolina law, such a misrepresentation will result in a loss of coverage if it is intentional and material. The representation is material if it affected whether the policy would be issued, and even if it affected the premium charged. Pursuant to North Carolina statute, once two years have elapsed after the policy was issued; the policy becomes "incontestable," meaning that the insurer can no longer disavow the policy on the basis of misrepresentations in the application. Insurance applications often have questions about, for example, prior heart problems, diabetes, lung disorders, smoking, DUI convictions and driving history, and any history of cancer in the family.

Even if the insured fails to disclose a medical problem, where the medical problem is disclosed in records provided to the insurer, and the insurer accepts the premium, the courts in North Carolina can rule that the insurer has waived its right to enforce a "good health" provision. In some cases, the beneficiary argues that the insurance agent (and not the insured) made the error in the application; in some cases, the court rules that the insured nevertheless had a duty to read his or her policy, and that the insured cannot avoid the effect of the misrepresentation where a review of the policy would have revealed the error in the application. In other cases, courts in North Carolina have held that the insurer knew of the misrepresentation at the time the policy was issued, and therefore cannot rely on the misrepresentation to deny coverage.

Many policies contain other exclusions, such as death caused by the use of certain medications and drugs, when not used under the supervision of a physician. North Carolina has a statute stating, "An accident and health insurer shall not be liable for any loss sustained or contracted in consequence of the insured's being intoxicated or under the influence of any narcotic unless administered on the advice of a physician." N.C. Gen. Stat. 58-51-16. Suicide is also generally excluded. In many cases, it can be difficult to determine whether the death was intentionally self-inflicted, and these often must be resolved by the jury in North Carolina; in some cases there is a presumption that the death was accidental.

Many policies issued by employers in North Carolina are governed by a federal law called ERISA (Employment Retirement Income Security Act). This has a few ramifications. One is that under these policies, the plan "administrator" has some leeway in interpreting the policy, and a court will not disturb this interpretation unless it is an abuse of discretion. Cases from the Fourth Circuit Court of Appeals, which govern ERISA cases in North Carolina, hold that in making this determination, the court will consider whether the plan administrator has a conflict of interest in interpreting the policy. Lawsuits over ERISA policies can be filed in (and removed to) federal court. In these claims, the beneficiary should obtain the summary plan description (SPD) in addition to the policy itself, as the SPD might confer additional coverage.

Life insurance claims raise many complex issues under North Carolina law. A proper analysis of the validity of such a claim requires a thorough analysis of the policy application, the policy provisions, and the applicable statutes, as well as the application of ERISA laws in some instances.

ABOUT THE AUTHOR: John M. Kirby, JD
John Kirby practices civil litigation in North Carolina, including insurance claims. John Kirby has represented insurance companies, as well as insureds in claims against insurance companies. He has litigated insurance cases in state and federal court in North Carolina, including cases before the North Carolina Supreme Court.

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