Incontestibility In Life Insurance Policies

People with life insurance policies in Fort Worth, Dallas, Grand Prairie, Arlington, Hurst, Euless, Bedford, Lake Worth, Benbrook, Burleson, and other places in Texas may wonder if the life insurance company can contest their life insurance after purchasing it. Here is some guidance on this issue.
The Texas Insurance Code addresses incontestibility clauses in atleast two separate places in the insurance code. The first one is in Sections 705.101 and 705.105. Of these five statutes, four deal generally with this issue, while 705.104 is more direct. It says:
“A defense based on a mispresentation in the application for, or in obtaining, a life insurance policy on the life of a person in or residing in this state is not valid or unenforceable in a suit brought on the policy on or after the second anniversary of the date of issuance of the policy if premiums due on the policy during the two years have been paid to and received by the insurer, unless:
(1) the insurer has notified the insured of the insurer’s intention to rescind the policy because of the misrepresentation; or (2) it is shown at the trial that the misrepresentation was;
(A) material to the risk; and (B) intentionally made.”
The next place the incontestibility clause is addressed in the Texas Insurance Code is Section 1131.104. It says:
“A group life insurance policy must provide that:
(1) the validity of the policy may not be contested, except for nonpayment of premiums, after the policy has been in force for two years after its date of issue; and (2) a statement made by any insured under the policy relating to the insured’s insurability may not be used in contesting the validity of the insurance with respect to which the statement was made after the insurance has been in force before the contest for a period of two years from its date of issue during the insured’s lifetime and unless the statement is contained in a written instrument signed by the insured making the statement.”
The statutes above require that incontestability clause be in life insurance policies.
The purpose of an incontestability clause is to protect the insured from a contest as to the validity of the policy after the set period has expired. This was made clear in the 1972, Texas Supreme Court case, The Minnesota Mutual Life Insurance Company v. Ethel C. Morse. In this case, The Minnesota Mutual Life Insurance Company contested the amount of money to be paid a beneficiary and whether or not the two years had elapsed. This case was a loss for the beneficiary but its importance to other beneficiaries was it’s holding that the incontestibility clause is valid.
Another important point of the law in incontestability cases was stated by the Texas Appeals Court — Houston [14th Dist.], in 1982. The style of this case is Parchman v. United Liberty Life Insurance Company. What the case stands for is the proposition that a life insurance company may not place a more onerous incontestability clause in the policy than the one prescribed by statute, although it may be shorter than that prescribed.
In Parchman, the policy date in question was October 10, 1977, and the effective date was either July 20, 1977, or August 6, 1977, depending on whether a medical examination was required and completed. Using the policy date (October 10) as the date that the clause began to run provided for a longer period than using the effective date (July 20 or August 6). Thus, the policy’s incontestable clause was more onerous than the one prescribed by statute, so the statute prevailed, and the policy date in the incontestability clause was construed to mean the effective date. In this case, the two-year period began running on the earlier effective date rather than on the later policy date.
As always, when someone finds themselves in the position where their claims for policy benefits are being denied, they should consult with an experienced Insurance Law Attorney. That is the only sure way of knowing that your lack of legal knowledge in this area of the law is not being taken advantage of in an unfair way.