Life Insurance Lawyer And Incontestability Clause

Dallas life insurance attorneys need to know about the incontestability clause in life insurance contracts.
What most people don’t know is that life insurance policies must contain an incontestability clause. This is a paragraph that says the policy will be incontestable after it has been in force during the lifetime of the insured for two years from its date, except for nonpayment of premiums. This is found in a few places in the Texas Insurance Code. Sections 1131.104, and 705.101 through 705.105. The effect of these clauses is to limit the various defenses that insurance companies will write into their policies so that they apply only during the first and second years of the policy. Insurance is a risk and without these laws regulating the policies, the insurance companies would write the policies in such a manner as to take out all the risk for them and leave their customer with only the illusion of insurance coverage.
The purpose of the incontestability clause in protecting the insured is further discussed in the 1972, Texas Supreme Court case, Minnesota Mutual Life Insurance Company v. Morse.
The statutes cited above do not specify whether the policy date or the effective date is considered its date. This creates an ambiguity that may be construed against the insurance company. And an insurance company may not place a more onerous incontestability clause in the policy than the one prescribed by statute. This means it cannot make an incontestability period of five years, or three years, or even two years and a day. It is limited to two years. But the insurance company can provide for a shorter period of incontestability.
An example can be found in the 1982, Houston Court of Appeals [14th Dist.] case, Parchman v. United Liberty Life Insurance Company. In this case, 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 of October 10 as the date that the clause began to run provided for a longer period than using the effective dates of July 20 or August 6. Thus, the policies incontestability 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.
This case would serve as yet another example for why a person should never accept the insurance company’s claimed reason for denying a claim. An experienced Insurance Law Attorney has to be consulted to make sure that what the insurance company is doing is fair and legal.