Emotions Set Aside: Widow Denied Husband’s Life Insurance Benefits For Failure to Report Change in Health After Application

The case of Yafei Huang v. Life Insurance Co. of North America, in the U.S. Court of Appeals for the Eighth Circuit dealt with the denial of life insurance benefits — and is a strong reminder to consumers to read the fine print.

On November 12, 2009, Ping Liu elected basic life insurance coverage from Life Insurance Company of North America (LINA) through his employers ERISA plan in the amount of his yearly salary. Liu also elected to get supplemental coverage in the amount of four times his yearly salary, which required Liu to complete a separate enrollment application form. At the bottom of the application the following language appeared, “(4) I must report any change in my health that happens before the insurance is effective.”

On December 14, 2009, Liu received a cancer diagnosis. On March 1, 2010, Liu’s insurance became effective. Liu never reported his cancer diagnosis to LINA and on April 23, 2010, Liu died. Liu’s spouse and beneficiary, Yafei Huang, requested payment under Liu’s policy. Huang received the basic life insurance benefits but, after investigation, was denied Liu’s supplemental benefits. This was the first time LINA received notice of Liu’s cancer diagnosis. In LINA’s rejection, it cited Liu’s failure to report his health changes prior to the policies effective date as their reason for denial.

To make the situation worse, Huang claimed that Liu had allowed another life insurance policy lapse based on a promise from a LINA employee that he had properly completed his application for supplemental benefits. However, Huang never identified when the statement was made or who made the statement.

Huang filed suit in the U.S. District Court for the Eastern District of Missouri in St. Louis. The court ruled against her, finding that LINA was within its rights to deny the supplemental benefits. Huang appealed to the Eight Circuit Court of Appeals.

Huang’s suit did not contest the fact that Liu failed to notify LINA of his cancer diagnosis. Huang instead claimed two main arguments: First, that LINA was precluded from relying on the application because LINA did not provide Liu with a copy of the application in violation of Missouri law. The court rejected this argument citing that the plain language of Missouri Revised Statutes § 376.697(3) creates an alternative duty to provide a copy of the application, not a duty, to the insured. Second, Huang contended that the representation to Liu that the application was filled out properly, causing Liu to let his other policy lapse, was a breach of fiduciary duty. Again, the court rejected this argument stating, “Here, the clarity and pedestrian nature of the written requirements, coupled with the uncertainty and vagueness surrounding the purported oral representation, establish that the district court was correct to deem any reliance on the oral representation unreasonable.”

Again, this case is a strong reminder to consumers to read the fine print. If an employee makes a statement that is contrary to the written instrument, it is prudent to follow the written instrument until it can be amended to properly reflect the oral representation.