If An Insured Accepts What They Get, They've Got It

By:  David A. Barfield

Allegations of Insured:

The insured applied for a life insurance policy with a disability income rider. She sought thirty (30) months of disability income payments in her application. Approximately three years later, the insured applied for disability income benefits and was advised that her policy did not have a disability income rider. As a result of the denial of coverage, the insured filed a lawsuit against the insurer.

Facts Giving Rise to the Litigation:

In this case, the plaintiff, with the help of her insurance agent, submitted an application for a life insurance policy with a disability income rider. The carrier’s disability rider provides either income for a set number of months and/or a waiver of life insurance premiums. The plaintiff applied for thirty (30) months of disability income. The carrier approved her application for the life insurance policy, but did not approve the plaintiff for monthly disability income. Instead, the disability attached to the plaintiff’s policy provided for a waiver of further premium payments in the event she became disabled.

During the underwriting process, a medical report showed the plaintiff had been prescribed a certain type of medicine. On her supplemental application for disability income, she denied that she had ever been treated for such a condition. This was false. The supplemental application provided that an applicant that had been treated for that type of condition was ineligible for monthly disability income. The policy was delivered to the agent who noted that it did not provide disability income. The agent then emailed the carrier that same day asking to make changes to her policy to add a disability income rider. Four days later, an underwriter responded that the insured was not eligible for an income disability rider. The agent never replied to the underwriter and no other changes were made to the insured’s policy.

The carrier had also mailed the plaintiff a copy of her policy, which she received. She looked over the policy, but claimed she did not read it completely. She did review the policy coverage limit of $50,000.00 and the premiums the carrier was charging for the life insurance policy and a premium for the disability benefits rider. As stated previously, the disability benefits rider waived future premium payment if she became disabled, but did not provide monthly income. The plaintiff made no attempt to reject the policy or return it. Approximately three years later, the plaintiff alleged that she had become disabled. She then filed a claim for monthly disability income. Her claim was denied. Suit was filed against the carrier, who in turn, filed a claim against the agent for indemnification. The agent admitted that she had asked the carrier about changing the policy and adding a monthly disability income rider. The agent also admitted that the carrier had informed her that while her policy could be changed, it was not eligible for a disability income rider. However, the agent admits that she never conveyed that information to the plaintiff.

Plaintiff claims that when she received her policy, she assumed that because she had applied for monthly disability income, that the carrier had approved her application, but she admitted she could not find these benefits in her policy.

The carrier moved for summary judgment because there was no provision for disability income benefits and no premium had been paid for same. Despite all of this, the trial court found that whether or not her policy included disability income benefits was a fact for the jury to decide. The carrier petitioned the Mississippi Supreme Court for an interlocutory appeal, which it granted.

What Happened?

This year, the Mississippi Supreme Court held that plaintiff’s life insurance policy does not provide monthly disability income benefits. The Court also noted that the plaintiff has an affirmative duty to read an insurance policy and is charged with the knowledge of the terms and conditions of the policy, regardless of whether or not they actually read the policy. The Court found that it was obvious that the carrier had delivered a policy to the plaintiff that had a premium waiver rider instead of the disability income rider. The Court noted that an application for insurance is not a contract, but rather is an offer to contract. The insurer may accept or reject the application or may state the terms on which it will offer insurance. When an insurer issues a policy that varies from the application, it is a counter-offer, which the applicant may either accept or reject. The insurer sent plaintiff a policy without the requested disability income rider. She had the policy in her possession and an affirmative duty to read it. She did not reject or return the policy. Instead, she made payments for approximately three years. The Court held that the plaintiff had accepted the carrier’s counter-offer.

As it relates to the agent, the Court noted that it has consistently held that insureds who possess a policy that contradicts an agent’s representations, cannot rely on the agent’s representations to create coverage, when none exists. Even if it is assumed that the agent misrepresented the plaintiff’s policy would contain a disability income rider, the plaintiff is bound by the actual policy she accepted and entered into, one which did not contain a disability income rider.

Lessons Learned:

  • Create proof or evidence that the insured was delivered an entire copy of their policy. I am astounded at how many times claims are made, in this day and time, where there is no proof of delivery of a policy. Many times, proof of policy delivery can be the best defense to an errors and omissions claim that an insurance agent can have, for the reasons explained in this case. In most cases, when an insured has an uncovered loss, they are going to claim that they wanted some other type of coverage that would have provided coverage for their loss. If we can show that they had a copy of the policy, the law imposes on them a duty to read it and to be charged with the knowledge of the terms and conditions. If the claim is clearly excluded, then there should be no valid claim against the agent.

  • For best practices, in a case such as this, the agent should have definitely contacted the insured and documented the discussion about the disability income rider issue.

The names of all parties and all case citations have been omitted to preserve anonymity of the parties.