NY Circular Letter Raises Some Questions and Concerns

NY State Circular Letter

I totally get that insurance companies shouldn’t be denying death claims only because they occurred within two years of policy date. But is there an issue here that deserves some positive attention, and not just rebuke?

The NYS Department of Financial Services issued its first Circular Letter of 2017 in January, warning insurers not to rescind policies when beneficiaries fail to provide medical records of the deceased. We understand that New York will not be allowing companies to require beneficiaries to provide someone else’s medical records. This makes sense.

But what’s a company to do these days when it suspects that the deceased misrepresented a material fact on a life insurance application?

Times have changed with respect to medical privacy since HIPPA went into effect 20 years ago. And the headlines about identity theft and the collecting of electronic information about individuals have put personal privacy on everyone’s radar. Justifiably, medical providers are more than a little wary of releasing records. I’ve had some trouble getting my own records, and my doctor actually knows me!

Insureds generally sign a release of medical records on a life insurance application. But we believe that it’s not clear to anyone that the release remains effective upon death. And in New York, the release only lasts for two years, so the release could expire during an investigation. When in doubt, medical providers will err on the side of “don’t release.” So it appears that the insurer does not have any clear way to view a deceased insured’s medical records.

In this circular letter, which directly addresses death claims and their investigation within the 2-year contestable period, we would have liked to see the Department offer some advice on what actions it recommends insurers can take to determine material misrepresentation. The letter somewhat felt like it was shining light on a situation where a very sick person can lie on an insurance application, and the insurer’s hands are tied to do much about it. Claims must be paid promptly and fairly, the letter reminded us, even when misrepresentation is suspected.

One tack could be that companies investigate every application and take every case to court when an insured dies within the contestable period; but that solution does not feel like it’s best for everyone involved.

So the question remains; what’s an insurer to do? Can you give us a hand, New York?