Life insurance agent convinces couple to turn in their old life insurance policies for new ones that results in denial of claim when husband suddenly dies.
At the urging of an life insurance salesman the Barrozos exhanged several old life insurance policies covering Mr. Barrozo for a single new policy from American General Insurance (AGI). Less than 2 years later Mr. Barrozo unexpectedly died. His wife’s claim for life insurance benefits to AGI was denied on the basis that Mr. Barrozo failed to disclose that he had been diagnosed with hypertension (high blood pressure) on his application for insurance.
Insurers are entitled to deny claims on the basis of a material misrepresentation in the application for life insurance coverage. However an insurer can only deny coverage on this basis during the first 2 years of coverage. If a claim is made after the first 2 years, even if there is a material misrepresentation of the insured’s health, the insurer must pay the claim.
If the Barrozos had not been talked into turning in their old policies for a new AGI policy, the claim for death benefits under the old policies would have been paid. The life insurance agent failed to advise the Barrozos of this danger of “twisting” policies. A life insurance agent’s commission is largely based on the first year premium, thus agents are motivated to sell new policies – not to service old policies. In this case the agent convinced the Barrozos to roll over the cash value of their old policies into the new AGI policy. That cash value (in this case tens of thousands of dollars) became a part of the first year premium and resulted in a huge commission for the agent.
Stennett & Casino filed suit against both the agent and AIG for their failure to provide appropriate advice and protect their client’s interests. Stennett & Casino were successful in obtaining the insurance benefits for their client.