Academic journal article Journal of Risk and Insurance

Life Insurance Incontestable despite Fraud by Insured Who Applied Knowing He Was HIV-Positive and Used Impostor for Physical Exam

Academic journal article Journal of Risk and Insurance

Life Insurance Incontestable despite Fraud by Insured Who Applied Knowing He Was HIV-Positive and Used Impostor for Physical Exam

Article excerpt

Amex Life Assur. Co. v. Superior Court, 14 Cal. 4th 1231, 930 P. 2d 1264, 60 Cal. Rptr. 2d 898 (California Supreme Court, Feb. 24, 1997).

Jose Morales "knew he was HIV (human immunodeficiency virus) positive when he applied for life insurance. He lied on the application form and sent an imposter to take the mandatory medical examination." Despite this almost classic example of defrauding an insurer, the California Supreme Court ruled that Morales's beneficiary was entitled to collect the policy proceeds. More than two years elapsed from the issuance of the policy and the insured's death and the policy contained a two-year incontestability clause. According to the Court, California law treats incontestability clauses as being in the nature of a "statute of repose", forever extinguishing the insurer's opportunity to rescind coverage on grounds of fraud or any other available defense within the time prior to the vesting of incontestability. Furthermore, the Court found that the truth about the imposter was "long available" to the insurer and could have been discovered and used well before the two-year period expired.

The Court rejected an imposter defense urged by the insurer. The Court distinguished cases where such a defense had been recognized based on differing facts or law. For states treating incontestability as a statute of repose, the common thread appears to be that the insurer must have issued a policy to someone who is not the named insured rather than merely having issued the policy to the named insured on the basis of fraud. …

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