Another Corporate Rip Off—Life Insurance Companies
By Lisa Girion and Sandra Poindexter
Los Angeles Times
Published: December 4, 2010 09:31PM
American General Life Insurance Co. markets its policies as protection for “the hopes and dreams of American families” — a promise Ian Weissberger took to heart during his losing battle with Lou Gehrig’s disease.
But after the Cathedral City, Calif., mortgage broker died in 2005, American General canceled his life insurance policy and refused to pay his widow the $250,000 benefit — a practice that is becoming more common.
The Weissbergers’ premiums were paid up. There was no foul play suspected. There was no question Sheila Weissberger was the widow and sole beneficiary. And Ian’s illness was diagnosed months after he took out the policy.
Corporate America is full of cheaters. This is just one in a long list of them. The CEOs of these insurance companies that fraudulently deny payment to legitimate beneficiaries should be in jail. This is happening in both life insurance and health insurance companies.
We are vigorously prosecuting every petty thief we can find in America and the corporate law breakers go Scot free. The biggest bank robbers are sitting at the executive seats inside the banks, and the burglar alarms are designed to catch those that might break a window and grab a few desperate bucks and run.
Corporate America has bought the American legal system. It’s dominating our election system and writing the laws to protect its own chicanery.
Of course, these insurance companies are pikers compared to our Wall Street investment banks, and the managers of the biggest banks in America. Incidentally, the same damn guys are still running the same damn banks. They have no shame, and the American system protects the inner circle of criminals.
The problem, the insurer told Sheila Weissberger, was that Ian’s application for coverage was incomplete. American General concluded that he had failed to disclose conditions, including bipolar disorder and pulmonary disease, that, according to his doctors, he did not have.
Sheila Weissberger sued, contending American General had acted in bad faith. Unable to afford payments on the couple’s home, she movedinto a $400-a-month room. Distraught, she quit her sales job and began caring for elderly people to make ends meet.
For the company, which collected $2.3 billion in premiums last year, the amount at issue was minute. But it was no small matter for Sheila, 62, who reached a confidential financial settlement with American General earlier this year.
“I lost my house. I lost everything,” she said in an interview. “It was very, very devastating.”
—
Rescinding coverage • More often than not, life insurers make good on policies, paying $38 billion in death benefits on individual policies last year. But what happened to Sheila Weissberger was not unusual. The claims of thousands of beneficiaries are denied or disputed every year — more than 5,000 last year alone — many for allegedly flawed applications, a Los Angeles Times review found.
Overall, the amount of money life insurers withheld from beneficiaries has more than doubled over the past decade, to $372 million last year, even as policy sales went down, according to an analysis of data compiled by the National Association of Insurance Commissioners.
Insurers can dispute claims for a number of legitimate reasons — unpaid premiums, suicide, foul play by the beneficiary. But the No. 1 reason, accounting for about two-thirds of disputes last year, is “material misrepresentation.” That’s failing to disclose information that insurers deem important in assessing risk, and it allows insurers to rescind coverage altogether.
To stop abuses by insurers, most states long ago banned limitless rescissions, but in California and elsewhere, they are allowed during the two years immediately after a policy is signed.
Experts and consumer advocates say some insurers have turned that into a “gotcha period,” seizing on flaws after claims are made that they could have looked for before issuing coverage.
“Regulators need to come down hard on companies that are rushing applications through in order to gain premium income without taking time to screen the risks, then using rescission to control payouts and increase profits,” said Amy Bach, an adviser to National Association of Insurance Commissioners and executive director of United Policyholders, a nonprofit consumer group.
Industry representatives say the power to rescind policies and withhold benefits is essential and fair. Accurate information is “crucial to the agreement and to the actuarially sound pricing of the product,” said Steven Brostoff, a spokesman for the trade group the American Council of Life Insurers.
Yet some companies deny benefits far more than others.
American General, which ranks 11th in national market share, withheld more money than any other life insurer — $36 million — in disputes of 79 individual death claims in 2009, including several rescissions.
The company, a Houston-based subsidiary of American International Group Inc., declined to comment on the Weissberger case. In a statement, the insurer said its record should be considered in light of its size and that it follows “the standard that has been California law for more than 100 years.”
In contrast, Minnesota Life Insurance Co., another large insurer with $2 billion in annual sales, reported no disputes last year and no rescissions for three years on individual death claims.
“A life insurance policy is a promise to pay, and we at Minnesota Life are focused on keeping our promises,” said Craig Frisvold, a vice president at parent company Securian Financial Group.
—
Contestability period • Bang Lin, a 37-year-old Irvine, Calif., business owner, died in 2006 of stomach cancer, leaving a wife and two school-age children.
Had Lin died three weeks later, the two-year “contestability” period would have been over. His family would have collected $1 million.
Instead, Metropolitan Life, the nation’s largest life insurance company with $8.6 billion in annual sales, rescinded the policy, alleging misrepresentation.
The issue was not the cancer; that had been diagnosed 15 months after he took out the policy. Rather, the company alleged Lin had failed to mention in his application that he had been successfully treated years before for hepatitis B, a condition unrelated to his death.
Jean Lin sued. She said the agent had filled out the application, not her husband, and that she never asked about hepatitis. In any case, Jean Lin said the information was in her husband’s medical records and the firm could easily have ordered a hepatitis B test.
A federal judge in New York, where the company is based, ruled last year that it didn’t matter why the information was missing. The application submitted was false, so the company had a right to rescind. Lin’s lawyer, Eric Dinnocenzo, has filed an appeal.
Though it declined to discuss the case, Metropolitan Life issued a statement saying it had disputed about 0.05 percent of the total number of claims filed in the last five years because of misrepresentation. Last year, the Times found, the company withheld $13.3 million overall in 82 disputes.
The case could take years to resolve. In the meantime, Jean Lin has closed the family business, sold her home and moved her teenage son and daughter into a condominium.
“I thought we had very good protection,” she said. “I didn’t expect that they would refuse to pay.”
© 2010 The Salt Lake Tribu