A recent case before the Third Circuit Court of Appeal addressed the materiality of an inaccurate statement on an insurance application. The insurance company sought to deny issuing the policy proceeds to the beneficiary, but the court analyzed whether the information, had it been accurately provided, would have led the insurer to deny coverage or issue coverage at a higher rate. Louisiana law applies this standard to determine whether recovery is precluded under the policy. William and Michael Burley, brothers, obtained reciprocal life insurance policies with the other named as the owner and the beneficiary of the policy. About five months after the policy became effective, William died from a heart attack. Michael Burley filed a claim for payment of the proceeds from the policy. New York Life, the insurance company, sent a letter indicating there had been an inaccurate response to a question on William’s application. While William had marked “no” regarding whether he had been treated or diagnosed for drug and alcohol use, New York Life contended that the medical records indicated the answer should have been yes. They sent a check to Michael in the amount of insurance premiums paid on the policy. Michael did not deposit the check and filed suit against New York Life, seeking the life insurance proceeds as well as penalties and attorney fees under Louisiana law for alleged bad faith handling of the claim.
An owner of a life insurance policy has the right to name a beneficiary, an individual who will receive the proceeds from the policy in the event of the insured’s death. Generally, the owner may name anyone as the beneficiary. However, a principle sometimes referred to as the “Slayer’s Rule” prevents a beneficiary from recovering the proceeds of a life insurance policy when he or she is involved in the murder of the insured. A recent case before a Louisiana District Court made clear that it is a conviction of the murder of the insured that triggers forfeiture. Under federal common law and Louisiana state law, an individual is prohibited from receiving funds from an insurance plan if that person is convicted in the death of an insured. The facts of this case involve the death of an insured, Mr. Scott, who was killed by a lethal stab wound to his chest. Mr. Scott was survived by his widow, Mrs. Scott, and by his son, Mr. McMasters. Mr. Scott had a life insurance policy, including accidental death and dismemberment coverage, and it totaled $482,000.