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Failure To Pay $400,000 Life Insurance Policy

Deceptive Trade, Negligent Misrepresentation Claimed – $560,000 Mediated Settlement

May 22, 2000 Cite this Page: 13 N.C.L.W. 0281


Brief Statement of Claim: The widow and the administratrix of the deceased brought suit against a life insurance agent and agency for unfair and deceptive trade practices, breach of fiduciary duty, negligent misrepresentation and breach of contract.
Principal Injuries (in order of severity): Failure to pay $400,000 life insurance benefit
Special Damages: n/a
Tried or settled: Settled; mediation (part of resolution of case is confidential)
County where tried or settled: Yadkin
Case Name and number: Reba Spillman Mullis and Lillie Renee Mullis v. Mendenhall (98 CvS 390)
Date Concluded: Jan. 27, 2000
Name of Judge: n/a
Amount: $560,000
Insurance Carrier: Employers Reinsurance Corporation (errors and omissions)
Expert Witnesses and areas of expertise: n/a
Attorneys for plaintiffs: George F. Francisco of Francisco & Merritt, Mount Airy
Other Useful Info: According to the plaintiffs’ counsel, the defendant agent instructed the deceased to state in the application that he did not use tobacco products. The agent told the insured that this statement would not affect payment of the policy in any way other than the possibility that the death benefit would be reduced by the amount of the increased premiums he should have paid in the event it was determined he was a smoker.
The plaintiff was a smoker.
The plaintiffs also alleged that the agent stated that the deceased only needed to write down the date of back surgery in the application for insurance, sign medical release authorizations and the insurer would obtain the complete medical records. According to the plaintiffs’ counsel, the agent admitted that he knew that the insured had been to the doctor more than one date indicated for back surgery and that he considered the application complete without the inclusion of additional medical visits.
The insured died within the contestability period of the life insurance policy. The insurer did not obtain any of the insured’s medical records until after the insured died.
The insurer then denied payment of the policy because: (1) the insured was a smoker, and (2) the insured had numerous doctor visits in the five-year period before the application.
The insurer claimed that the policy would not have been issued to the insured had these facts been know to the insurer at the time of the application.
The contestability clause of the life insurance policy provided that, if contested, the policy would pay the amount of life insurance the premium paid would have purchased.
The premium paid by the decease would have purchased $215,000 of life insurance at standard rates, rather than $400,000 at the select rate received.
The plaintiffs claimed that the defendant agent committed an unfair and deceptive trade practice pursuant to G.S. Sect. 58-63-15 by misrepresenting the terms of the policy to be issued. Plaintiffs claimed that the insurer violated G.S. Sect. 58-63-15 by post-claim underwriting, i.e., contending that the insurer failed to perform any medical writing until after claims for payment were made by the deceased.
The plaintiffs contended that: (1) a misrepresentation in the terms of the policy to be issued was an unfair and deceptive trade practice as a matter of law, (2) the trial court would be required by law to treble the verdict, and (3) plaintiffs were entitled to attorneys’ fees.
The defendant agent/agency alleged plaintiffs’ unclean hands, contributory negligence and lack of proximate cause.
The plaintiffs filed a motion for summary judgment on all issues. The case settled two weeks before trial.

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