Incontestability Clauses In Life Insurance Policies

One of the issues confronted by life insurance lawyers deals with situations where the life insurance company is claiming misrepresentation in the policy application and as a result of the misrepresentation, coverage is denied.  A 1972 opinion from the Texas Supreme Court is language and law that life insurance lawyers need to know and understand.  The case is styled, The Minnesota Mutual Life Insurance Company v. Ethel C. Morse, Executrix et al.

This case was tried under an agreed statement of facts by which it was agreed that James K. Morse was neither able to perform, nor expected to resume, the usual duties of his livelihood at any time after October 29, 1962.  However, it has been held that Minnesota Mutual is liable to the extent of the deposits and loans made subsequent to the original issuance of these policies because the incontestability clauses in those policies bar the company from raising the disability defense.

The incontestability clause in policy no. 4666–W states: ‘This policy shall be incontestable two years from its date of issue.’ Policy no. 4666–G provides: ‘The validity of the policy shall not be contested, except for nonpayment of premiums, after it has been in force for two years from its date of issue . . ..’ All premiums, computed on the increased balances, have been paid on these policies up to the date of Morse’s death.  Both policies had been in effect for more than two years when he died in 1967.  Petitioner did not contest coverage of the deceased prior to his death.

The purpose of incontestability clauses in insurance policies and the statutes that require them is to protect the insured from a contest as to the validity of the policy after the expiration of the set period.  The incontestability clause should not be applied to change the meaning of the terms of the policy or to enlarge its coverage.

This court then discussed the applicable provisions in the policy at issue in this case and made its’ ruling.

The relevant statutes in the Texas Insurance Code are Section 1131.104 and Sections 705.101 – 705.105.  The effect of these sections is to limit the defenses life insurance companies may assert during the first and second years.