Interpreting An Incontestability Clause

Most people would agree that reading legal papers can be confusing.  As it relates to life insurance policies the law in favor of the insured.  This is illustrated in the Houston [14th Dist.] Court of Appeals opinion, Parchman v. United Liberty Life Insurance Co., a 1982 opinion.

The Parchman case stands for the proposition that an incontestability clause cannot be more onerous than the clause that is prescribed by the Insurance Code, Section 1131.104 and 705.104.  These statutes do not specify whether the policy date or the effective date is considered its date; this creates an ambiguity that must be construed against the insurer.  And an insurer may not place a more onerous incontestability clause in the policy than the one prescribed by statute, although in may provide a shorter period than that prescribed.

In the Parchman case, the policy date in question was October 10, 1977, and the effective date was either July 20, 1977, or August 6, 1977, depending on whether a medical examination was required and completed.  Using the policy date of October 10 as the date that the clause began to run provided for a longer period than using the effective date of July 20 or August 6.  Thus, the policy’s incontestability clause was more onerous than the one prescribed by statute, so the statute prevailed, and the policy date in the incontestability clause was construed to mean the effective date.  In the case, the two year period began running on the earlier effective date rather than on the later policy date.

There are many other issues surrounding contestability provisions and the reasons for the policy being contested.  This is why a person must consult an experienced Insurance Law Attorney whenever a claim for benefits is denied by the insurer.