Imposter Fraud and Incontestability:
How Does Inconstestability Apply Under Missouri Law When the Person at the Life Insurance Physical Isn't Really the Insured?

David G. Newkirk¹

The joke is an old one. A man buys an expensive box of cigars, smokes them, and submits a claim to his insurance company for the cost. The cause of loss? “The property was destroyed in a series of small fires.” The insurer pays the claim, but successfully sues and recovers the full payment. The basis for the insurer’s recovery? “Arson.”

When a life insurance applicant uses an impostor to attend an insurance physical or to submit to medical testing, Missouri’s incontestability law could, in some cases, prevent the insurer from reaching such a logical answer. In a practice known as impostor fraud, a seriously ill applicant uses an impostor to take a physical examination during the application process. This scenario presents unique issues under Missouri’s incontestability statutes, and different issues for group and individual policies.

In other jurisdictions, a so-called “impostor exception” to incontestability has been litigated. Jurisdictions split on whether this exception is recognized. No recent Missouri court has been faced with the issue. Determination of what a Missouri court would, or should, do when faced with this question requires exploration of the basis for the impostor exception, and an analysis of guidance from older Missouri incontestability cases. It also requires an exploration of the balancing of two laudable public goods – the prevention of egregious and deliberate fraud, and the security of innocent beneficiaries from expensive and hyper-technical challenges to the validity of life policies. In the final analysis, legislative action may be required to achieve the right balance.

I. Background – What is Incontestability, and Why Does Missouri Have It?

Incontestability clauses generally operate to bar any action to void a life insurance policy after a stated time. The common view is that they arose due to abusive application of the laws of warranty and misrepresentation by early insurers. A turn of the century insurer might deny a life claim based on a minor, accidental and immaterial misrepresentation in the application. “All too often, instead of paying the beneficiary, [early insurers] resisted liability stubbornly on the basis of some misstatement made by the insured at the time of applying for the policy, as to which they had carefully refrained from comment until the insured had died.”2

One early case, Northwestern Mutual Life Insurance Company v. Johnson,3 states that the purpose behind the clauses is to provide certainty. “The object of the clause is plain and laudable – to create an absolute assurance of the benefit, as free as may be from any dispute of fact except the fact of death, and as soon as it reasonably can be done.”4 Due to resulting distrust by the public, some life insurers began to add them to policies as a marketing feature.5

However, the voluntary response was insufficient to prevent perceived abuses. As a result, incontestability was codified in the late nineteenth and early twentieth century. The resultant statutes either required specifically worded incontestability clauses in various life insurance lines, or created an independent statutory bar to contesting a policy. Either via mandated clause or statute, after the passage of a certain period of time, life insurance policies would become incontestable, except for non-payment of premium or other listed exceptions. This meant that the insurer could not, after the incontestability period, seek to rescind the policy or void it on the grounds of misrepresentation.

The earliest statutory incontestability in Missouri was mandated in 1899 for assessment plan and stipulated premium policies.6 Missouri’s incontestability laws have expanded into other life and health lines of insurance since 1899. Incontestability is now a required feature of individual accident and sickness policies7 and group life policies. A group life policy may not be sold in Missouri unless it contains:

A provision stating that the validity of the policy shall not be contested except for nonpayment of premiums and fraudulent misstatements made by the applicant in the application for such policy after the policy has been in force for two years from its date of issue, and that no statement made by any person insured under the policy relating to his insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force during such person’s lifetime for a period of two years prior to the contest unless it is contained in a written instrument signed by such person.8

Incontestability for individual policies is not required by statute. Rather, it is required in the Missouri Administrative Code, which provides that:

The policy, with the exception of any accidental death, waiver of premium or total disability benefits, shall be incontestable after it has been in force during the lifetime of the insured, for a period of two (2) years from the earlier of the policy date or the issue date, except in the event of nonpayment of premiums.9

The notable difference between the regulation and the group life statute is that the regulation does not contain fraudulent misstatement language.

Insurers protect against the potential for fraud that unqualified incontestability provisions inherently create by the practice of the insurance physical. But if the insured sends an impostor in his stead, the insurer may be defrauded as to the physical health of the applicant. If the fraud remains undetected under an individual policy for more than two years, is it now unassailable, protected by statute? In a group policy, where fraudulent misstatements can be contested after two years, are the impostor’s statements at the insurance physical made by the applicant, as required in the exception? Are they in the application for such policy? If the impostor merely supplies a blood or urine sample, is a statement made at all? Strict application of incontestability laws in such a case can create a result at seeming odds with public policy by requiring that the court turn a blind eye to the substitution. Further, both of these statutes were designed to protect the innocent insured – not a conspirator in a fraud scheme. Some states have therefore crafted judicial or statutory exceptions to incontestability to address this issue. We turn now to the impostor exception to incontestability, and to its status (if any) in Missouri.

II. The Impostor Defense

When courts have recognized the impostor defense, they rely on one of four rationales. First, an early line of cases holds that where an impostor applies for a policy and takes a physical, no contract is formed. The defect in contract formation has been variously stated as no meeting of the minds, or the lack of an insurable interest. A variant holds that a contract is formed, but with the impostor, who presumably is still alive. The second rationale judicially creates a narrow impostor exception to incontestability due to the serious and difficult to detect nature of the fraud. One recent case also recognizes a third possibility, equitable tolling of the incontestability period where the fraud was ongoing through multiple encounters. Finally, other courts have considered whether a tort action for fraud may be brought by the insurer to recover the incontestable policy proceeds, creating a result similar to that of our cigar-smoking arsonist.

A small number of commonly cited older cases articulate these rationales. The most commonly cited case holding that no contract is formed is Ludwinska v. John Hancock Mut. Life Ins. Co.10 In Ludwinska, the applicant for an industrial life policy represented herself to be her sister Victoria, who at the time was confined to an asylum. Bertha, the impostor, signed as her sister Victoria, and named their mother as beneficiary. Upon Victoria’s death, the insurer declined payment and suit was brought, urging that the policy was incontestable. After discussing basic contractual principles on the requirement of a meeting of the minds, the court rejected these claims:

The clause can rise no higher than the policy; the incontestable clause of itself cannot create the

contract. . . . Where one contracts with an individual face to face and intends to contract with the person before him, the contract, if any, is made with that particular person, regardless of what name he may assume for the transaction and regardless of whether the assumed name actually is the name of a living person with whom the other party was under the impression he was contracting. . . . The name affixed to the application does not govern unless the name identifies the human being it purports to. . . . Insurance companies do not insure names. They insure lives. The name Victoria was not insured. What is insured is the life of a person when the insurance is applied for in person, or by someone with the authority to do so.11

Under these facts, the court upheld the denial. However, the defense in Ludwinska is not as broad as some courts have later read it. The court went on to say that “[h]ad Victoria, of sound mind, signed or authorized Bertha to sign the application, and a policy had subsequently [been] issued to her, then the substitution of Bertha for Victoria in the medical examination would have been an affirmative defense to be proven by the company . . . just as false representations as to prior sickness or health.”12 The use of false representations as an affirmative defense is subject to the incontestability clause, and the equation of the substitution with false representations would seem to have led to a different result had Victoria been a participant in the scheme.

This issue of whether there was a meeting of the minds was also clearly articulated in Obartuch v. Security Mutual Life. Ins. Co.,13 where an impostor procured a policy without the knowledge of the insured. As to who would be insured, “there was no meeting of the minds — a fundamental requisite of all contracts — the policies as issued were void and the incontestable clause was without effect.”14 While Obartuch does involve the impostor completing the application and submitting to the medical examination, the court does appear to allow the substitution on its own as a defense. “[T]he incontestable clause in the policies in suit does not preclude the defense that the person examined by the defendant’s medical examiner was not Frank Obartuch.”15

Citing Ludwinska, another frequently cited case reached the same result. In Petaccio v. New York Life Ins. Co.,16 the Pennsylvania Supreme Court again upheld a denial where an impostor had both signed the application and taken the physical, this time clarifying that “there had never been any contract upon which the [incontestability] clause could operate.”17

Maslin v. Columbian Nat. Life Ins. Co.18 is frequently cited as a case allowing an impostor defense. The insurer in Maslin interposed two defenses – fraud in the application, and use of an impostor. The court held that the former defense was barred by incontestability. However, the court allowed the impostor defense. That defense “is not a contest of the policies within the meaning of the incontestability clause. The insurer does not by this defense dispute the validity of the policies issued by it. It says in effect that the man it insured under these policies was not the plaintiff’s son, Samuel Maslin.”19 As to who was insured, “[t]here cannot be the slightest doubt that the person whom an insurance company intends to make a contract with and intends to insure is the person who presents himself for the physical examination. . . . The defendant’s only contract was with the man who made the application and took the examination.”20 Again, note the use of the conjunctive here – the Maslin court did not address the situation of a substitution by a knowing insured.21

Strawbridge v. New York Life Ins. Co.22 is often cited in the Ludwinska line of cases, and also stands for the principle that in limited circumstances an action for fraud may be used to create a circle of indemnity, effectively denying recovery. In Strawbridge, the insured’s son-in-law was an agent for the insurer. The son-in-law submitted an inaccurate application omitting the insured’s significant coronary history, used an impostor at the examination, and named himself beneficiary. Ruling against a motion for summary judgment brought by the son-in-law, the court held that summary judgment was improper on two grounds. First, in the limited context of the insurer’s agent being the beneficiary and involved in the fraud, “the incontestability clause does not bar a suit for breach of fiduciary duty where the agent is also the beneficiary under the policy.”23 Second, if use of an impostor could be shown, the court agreed with the Maslin rationale.24 Interestingly, under the Maslin rationale, it is unclear whether the contract would be with the son who forged the application or the impostor who took the physical.

Some cases, relying on the difficult to detect and egregious nature of the fraud, do create a true impostor defense. In Fioretti v. Massachusetts Gen’l Life Ins. Co.,25 an HIV-positive applicant arranged for an HIV-negative impostor’s blood to be submitted for testing on two occasions. Six months after the incontestability period, the insured died, and the beneficiaries sought to collect more than $1.9 million. The court recognized the defense on two grounds. First, the court distinguished between life insurance and health insurance. In health insurance policies, fraud is permitted as a defense, largely because the health insurance policy involves multiple claims, and a living insured. In life policies, which involve a single claim and a deceased insured, the court held that it was “reasonable to bar garden-variety fraud.”26 “[T]he possibility of a garden-variety fraud defense being raised late-in-the-game would create unseemly leverage over the life insurance beneficiary, since the alleged perpetrator of the fraud would presumably not be around to deny the charge.”27 But where an impostor was involved, “the alleged perpetrator is presumably alive and susceptible to the subpoena power of the court. . . . Thus, it is reasonable to permit the insurer the opportunity at least to raise the defense after the incontestability period has run.”28 Further, this was not “garden-variety fraud.” Rather:

The medical examination is the linchpin of the life insurance application. It is the determinative event for the formation of the contract. The substitution of an impostor for the insured at the medical examination is such a serious and shocking strain of fraud precisely because it is so stealthily ingenious – piercing right to the heart of the deal, and virtually impossible for the insurance company to detect through reasonable and ordinary business procedures.29

Finally, as an independent ground, the court held that the insured’s series of acts in perpetrating the fraud, including multiple statements of good health and multiple blood samples, had equitably tolled the two-year period.30

Unity Mutual Life Ins. V. Moses31 involved an impostor as the examining physician rather than the insured. The insured was a physician suffering from cancer. To secure life insurance, he listed a partner in his practice as attending physician and intercepted a health questionnaire mailed to his partner. He then forged the partner’s response and signature, indicating the insured’s good health, and returned the questionnaire to the insurer. The court declined to enforce incontestability:

[N]ormal business practices would not suffice to uncover the fraud committed here. . . Dr. Moses committed more than simple fraud, he also undertook a criminal act of intercepting mail which was earmarked for another person. This fraudulent act was a cold calculation to circumvent a system that contained reasonable and workable safeguards to verify his health condition. . . . There is no method short of hiring a private detective to delve into the entire history of the life insurance applicant that could be more effective in uncovering lies. The law does not require absurdity to replace common sense.32

Thus, the cases are generally in agreement that where the insured is uninvolved in the fraud, incontestability does not apply. Some courts go further, judicially creating an exception in order to avoid an inequitable result. However, the most recent cases apply incontestability strictly, even in the face of impersonation and blatant fraud.

III. Recent Rejections of the Impostor Defense

The most recent major case involving impostor fraud was Allstate Life Ins. Co. v. Miller,33 and it squarely rejects the impostor defense. In Miller, the applicant took out a series of policies, recruited an impostor to attend a required physical, and died seven months after the two-year incontestability period. Allstate sought a judgment that the policy could be rescinded or was void ab initio on two basic theories. First, Allstate alleged that the fraud was so egregious that the court should recognize an impostor exception to incontestability to prevent it from fostering, rather than preventing, fraud. Second, Allstate argued that there was no meeting of the minds.

Both the trial court and the Eleventh Circuit rejected Allstate’s claims. “Florida appellate courts have uniformly and expressly held that the . . . incontestability clause bars an insurer from rescinding or contesting the policy based on alleged fraudulent misrepresentation the insured made in the policy application. . . .the “impostor defense” is merely a species of fraud . . . for incontestability purposes.”34 The Miller court also relied on canons of statutory construction to reject the defense. The Florida incontestability statue allowed for a contest beyond two years for non-payment of premium, accidental death provisions and disability provisions. “[T]he doctrine of expressio unis est exclusio alterius” (enumeration of the mentioned implies exclusion of the unmentioned) counseled that the legislature had limited the exceptions to the three grounds enumerated in the statute, and that “Allstate’s complaint[s] [were] properly directed to the Florida legislature.”35

Miller mirrored the result from Amex Life Assurance Co. v. Superior Court.36 In Amex, the insured, who was HIV-positive, recruited an impostor to take a physical and provide a blood sample. The insured died of AIDS-related causes one month after the incontestability period. Both the court of appeals and the California Supreme Court held that the policy was nonetheless incontestable. While stating that it did not condone the insured’s conduct, the Amex court felt that the result was compelled by statute. “[E]ven gross fraud by an insured who lied about his health in applying for life insurance falls within the terms of an incontestability provision. . . . This interpretation does not condone fraud. It merely establishes a shorter period for its discovery by the insurer. In that sense, it is no different than a statute of limitations.”37 Looking to public policy, the court described the incontestability clause as “a legislatively-mandated balancing act between an insurer’s right to avoid a policy obtained by fraud and the rights of policyholders and beneficiaries to receive their policy benefits without contest after premiums have been paid for a number of years.”38 It felt that the burden placed on insurers was minimal. “Amex could have prevented this matter by adopting the simple expedience of refusing to provide medical examinations to those who did not produce proper photographic identification.”39

In Bankers Security Life Ins. Soc’y v. Kane,40 the insured applied for insurance using an identity created after he was placed in the witness protection program. After the insured’s death, the insurer contended that there was no meeting of the minds because it was unaware of Kane’s true identity or the death threats he had received under that identity. The district court held that “[b]ecause the clauses employed by Plaintiffs mean what they say, the policies became incontestable after two years.”41 Affirming, the Court of Appeals for the Eleventh Circuit also noted that a separate tort suit against the insured for fraud was barred as merely providing “a different means to challenge the validity of the insurance contract.”42

IV. Incontestability and the Impostor Defense Under Missouri Law

While widely litigated outside Missouri, no recent Missouri case has addressed the applicability of the impostor defense. The first substantive case providing any guidance on the impostor issue is Williams v. St. Louis Life Ins. Co.43 In Williams, the defense attempted to present testimony that the insured misrepresented their health and used an impostor to obtain insurance. The limited amount of evidence that there was actually an impostor caused the Court to call the defense unwarranted and vexatious.

The resolution of the case turned on whether the policy was an assessment policy and therefore subject to the contribute to the loss statute.44 However, the Court also noted that the policy contained an incontestability clause, providing only two exceptions – non-payment of premiums or understatement of age. It strictly read that statute as limiting defenses to those contained in the clause. “[I]f the defendant chooses to say the policy was in force two years, and therefore became subject to assessment, it must abandon all other defenses except nonpayment of dues or understatement of age.”45

Williams was followed by Harris v. Security Life Ins. Co., 46 where a direct attack was made on the one-year incontestability period as being insufficient to ascertain by due diligence whether the contract was fraudulently obtained. The Court rejected this challenge, noting the insurer and insured “agree for a consideration, after a time fixed by themselves, to abandon any attack upon the obligations of their contract other than for specially reserved grounds. [Allowing a post-incontestable challenge would be] not a construction, but a misconstruction, which would convert a contract not to contest into a delusion and a snare. . . .”47

Carter v. Metropolitan Life Ins. Co.48 also was decided by application of Missouri’s contribute to the loss statute, this time with no incontestability issue. In Carter, a policy was procured using an impostor without the knowledge of the insured. The plaintiff sought to apply the contribute to the loss statute to bar evidence of the impersonation. The Court ruled that the action was one in equity, that the examination was a condition precedent for the policy, and that the statute “can have no operative force unless there exists a policy otherwise valid upon which it can operate . . . . [A] contract conceived in fraud has no legal existence and . . . this fact may be shown to defeat an action brought thereon.”49 Notably, the Court also stated that fostering “the grossest and most despicable fraud” must have been “foreign to the intention of the Legislature in enactment of the section.”50

Carter was narrowly limited in State ex rel John Hancock Mut. Life Ins. Co. v. Allen.51 In Allen, life insurance was procured using an impostor with the knowledge of the insured. The Allen Court ruled that where the insured had knowledge of the fraud, application of the contribute to the loss statute was a question for the jury, and upheld a judgment for the insured.52 Carter was “strictly confined, in its application, to the peculiar facts set up in the cross-bill, the theory of which was that the plaintiff, not Delmar Ridgeway [the insured], obtained the policy payable upon the death of the latter.”53

Andrews v. Cosmopolitan Life, Health & Accident Ins. Co.54 explicitly refused to read a fraud exception into the incontestability where the clause at issue did not contain such an exception. The case dealt with incontestability under the stipulated premium policy statute, which contains no exceptions after the policy has been in force one year. “There are no exceptions in said statute and we are not authorized to read into it any exceptions.”55 On a motion for reconsideration, the court went further, stating that the insurer is “given one whole year after a policy is issued to investigate and determine whether or not the policy was procured by misrepresentations or fraud, and that after such a policy has been in force one full year such a defense is not permissible.”56

Interestingly, Missouri courts have interpreted the time limitation in the clause to apply during and after the insured’s life. This interpretation undercuts one stated policy rationale for incontestability, namely that a deceased insured will not be available to explain his misstatements. In New York Life Ins. v. Cobb,57 suit was instituted to cancel a policy for misrepresentation after the insured’s death, but within the two-year contestable period. The court held that the insured’s death was no bar to the contest of the policy:

Plaintiff and the insured might well have contracted that plaintiff should have the entire period of the life of the insured within which to ascertain the truth of the representations by her . . . . [P]laintiff submitted a contract in which a limited time was fixed within which it might contest the validity of the policy . . . [I]ncontestable clauses are lawful, and should be enforced according to their terms.58

Cobb was upheld as good law by the Supreme Court of Missouri in Aetna Life Ins. Co. v. Daniel.59 In Daniel, the Court ruled that the strict reading of the clause worked both ways. “[S]uch provisions in insurance policies are generally construed to deny to the company absolutely the right to defend on any ground not excepted from the operation of the provision, unless the policy is contested on such ground within the time therein designated, whether the insured lives that long or not.”60

Missouri courts have also been clear that where an exception for fraudulent misstatements is contained in the clause, such as in clauses allowed under group life policies, an action to void the policy may be maintained after a two-year contestability period. In Mutual Life Ins. Co. v. Eaves,61 the insurer sued to void a policy after the insured’s death. The original petition specifically alleged fraud, while an amended petition alleged untrue representations but did not use the word fraud. The court held that the amended petition still stated a cause of action, despite the fact that it generally, rather than specifically, alleged fraud. More importantly, the court distinguished the case from Cobb, holding that the policy in Eaves was different:

There [in Cobb] each of the policies in question contained clauses providing that the policy should be incontestable after 2 years from the date of issue, excepting only for the nonpayment of premiums; whereas, in the instant case, the provisions in the policy with reference to incontestability after 2 years from the date of issue except therefrom fraud, misrepresentation as to age, or nonpayment of premiums.”62

The incontestability clause is also not a bar to a true error in insuring the wrong person. In Brand v. Boatmen’s Bank,63 the parties agreed that they intended to issue credit life on a borrower’s wife, and a scrivener’s error caused the policy to be issued on the husband. The plaintiff wife noted the error, and called the bank, seeking a correction. The correction was never made, and after the husband’s death plaintiff had a change of heart and sued. The court held that incontestability was no bar to the defense that the parties did not contract with the husband, and reformed the policy into a contract on the wife.64 Brand could theoretically be read in the Ludwinska line of cases to support the proposition that an insurer makes a contract, if at all, with an impostor. However, Brand has unique facts in that the parties clearly intended a contract on the wife.

V. Balancing Public Policy Concerns

Incontestability clauses are viewed as serving a number of valuable public policy functions. Their action as a statute of limitation ensures that the factual resolution of disputed representations and motive will not turn on the testimony of a witness who is dead and unable to testify. They operate to give innocent beneficiaries and policyholders the certainty that the legitimate benefit of their bargain will be upheld, without the concern that minor misrepresentations will be used to defeat their claim. Neither of these laudable objectives is furthered when an insured recruits an impostor to defeat reasonable and timely inquiries made by an insurer.

Further, Missouri has both case law and statutes address or satisfy these public policy concerns in other ways. To the extent that the purpose behind incontestability statutes is based on having a living insured present to testify, the Cobb line of cases holds that a contest may be brought after the insured’s death. To the extent that the policy behind the statute is to prevent the insurer from relying on immaterial or unrelated misrepresentations, Missouri’s contribute to the loss statute provides that:

[n]o representation made in obtaining or securing a policy of insurance on the life or lives of any person or persons shall be deemed material, or to render the policy void, unless the matter misrepresented shall have actually contributed to the contingency or event on which the policy is to become due and payable, and if so contributed in any case, shall be a question for the jury.65

Finally, to the extent that the clause was necessitated by insurer abuse in the early twentieth century, Missouri provides a vexatious refusal statute, authorizing the award of a penalty of 10 to 20 percent, plus pre- and post-judgment interest, and attorneys’ fees, where the insurer vexatiously delays or refuses payment.66

On the other side of the balance, prevention of fraud is also a strong public policy concern. The Missouri Department of Insurance estimates that “insurance fraud is an $80 billion crime spree each year, which means [that] families are paying an average of about $1,000 a year for this crime.”67 Impostor fraud can be perpetrated by insurance fraud rings, such as a recent Ohio case involving approximately 200 policies procured by impostor fraud and other misrepresentation.68 In addition, recent studies have concluded that, even post-

9/11, it is not difficult to obtain false identification. One 2002 federal study by the General Accounting Office found that false drivers licenses could readily be obtained with easily recognizable false supporting documents. “It’s very, very easy to get fake documents. . . . The documents that were used in the investigation were meant to be clearly fake. . . and yet every one of them got a license.”69

Missouri’s public policy against insurance fraud is also evidenced by passage of the Insurance Fraud Act, creating felony liability for insurance fraud:

[A] person commits a “fraudulent insurance act” if such person knowingly presents, causes to be presented . . . to or by an insurer

. . . or any agent thereof, any oral or written statement . . . as part of, or in support of, an application for the issuance of, or the rating of, an insurance policy . . . which such person knows to contain materially false information concerning any fact material thereto or if such person conceals, for the purpose of misleading another, information concerning any fact material thereto.70 “[T]he term ‘statement’ means include any communication . . . hospital or doctor records, x-rays, test results or other evidence of loss, injury or expense.”71

While the insurance fraud statute is broad enough to recognize application fraud, the reporting requirements are geared more toward inflated medical or fraudulent injury claims. Further, the power of the department is limited to investigation and referral to a prosecuting authority.72

The public policy concerns on both sides of the equation should apply with equal force to group and individual policies. They do not. Under Missouri law, proof of impostor fraud would likely be allowed in cases involving group life policies. Missouri case law, discussed above, supports attributing those statements to the insured. The definition of statement in the Fraudulent Insurance Act statute is broad enough to include medical test results. Harmonizing the statutes would seem to require that the provision of a blood sample or other test fraudulently purporting to be that of the insured be considered a fraudulent misstatement.

Individual policies seem to reach a different result under Missouri law, and for no apparently good reason. In these policies, the clause contains limited exceptions – accidental death, waiver of premium, disability, and non-payment of premium. Missouri law has strictly read the statute and to date has refused to create any exceptions not mentioned in the statute. The Supreme Court of Missouri’s willingness to recognize, Fioretti-style, a new exception judicially created out of whole cloth seems unlikely.

Does the Insurance Fraud Act statute provide sufficient protection for individual policies? Can the insurance company create a circle of indemnity by filing a fraud action against the insured or impostor? The statute does allow for an order of restitution. However, several contingent events must occur first – the Department of Insurance must substantiate the fraud, it must report it to a prosecuting authority, the prosecuting authority must both charge and convict, restitution must be ordered,73 and there must be solvent parties to provide the restitution. This circuitous process could be avoided by judicially or legislatively recognizing a narrow exception to incontestability.

VI. Conclusion

As the Amex court noted, incontestability is a legislatively mandated balancing act.74 Following Amex, the California legislature amended its incontestability statute:

Not withstanding subdivision (a) [the required incontestability provision], if photographic identification is presented during the application or enrollment process, and if an impostor is substituted for a named insured in any part of the application or enrollment process, with or without the knowledge of the named insured, then no contract between the insurer and the named insured is formed, and any purported insurance contract is void from its inception.75

A similar rule in Missouri would place group life and individual life insurance policies on similar footing. Because of the variety of how incontestability clauses are mandated, this could be as an independent statute, or perhaps as an amendment to the Fraudulent Insurance Act statute. While Missouri courts are unlikely to deviate from a strict reading of incontestability clauses, the rising severity of insurance fraud, the fact that impostor fraud is designed to defeat reasonable insurer diligence in the application process, the public policy evidenced by the Fraudulent Insurance Act statute, and the lack of any meaningful reason to distinguish group and individual policies could support a judicially created impostor exception.

Regardless of how the problem is addressed, one thing is certain. Where incontestability can be used as a sword rather than a shield, your insurance dollars are going up in smoke.

Footnotes

1 David G. Newkirk is vice president and associate general counsel of GE Insurance Solutions and is a member of The Missouri Bar. He received his J.D. from the University of Nebraska in 1987, where he graduated with high distinction.

2 7 Samuel Williston, A Treatise on the Law of Contracts § 912 (3d ed. 1963).

3 Northwestern Mut. Life Ins. Co. v. Johnson, 254 U.S. 96, 101-02 (1920).

4 Id.

5 Eric K. Fosaaen, Note, AIDS and the Incontestability Clause, 66 N.D. L. Rev. 267, 268 (1990).

6 Section 377.320, RSMo Supp. 2005 (enacted in 1899).

7 Section 376.777.1(2), RSMo Supp. 2005 (enacted in 1959).

8 Section 376.697(2), RSMo Supp. 2005 (enacted in 1982). Group health policies have a similar required provision at § 376.426(2), RSMo Supp. 2005, except that the group health provision omits the fraudulent misstatement exception.

9 Mo. Code Regs. Ann. Tit. 20 § 400-1.010(2)(B) (2006).

10 178 A. 28 (Pa. 1935).

11 Id. at 30-31.

12 Id. at 31.

13 114 F.2d 873 (7th Cir. 1940).

14 Id. at 878.

15 Id. at 875.

16 189 A. 697 (Pa. Super. Ct.1937).

17 Id. at 702.

18 3 F.Supp. 368 (S.D. N.Y. 1932).

19 Id. at 370.

20 Id.

21 Like Maslin, courts from a number of other jurisdictions have allowed the impostor defense where the impostor both applied the policy and took the examination. See, e.g., Valant v. Metropolitan Life Ins. Co., 23 N.E.2d 922, 924 (Ill. App. Ct. 1939); Logan v. Texas Mut. Life Ins. Co., 51 S.W.2d 288, 292 (Tex. 1932); West v. Life & Cas. Ins. Co., 140 So. 104, 107 (La. App. Ct. 1932).

22 504 F.Supp. 824 (D. N.J. 1980).

23 Id. at 1496.

24 Id.

25 892 F.Supp. 1492 (S.D. Fl. 1993), aff’d, 53 F.3d 1228 (11th Cir. 1995).

26 Id.

27 Id.

28 Id. at 1499.

29 Id. at 1496.

30 Id. at 1503.

31 621 F.Supp. 13 (E.D. Pa. 1985).

32 Id. at 17.

33 424 F.3d 1113 (11th Cir. 2005), aff’d 2004 WL 141698 (S.D. Fl. 2004).

34 424 F.3d at 1117. The court also rejected the meeting of the minds defense. Id. at 1116.

35 Id. at 1116, n.3.

36 51 Cal. Rptr.2d 354 (Cal. App. 1996), aff’d 60 Cal. Rptr.2d 898 (1997).

37 Id.

38 Id. at 363.

39 Id. at 364. There was also evidence that the applicant was physically dissimilar in weight and height. Id. As discussed below, false photographic identification can be obtained without great difficulty, calling this rationale into question.

40 689 F. Supp. 1164 (S.D. Fl. 1988), aff’d, 885 F.2d 820 (11th Cir. 1989).

41 Id. at 1172.

42 Id.

43 87 S.W. 499 (Mo. 1905).

44 Id. at 501. The contribution to the loss statute, § 377.340, RSMo Supp. 2005, limits the misrepresentations that may be used to challenge a policy to ones that “actually contributed to the [loss].” Under the statute, if an insured misrepresented a heart condition, but died of cancer, the misrepresentation would be immaterial.

45 Williams, 87 S.W. at 502.

46 154 S.W. 68 (Mo. 1913).

47 Id. at 70. Harris was followed in Eulinberg v. Quick Payment Old Line Life Ins. Co., 261 S.W. 725, 726-27 (Mo. App. E.D. 1924).

48 204 S.W. 399 (Mo. banc 1918).

49 Id. at 401-02.

50 Id.

51 267 S.W. 832 (Mo. banc 1924).

52 Id. at 837.

53 Id.

54 194 S.W.2d 920 (Mo. App. E.D. 1946).

55 Id. at 922.

56 Id. at 923. Andrews and Harris were both followed in Western Life Ins. Co. v. White, 331 S.W.2d 19, 24-25 (Mo. App. S.D. 1959).

57 282 S.W. 494 (Mo. App. E.D. 1926).

58 Id. at 497.

59 42 S.W.2d 584 (Mo. 1931).

60 Id. at 586.

61 2 S.W.2d 193 (Mo. App. E.D. 1928).

62 Id. at 195 (emphasis in original).

63 824 S.W.2d 89 (Mo. App. E.D. 1992). Other Missouri courts have made it clear that the incontestability clause is not an absolute bar to all disputes after the two-year period. A misstatement of age clause may be enforced, because this is an affirmation of the policy rather than a contest. See, e.g., Langan v. United States Life Ins. Co., 130 S.W.2d 479, 483 (Mo. 1939) (reduced payment); Hall v. Missouri Ins. Co., 208 S.W.2d 830, 832-33 (Mo. App. E.D. 1948) (policy void as true age was uninsurable under specific policy terms, liability limited to return of premiums). In a group policy, the incontestability clause is also not a bar to proof that the insured was never an eligible member of the group. General American Life Ins. Co. v. Charleville, 471 S.W.2d 231, 236-37 (Mo. 1971) (applying Arkansas law).

64 Id. at 91.

65 Section 377.340, RSMo Supp. 2005.

66 See § 375.420, RSMo Supp. 2005 (Missouri companies); § 375.296 (unauthorized companies).

67 Missouri Department of Insurance, MDI Fraud Quiz, available at http://insurance.mo.gov/consumer/teens/fraudquiz.htm (last modified April 21, 2005).

68 Ohio Department of Insurance, Testimony of Lee Covington, Director, Ohio Department of Insurance Before the U.S. House of Representatives Committee on Financial Services Subcommittee on Oversight and Investigations, February 26, 2002, available at http://www.ohioinsurance.gov/Legal/Legislation/federal/viatical.htm (last visited April 24, 2006).

69 Bob Hager & Bob Sullivan, Fake Drivers Licenses Easy to Obtain (September 9, 2003), available at http://www.msnbc.msn.com/id/3078924 (last modified November 21, 2003) (quoting Sen. Charles Grassley).

70 Section 375.991.2, RSMo Supp. 2005.

71 Section 375.991.1, RSMo Supp. 2005.

72 Section 375.992, RSMo Supp. 2005.

73 This is not a given. Like the Kane court, the court could deny restitution based on the theory that allowing a recovery would violate incontestability. See, Kane, 885 F.2d. at 822.

74 Amex, 51 Cal. Rptr.2d at 363.

75 Cal. Ins. Code § 10206 (b) (1) (West 2005). The statute goes on to define the application process as including “executing any part of the application or enrollment form, submitting to the” physical, “or providing a sample or specimen.” Id. at § (b) (2).