Contestability Period – New York

The laws of many states, including New York, provide that life insurance policies cannot be cancelled after they have been in effect for two years, except in the case of non-payment of premiums. Additionally, based on this legal requirement, a two-year contestability period provision is frequently contained in the fine print of life insurance policies.

What is the source of the New York two-year contestability period?

New York has enacted an incontestability law that is set forth at New York Insurance Law § 3203. It states that: “the policy shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue …”

Are there exceptions to New York’s two-year contestability period?

No.

Why was the New York two-year contestability period enacted?

In 1906 New York was the first state to enact a contestability period law for life insurance policies. A brief history of the enactment of the contestability period can be found in a 1999 New York Court of Appeals decision, New England Mutual Life Insurance Company v. John Doe.

Beginning in the Nineteenth century, life insurance applications requested voluminous disclosures about myriad conditions and the nature of the questions, along with sharp insurance sales practices, led to misunderstanding and misrepresentation. If any answers were later found to be incomplete or incorrect, the company would void the policy, sometimes many years after it was issued. Government investigations of unfair and abusive denials of coverage led to the enactment of incontestability legislation for life insurance policies.

The purpose of the two-year contestability period is to introduce certainty into the life insurance marketplace. An insured and beneficiary can be certain that after two years have passed, a claim will not be denied based on an incorrect answer to an application question.

Justice Oliver Wendell Holmes, in writing on the subject, put it this way: “The object of the [incontestability] 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.”

The two-year contestability period promotes fairness

New York’s two-year contestability period is fair to consumers. In all material misrepresentation cases involving life insurance, the insured is not available to testify, automatically putting beneficiaries at a disadvantage in litigation. If life insurance companies can deny coverage at any time after the policy was issued, it would be extremely difficult for beneficiaries to defend an application process that occurred years or decades earlier of which they may have had no first-hand knowledge. And in these cases the stakes are often high—the financial well-being of surviving family members.

Insurance companies argue that they are disadvantaged by incontestability laws. But this argument does not withstand scrutiny. The contestability period is similar to a statute of limitations that pertains to other causes of action—the purpose of both is to prevent stale claims.

Another argument why contestability periods are not unfair, and are similar to a statute of limitations, is that most all misrepresentations are knowable to the insurer at or before when the policy is issued. With minimal effort, the insurer could request medical and financial records, and conduct an examination of the insured, prior to issuing coverage.

From a public policy perspective, incontestability legislation laudably encourages insurers to investigate applications prior to the issuance of coverage. Yet many life insurance companies fail to do this in a comprehensive manner and instead only investigate applications after the insured dies.

Please contact New York life insurance lawyer Eric Dinnocenzo at (212) 933-1675 for a free consultation to discuss if you have a claim.