Insurance coverage

Does insurance coverage continue in the event of the death of a named policyholder?

A renewal policy in the name of a deceased named insured is void upon commencement, even when advised by an agent that coverage would continue for the benefit of additional insureds. (Photo: Dragonstock/Adobe Stock)

Is an additional insured under a policy entitled to coverage after the death of the named insured? What happens if the additional insured continues to pay the policy premiums and the policy undergoes automatic renewal following the death of the named insured? Also, what if a liability claim is made against an additional insured after the death of a named insured in a state that limits the insurer’s ability to retroactively void liability coverage? Under most policies, an insurer is not required to provide coverage or defense in any of these circumstances except as provided by the policy.

As with other contracts, a deceased person does not have the ability to enter or extend the term of an insurance policy. As the Fourth Circuit Court of Appeals noted in Wilkins v. Inland Mutual Ins. Co.,”[t]The requirement for notice of death of a named insured is not an arbitrary thing inserted to trap the unwary[,]but rather the substitution of the Named Insured by another party “is a material change in risk.”

Automobile insurance policies often provide for a bereavement period during which additional insureds or the personal representative of the named insured’s estate may extend coverage, provided notice is provided to the insurer within sixty days following the death of the named insured.

Automotive policy case study

In Nielson v. Allstate Insurance Co., Johanna Timm was a Texas resident who purchased an automobile policy from Allstate Insurance Company in 1978. Timm died within five months of the one-year policy. The policy was renewed twice before Charlotte Doyle was killed in a two-car crash while driving the insured vehicle with permission from the estate.

Michael Shou Nielson, the injured third party, obtained a default judgment against the estate and filed suit against Allstate. The policy’s assignment clause stated that coverage would only continue in favor of the executor or surviving spouse who still resides in the same household at the time of death, but this extension of coverage only lasts until the end of the insurance period.

Nielson argued that Allstate waived its right to void coverage due to its continued acceptance of policy premiums and policy renewals after Timm’s death. The court was not convinced and ruled in favor of Allstate.

On appeal, the Texas Court of Appeals ruled that the late Mrs. Timm did not have the ability to renew coverage, and that the policy terms were based on Mrs. Timm’s safety and driving record, and that “permitting other parties…to renew and extend coverage to other persons would alter the risk assumed by Allstate and therefore create a new contract.

Thus, a renewal policy in the name of a deceased named insured is void upon inception, even when an agent advises that coverage would continue for the benefit of additional insureds. Moreover, publication of an insured’s obituary in newspapers does not provide disguised notice to insurers.

State Cancellation Laws

The general rule applies to liability insurance policies, but in the automobile context, it is unclear whether a state law preventing an insurer from retroactively canceling a liability insurance policy (below coverage state minimum) applies when the policy could be declared cancel ab initio (empty when created).

Such laws generally prevent retroactive cancellation where, for example, a material misrepresentation in the proposal results in liability coverage not having been issued, not being issued in the same manner, or not being issued with the same premium if the actual facts known. The death of the named insured before the renewal of the policy is distinct from these misrepresentations, because one of the parties to the contract did not have the capacity to enter into the contract.

Exceptions to the rule

An exception to the general rule may exist where other parties have a recognized interest in the property that is stated in the policy. In these cases, a renewal of the policy after the death of the named insured may not void the policy.

In Georgia, a mortgagee registered on a fire insurance policy renewed the policy on behalf of his mortgagor without knowing that the mortgagor/insured had died. In S. General Insurance v. Key, the named insured’s lack of capacity did not void the renewal policy because the mortgagee had an interest in the policy, and the policy included a “New York standard” clause that allowed the mortgagee to recover under the policy notwithstanding any act or omission of the mortgagor.

However, in another case with similar facts where the mortgagee knew of the death of the mortgagor/insurer and nevertheless renewed the policy, the mortgagee was not entitled to cover following a fire. Where an insurer receives disguised notice of the death of the named insured but renews the policy, the insurer may be prevented from denying coverage and an implied contract of fact may be entered into.

Insurers carefully measure risk when issuing policies, and courts generally allow cancellation when a policy is automatically renewed or renewed by someone standing in the place of the deceased insured. The right of rescission may be limited where the insurer has received actual or implied notice of the death of the named insured, but renews the policy or continues to accept payment of premiums. The case law is unclear whether a liability policy that is automatically renewed in the name of a deceased insured can be terminated when the state has a law preventing retroactive termination of insurance policies.

Derek J. Goff, Partner at Swift, Currie, McGhee & Hiers, focuses his practice on first and third party coverage opinions and disputes and bad faith insurance disputes. Contact him at [email protected].

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