Background
Brothers William and Michael Burley bought life policies on each other from a friend who was a New York Life agent. The agent filled out the application for the policy on William, and both brothers signed it. William died of a heart attack about four months after the policy took effect. New York Life said William should have answered “yes” to a question about drug or alcohol treatment in the past ten years, because his records showed drug-abuse treatment in 2004. It refunded the premiums and treated the policy as void. Michael sued. New York Life did not answer the suit, and the trial court entered a default judgment for the $200,000 face amount plus penalties.
What the court held
The Third Circuit affirmed the award of policy proceeds. Under La. R.S. 22:860, a false statement in a written life application does not bar recovery unless it was made with actual intent to deceive or materially affected the acceptance of the risk or the hazard assumed. The insurer must prove that defense. Michael’s admission that the answer was wrong did not shift the burden to him. Nothing in the record showed intent: the agent had filled out the form, William had disclosed his smoking, family history and other conditions, named his treating doctor and signed a records release, and the treatment was eight years old. Nor was there evidence that New York Life would have refused the policy or charged more with a “yes” answer. The court rejected the argument that the misstatement became material because the death certificate listed marijuana use as a contributing cause. Materiality looks at whether the policy would have been issued, not at what caused the loss.
The court also held that the bad-faith statute, La. R.S. 22:1973, applies to life insurance claims. New York Life admitted it owed at least the premiums but waited more than 100 days to tender them, and the trial court did not err in finding that arbitrary and capricious. Because no actual damages were proven, the court cut the penalty to the $5,000 statutory amount and reversed the trial court’s later increase of the award.
Why it matters
Like Texas in American National v. Arce, Louisiana puts the burden of proving a misrepresentation defense on the insurer. Burley came up on a default judgment, which limited the record, so its facts carry less weight than a full trial. Still, it shows how evidence about who filled out the form, what was disclosed and how old the omitted history was can defeat a contestable-period denial. See our contestability guide.
Read the opinion
Burley v. New York Life Ins. Co., No. CA 15-263 (La. App. 3 Cir. Nov. 25, 2015) (Justia).
Not legal advice. This page summarizes general rules and the specific statutes cited. Your policy's wording, the state whose law applies, and whether the coverage came through an employer can all change the result. See the disclaimer and editorial policy.