Disability Insurance: Rescission & Pre-Existing Conditions

Like many other insurers, a disability insurer typically has two years from issuance of the policy to rescind it for application misrepresentations or to deny coverage for pre-existing conditions that cause disability. This two-year period is called the "contestable period." See A.R.S. § 20-1346. One case holds, however, that as long as the disability begins within the two years, the statutory bar doesn't apply even if the insurer waits to raise the misrepresentation or pre-existing condition defense until after the two years expires. Russell v. Royal Maccabees Life Ins. Co., 193 Ariz. 464 (App. 1998). Also, the statute arguably allows rescission at any time for "actual" fraud, as opposed to "legal" fraud, so this can sometimes be an issue.  The interplay between these concepts -- rescission, pre-existing conditions, misrepresentation and legal vs. actual fraud -- can be tricky, so it's wise to consult an attorney if you are faced with any of them.

Brenden J. Griffin is a shareholder at Gabroy, Rollman & Bossé, P.C., and has been litigating disability, life, health and ERISA insurance claims for over 10 years. He can be reached at 520.320.1300.