Imposter Fraud and Incontestability Clauses in Life Insurance Policies
Life insurance policies contain incontestability clauses that limit the time in which an insurer may contest the validity of an insurance policy based on material misrepresentations made by the insured during the application process. Such incontestability clauses, required under Florida law, set a two-year time limit on an insurer’s right to challenge the validity or enforceability of insurance policies.1 A claim of fraudulent misrepresentations by the insured in the policy application falls within the terms of incontestability provisions. As such, a claim that a policy is not enforceable because it was procured by fraudulent misrepresentations is barred two years from the policy’s date of issue under Florida’s incontestability clause.2
The legislative purpose behind incontestability clauses is laudable — to protect beneficiaries from an insurer’s refusal to honor policies, thereby initiating costly litigation. Insurers began voluntarily including incontestability clauses in policies in the middle of the 19th century to “address the perception that insurers tended to avoid paying benefits because of minor misstatements in applications for insurance” and promote sales to a public that was “generally distrustful of insurers.”3 States began to require that life insurance policies contain incontestability clauses in the early 1900s.4 Florida’s statute was first passed in 1955 and was then numbered §625.211(1)(c).
Recently, however, there has been a resurgence of what has become known as “imposter fraud,” which has resulted in litigation between life insurers and the beneficiaries of life insurance policies. Imposter fraud occurs during the life insurance application process when someone other than the named insured appears for the medical examination that is a prerequisite to obtaining the policy. For example, while Carlos Smith may fill out an application for life insurance, someone other than Carlos Smith is medically examined.
Such fraud is employed so that policies may be obtained on the life of a person who is ill, thereby allowing beneficiaries to recover on a policy that may not have otherwise been obtained or that would have been obtained at a much higher premium. The imposter fraud schemes may be complex, involving not only the insured but also the beneficiaries who either procure the imposters or “buy into” the policy by paying the premiums. Imposter fraud presents a challenge to insurers because such fraud is difficult to detect, especially during a policy’s contestability period. This type of fraud goes to the very heart of the steps insurers take to avoid fraudulent misrepresentations about a potential insured’s health.
It cannot be overly emphasized that in cases dealing with an imposter undergoing the medical examination, “imposter” refers to impersonation of the insured — not merely a false representation about the insured. The distinction is significant because while a claim of false representation is generally barred by incontestability clauses, the majority of courts considering the issue recognize that claims to void a life insurance policy on the basis of imposter fraud at the medical examination are not barred by incontestability clauses.5
The 11th Circuit recently determined, however, that Florida would not follow this weight of authority.6 To understand the impact of this decision, it is important to understand the history of imposter fraud.
The Imposter Exception to Incontestability Clauses
Historically, courts have allowed insurers to contest the enforceability of a policy, even after expiration of the contestability period, in cases where an imposter appears for the requisite medical examination, thereby recognizing what is commonly referred to as the “imposter defense” to incontestability. These courts recognize the insurer intended to insure the life of the person appearing for the medical examination, not the life of the person whose name appears on the application form. This precludes contract formation in the first place and renders the insurance contract void ab initio. Under traditional principles of contract law, there was never a “meeting of the minds” between the insurer and the insured on an essential element of the contract — the insured’s true identity. These courts conclude that if the insurer contracted with anyone, it was with the person who underwent the medical exam.7
The imposter defense was first articulated in Maslin v. Columbian National Life Insurance Co., 3 F. Supp. 368 (S.D.N.Y. 1932). In that case, the insurer issued two life insurance policies to the plaintiff’s son, Samuel Maslin, naming the plaintiff as the beneficiary.8 After the contestability period in the policies expired, the insurer discovered that an imposter had signed the insurance application and posed as the insured during the medical examination.9 The beneficiary moved for summary judgment, arguing the incontestability clause barred the insurer from raising any defense.10
The New York court recognized the general rule that “after passage of the stipulated time the insurance company is precluded from contesting the policy on the ground of false representations by the insured, even those made fraudulently.”11 The court nevertheless determined the defense of an alleged impersonation of the insured by another at the physical examination was not barred by the incontestability clause.12 The court relied upon contract law principles: “It is a rule applicable to contracts generally that where a man, pretending to be someone else, goes in person to another and induces him to make a contract, the resulting contract is with the person actually seen and dealt with and not with the person whose name was used.”13 Because an imposter, rather than the named insured, presented himself for the required physical examination, the insurance policy was never enforceable vis-à-vis the named insured.14
The Pennsylvania Supreme Court similarly held in Ludwinska v. John Hancock Mutual Life Insurance Co., 178 A. 28 (Pa. 1935). The court explained that, in insurance policies, as in any other contract, there must be a meeting of the minds on all essential elements before any contract exists.15 “Without this neither the incontestable clause contained in the policy nor the policy itself have any life. The clause can rise no higher than the policy; the incontestable clause cannot of itself create the contract.”16 Because the plaintiff beneficiary applied for a life insurance policy using her sister’s name and posed as her sister at the physical examination, there was no contract between the insurer and the named insured.17
The Seventh Circuit subsequently followed Maslin and Ludwinska in Obartuch v. Security Mutual Life Insurance Co., 114 F.2d 873 (7th Cir. 1940), cert. den., 312 U.S. 696 (1941). There, the named insured was not aware of the policy and did not submit to the medical examination. “Thus there was no meeting of the minds — a fundamental requisite of all contracts — the policies as issued were void and the incontestable clause without effect.”18 Other courts have similarly held that an insurer is entitled to rescind a policy where an imposter submits to the requisite medical examination.19
In these particular cases, there was evidence both that the named insured did not sign the initial life insurance application and that an imposter submitted to the medical examination. However, subsequent courts have applied the imposter defense to allow a policy to be rescinded solely on the basis that an imposter appeared at the medical examination.20 The imposter exception was also extended to allow an insurer to rescind a policy where the named insured applied for and signed the application, but intercepted mail sent to the doctor named as his physician, falsified the health information requested, and forged that doctor’s signature.21
Against this backdrop, then Florida Southern District Judge Marcus determined that Florida would recognize the imposter exception in Fioretti v. Massachusetts General Life Insurance Co., 892 F. Supp. 1492 (S.D. Fla. 1993), aff’d., 53 F.3d 1228 (11th Cir. 1995). In Fioretti, the named insured, who was HIV positive, either arranged for an imposter to appear for the requisite blood test or arranged for the substitution of another person’s blood sample for his.22 There was no question that the named insured filled out and signed the insurance application forms, including a statement of good health.23 The district court did not resolve whether Florida, New Jersey, or New York law applied to the case, and determined that all three states would recognize the imposter defense, allowing insurers to contest a life insurance policy, even after expiration of the contestability period, where someone other than the named insured appears for the requisite medical examination.24
In reaching this conclusion, the district court distinguished cases of fraudulent misrepresentation on application forms from that of imposture, observing:
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 imposter 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.25
The court determined that, because of the difficulty of detecting the substitution of an imposter for the insured and “to prevent manifest injustice,” beneficiaries of such policies should not be protected by the incontestability clause. Moreover, it observed that the incontestability clause is designed to promote stability by creating a reasonable expectation by the insured that a claim on a valid policy will be paid: Under an imposter situation, the beneficiary had no such reasonable expectation of payment.26 The Fioretti case was affirmed on appeal with respect to New Jersey law. The 11th Circuit, however, declined to determine whether the court properly interpreted Florida law.27
Subsequent to Fioretti and in contrast to the line of cases recognizing the imposter exception, the California Supreme Court declined to recognize the imposter exception in Amex Life Assurance Co. v. Superior Court, 930 P.2d 1264 (Cal. 1997). In that case, the court determined that the imposter exception did not apply because while an imposter took the medical examination, the named insured applied for and signed the insurance policy — not an imposter. As a result, the court reasoned that there was a meeting of the minds as to who the insured was and consequently an enforceable contract.
Following that decision, the California Legislature amended the state’s statute requiring incontestability clauses to provide,
if photographic identification is presented during the application process, and if an impostor is substituted for a named insured in any part of the application 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.28
An “impostor” is defined as
a person other than the named insured who participates in any manner in the application process for a certificate under an individual life insurance policy and represents himself or herself to be the named insured or represents that a sample or specimen of blood, urine, or other bodily substance is that of the named insured.29
The Imposter Exception and Florida Law
While a Florida state court has never addressed the imposter exception, in Allstate Life Insurance Co. v. Miller, 424 F.3d 1113 (11th Cir. 2005), the 11th Circuit squarely addressed the issue under Florida law. In that case, the insurer sought a declaratory judgment that the life insurance policy was void abinitio, after expiration of the contestability period, on the basis that someone other than the named insured appeared for the requisite medical examination.30 The 11th Circuit affirmed the district court’s decision granting summary judgment against the insurer on the basis that the action was barred because the contestability period had expired. The court reasoned that there was no material difference between imposter fraud and fraudulent misrepresentations on the insurance application. The court went on to liken the Florida statute requiring contestability clauses in insurance policies to a statute of limitations.31
The court did not address or otherwise distinguish the rationale of those cases recognizing the imposter exception, instead noting that the district court opinion in Fioretti was decided prior to Great Southern Life Insurance Co. v. Porcaro, 869 So. 2d 585 (Fla. 4th DCA 2004). The court stated that Porcaro “recognized that were a jury to determine that the insured lived for two years from the date the policy issued, the statutory incontestability clause would bar any defense of fraud based on the circumstances of the insured’s disappearance.”32 From this, the court concluded that “[i]f claims of potential fraud as to the fact of an insured’s death — a fact most central to a life insurance contract — are subject to the statutory incontestability clause, Allstate’s imposter claims cannot obviate §627.455 based on their importance in the contractual scheme.”33
In its petition for panel reconsideration, the insurer asserted that the Porcaro court expressly stated that, under the statute, the policy would be “incontestable on the ground of fraud after it has been in force, during the lifetime of the insured, for a period of two years.”34 The insurer argued that because a policy issued on the life of a dead person would not be “in force during the lifetime of the insured,” it followed that an insurer could contest the policy on the grounds that an insured was, in fact, dead at the time the policy was issued, at any point in time, including after the contestability period. Additionally, in Porcaro, the issue was whether the policy was in force for two years during the lifetime of John Porcaro, the insured. There was no issue of an imposter taking the medical examinations and hence no question that John Porcaro’s life was the life that was insured. As such, the Porcaro court never considered the issue of a lack of a meeting of the minds in the formation of the contract where an imposter takes the medical exam.
In its petition for panel reconsideration, the insurer acknowledged the Florida Supreme Court has noted the incontestability clause “is in the nature of, and serves a similar purpose as, a statute of limitations….”35 But the insurer argued that a statute of limitations simply serves to bar contract claims. It does not create a contract that never existed in the first instance due to the absence of the essential meeting of the minds as to the party being insured. That lack of meeting of the minds makes the contract void ab initio, not merely voidable for fraud, which is why courts have held benefits cannot be recovered under a policy that was void from its inception. While these arguments were advanced by the insurer in the petition for panel reconsideration, the petition for reconsideration was denied.
Moreover, had the legislature intended §627.455 to serve as a statute of limitation, the statute itself would have provided that claims to rescind a policy based upon fraud are barred two years after the date the policy was issued. Such is the language generally employed in statutes of limitation. Instead, the legislature fashioned a statute that provides the policies should contain a clause limiting the period of contestability, thereby presupposing that there is indeed a valid contract in force.
Public Policy Considerations
Incontestability clauses were designed to 1) encourage insurers to investigate facts promptly; 2) protect insureds’ reasonable expectations of recovery; 3) prevent insurers from relying on minor misstatements to void policies; and 4) preclude life insurers from making charges against deceased individuals who are unable to rebut them.
None of these purposes is served by enforcing an incontestability clause when a life insurance policy is procured through the use of an imposter. First, imposter fraud is virtually undetectable because it is the medical examination itself that insurers rely upon to verify the representations made in the insurance application forms. Consequently, it is inequitable to punish the insurer for failing to discover the fraud during the policy’s contestability period. Second, neither insureds nor beneficiaries have a reasonable expectation of recovery when they have engaged in such a fraudulent scheme. Third, the goal of preventing insurers from voiding policies based on minor misstatements or technicalities is inapplicable when the policy was secured as a result of imposter fraud in the medical examination. Finally, in most imposter cases, unlike ordinary misrepresentation cases, the perpetrators (typically, the beneficiaries and the imposter) are still alive when a claim is made on the policy and the insurer seeks to challenge the policy’s validity. Accordingly, there is no public policy justification for enforcing incontestability provisions in such circumstances.
Indeed, declining to recognize an exception for imposter fraud affirmatively contravenes public policy. In addition to being unfair to insurers, such a rule would reward, and thus encourage, insurance fraud and shift the costs of that fraud to both innocent policyholders36 and individuals seeking coverage.
The Miller decision, if left unaddressed by the Florida Legislature, will encourage insurance fraud and shift the costs of that fraud from criminal actors to innocent consumers of life insurance.37 This shift of costs does not promote any social good, but rather allows criminals to profit from their fraudulent conduct. As such, the Florida Legislature should consider amending §627.455 to explicitly state, as the amended California statute provides, that no insurance contract is formed and is void at its inception where someone other than the named insured represents himself or herself to be the named insured during the application process.
1 See Fla. Stat. §627.455 (“policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years from its date of issue except for nonpayment of premiums and except, at the option of the insurer, as to provisions relative to benefits in event of disability and as to provisions which grant additional insurance specifically against death by accident or accidental means”).
2 See, e.g., Kaufman v. Mutual of Omaha Ins., 681 So. 2d 747, 750 n. 5 (Fla. 3d D.C.A. 1996) (insurer’s claim that policy should be rescinded on the basis of the insured’s fraudulent statements in the application were barred by incontestability provision after contestability period expired); Prudential Ins. Co. v. Prescott, 176 So. 875 (Fla. 1937) (insurer must seek relief based upon allegation of fraud within contestable period); Bankers Sec. Life Ins. Society v. Kane, 885 F.2d 820 (11th Cir. 1989) (under Florida law, there is no fraud exception to incontestability clauses); see also Prudential Ins. Co. v. Rhodriquez, 285 So. 2d 689, 690 (Fla. 3d D.C.A. 1973); DiFranco v. Nat’l Found. Life Ins. Co., 551 So. 2d 535, 536 (Fla. 3d D.C.A. 1989).
3 See Galanty v. Paul Revere Life Ins. Co., 1 P.3d 658, 665 (Cal. 2000).
4 See id.; Mut. Life Ins. Co. of New York v. Ins. Comm’r for the State of Maryland, 723 A.2d 891, 894 (Md. 1999); see generally Paul Revere Life Ins. Co. v. Haas, 644 A.2d 1098, 1101-02 (N.J. 1994); Eric K. Fosaaen, Note, AIDS and the Incontestability Clause, 66 N.D. L. Rev. 267, 268-70 (1990).
5 See, e.g., Obartuch v. Sec. Mut. Life Ins. Co., 114 F.2d 873 (7th Cir.1940), cert. den., 312 U.S. 696 (1941); Strawbridge v. New York Life Ins. Co., 504 F. Supp. 824, 830-31 (D.N.J. 1980); Maslin v. Columbian Nat’l Life Ins. Co., 3 F. Supp. 368 (S.D.N.Y. 1932); Ludwinska v. John Hancock Mut. Life Ins. Co., 317 Pa. 577, 178 A. 28 (1935); Petaccio v. New York Life Ins. Co., 125 Pa. Super. 15, 189 A. 697 (Pa. 1937). See also Couch on Insurance, 3d, §87:23 (p. 46-47).
6 See Allstate Life Ins. Co. v. Miller, 424 F.3d 1113 (11th Cir. 2005). The author of this article was appellate counsel on behalf of Allstate Life Insurance Company in this case.
7 See, e.g., Obartuch, 114 F.2d 873 (7th Cir. 1940), cert. den., 312 U.S. 696 (1941); Strawbridge, 504 F. Supp. 824, 830-31 (D.N.J. 1980); Maslin, 3 F. Supp. 368 (S.D.N.Y. 1932); Ludwinska, 317 Pa. 577, 178 A. 28 (1935); Petaccio, 125 Pa. Super. 15, 189 A. 697 (Pa. 1937). See also Couch on Insurance, 3d, §87:23 (p. 46-47) (“A contract based upon a medical examination of one impersonating the insured is void ab initio. Stated otherwise, the fraud of the applicant in substituting a healthy person for the purpose of the medical examination vitiates the policy granted on the faith of such examination. . . ”).
8 Maslin, 3 F. Supp. at 368-69.
9 Id. at 369.
10 Id. at 368-69.
11 Id. at 369.
13 Id. at 370.
15 Ludwinska, 178 A. at 30.
17 Id. at 30-31.
18 Obartuch, 114 F.2d at 878.
19 See, e.g., Valant v. Metropolitan Life Ins. Co., 23 N.E.2d 922 (Ill. App. Ct. 1939).
20 See Strawbridge v. New York Life Insurance Co., 504 F. Supp. 824, 830-31 (D.N.J. 1980) (fact that the named insured signed the initial life insurance application did not create a contract an imposter took the physical examination); Blair v. Berkshire Life Ins. Co., 429 F.2d 996, 999 (3d Cir. 1970) (holding that, if an imposter took the physical examination and signed part II of the written application, the insurer would have a “complete defense” to the enforceability of the policy, notwithstanding that the named insured signed part I of the application).
21 See Unity Mut. Life Ins. Co. v. Moses, 621 F. Supp. 13 (E.D. Pa.), aff’d., 780 F.2d 1015 (3d Cir. 1985).
22 Fioretti, 892 F. Supp. at 1493.
23 Id. at 1494.
24 Id. at 1496-97.
25 Id. at 1496.
27 See Fioretti v. Massachusetts Gen. Life Ins. Co., 53 F.3d 1228, 1235 n.23 (11th Cir. 1995).
28 Cal. Ins. Code §10113.5.
30 Allstate Life Insurance, 424 F.3d at 1114.
31 Id. at 1115-16.
32 Id. at 1117.
34 Porcaro, 869 So. 2d at 587 (emphasis added).
35 See Prudential Ins. Co. v. Prescott, 176 So. 875, 878 (Fla. 1937).
36 See Paul Revere Life Ins. Co. v. Haas, 644 A.2d 1098, 1107 (N.J. 1994) (“[i]nsurance fraud is a problem of massive proportions that currently results in substantial and unnecessary costs to the general public in the form of increased rates”) (quoting Merin v. Maglaki, 599 A.2d 1256, 1259 (N.J. 1992)).
37 See Miller, 424 F.3d at 1116 n.3 (“While Allstate argues the policy wisdom of the resulting absence of an imposter exception to the incontestability clause, Allstate’s complaint is properly directed to the Florida [L]egislature — not this court.”).
Cristina Alonso is an associate with Carlton Fields, P.A., in Miami, and is a member of its appellate and trial support practice group. She received her B.A. in sociology, with distinction, from the University of North Carolina at Asheville, and J.D., with honors, from the University of Florida. She thanks Sylvia Walbolt and Anthony Pelle, shareholders with Carlton Fields, P.A., for their assistance in writing this article. Ms. Walbolt and Ms. Alonso were appellate counsel and Anthony Pelle was trial counsel on behalf of Allstate Life Insurance Company in Allstate v. Miller.
This column is submitted on behalf of the Business Law Section, Mark J. Wolfson, chair, and Hans C. Beyer, editor.