Defining Double Indemnity
Understanding Double Indemnity Law: A Complete Guide
In the realm of insurance and risk management, few principles are as crucial and complex as double indemnity. The term refers to a provision within certain policies that allows the beneficiaries of a life insurance policy to receive double the face value upon the insured’s death if that death is accidental in nature. Lying at the intersection of insurance underwriting and legal interpretation, double indemnity is an often-misunderstood concept that holds profound implications not only for policyholders and insurers but also for their beneficiaries.
Origins in the Early 20th Century
The idea of double indemnity was popularized in the early 20th century, most notably by the 1944 novel and subsequent film adaptation of the same name by James M. Cain. This work of fiction introduced the public to the concept of life insurance murder, where the beneficiary stands to gain a substantial windfall upon the accidental death of the policyholder. The story involved a clandestine plot orchestrated by the beneficiary and the insured, with the beneficiaries’ financial motives central to the plot. This fictional narrative would go on to catalyze a host of real-world concerns and conditions surrounding life insurance and policyholders.
How Double Indemnity Works
To understand double indemnity is to grasp the dual meaning of the term itself. The double – not once, but twice – means that the policyholder’s beneficiaries stand to collect double the face value of the policy if the insured is killed through accident. It is worth noting that in the majority of states, even where double indemnity does exist, the additional payment is made only if the death of the policyholder can be proximately traced to the particular covered cause of death (i.e. drowning, homicide, electrocution, etc., depending on the terms of the contract). Put another way, it is not solely the death of the insured that triggers the double indemnity payout. Rather, it must be a death in the ‘normal course of events’ that renders the policyholder’s demise sudden , accidental, and without intent. When this happens, the beneficiaries of the policyholder will be made whole, and then some; they will receive double the face value of the policy.
Insurance Instrumenticity and Bad Faith
Double indemnity is part of a larger universe of insurance provider obligations to its policyholders known as the "insurance instruments." The insurance instruments are the rights and remedies available to policyholders under written contracts of insurance (i.e. life insurance, health insurance, auto insurance, and so on). Under the insurance instruments, the insurance provider is obligated to act in good faith when fulfilling policy terms. This can also include, after investigation, making a prompt payment upon claim resolution. Failure to do so can expose the provider to significant liability for breach of contract and sometimes tort damages known as ‘bad faith.’ Another less-used liability theory related to insurance coverage is known as ‘insurance instrumenticity,’ which is triggered when the actions of an insurance provider make it impossible or exceedingly difficult for the policyholder to file a claim on another insurance provider (e.g. a life insurance policy claim from a product issued by a different provider than the insured car that caused the death). The technicalities of these obligations and accompanying liability create unique circumstances surrounding double indemnity law that are a matter of case law jurisdiction and individual contractual terms and conditions, but the generalities upon which it is based are universal.
Double indemnity remains a fixture of insurance jurisprudence today, and, rather than the murder-motivated villain of 1940s noir crime fiction, the principle serves a much simpler and easier-to-know purpose: rewarding those mourning the sudden loss of a loved one. As grim as that sounds, it’s true: double indemnity laws essentially allow the deceased insured’s beneficiaries to seek a payout that ensures their financial well-being when the unexpected occurs.
The Historical Development of Double Indemnity Law
Double indemnity provisions in insurance policies were not widely used until the beginning of the 20th century. The concept of double indemnity is believed to be more linked to the general trend in the early part of the century to increase the amount of life insurance issued, than due to an increase in anticipated crime or the murder rate. The first appearance of double indemnity in a policy was in the late 19th century in Great Britain. In 1908, Mr. Justice Astbury made reference to a portion of an English life insurance policy which provided for double indemnity in case of death from some form of accident, in which the insured arrived "at his end in an unusually commonplace fashion." In 1929, the Minnesota Supreme Court, Feb 21, 1929, 183 Minn 467, 236 NW 189, 13 ALR 315, held that there was no change from 1908: "It is a common attempt to impose upon the insurance companies the burden of establishing the facts of an accident to defeat a double indemnity claim. That general rule is buttressed by no good reason. A jury in such an action must do a fact finding regarding the cause of the death "from external, violent and accidental means." The insurance company, as defendant, is only an opponent to the plaintiff’s assertion of a right to recover and bears no burden of proof." McKinlay v Nebraska Life Ins Co, 178 Minn 471, 227 NW 914 (1929).
The Role of Double Indemnity in Insurance Policies
Double indemnity clauses are most often found in life insurance policies. Under a double indemnity clause, the insurer agrees to pay double the policy amount if the insured dies as a result of an accident. The circumstances of the insured’s death must meet the conditions set forth in the policy. Insurers will often dispute claims made under double indemnity clauses for a number of reasons.
Double indemnity may be available only for a limited period of time and can be lost if the insured turns 70 years old before the insured’s death. Some policies also exempt certain deaths, such as those caused by war or while acting in an illegal manner. An insured with a double-indemnity life insurance policy should be aware that insurers often deny claims for accidental death, rather than death from other causes. Each situation is different, and the claim denial might be valid. The beneficiary should not take the insurer’s denial at face value.
Beneficiaries should appreciate that double-indemnity provisions in life insurance policies are benefits. Those benefits apply only to certain types of deaths, such as those caused by an accident. If the beneficiary has any questions about the insurance company’s action, such as a claim denial, the beneficiary might want to confer with a lawyer who has handled life insurance claim disputes.
Legal Precedents and Implications
In the realm of double indemnity, legal disputes often stem from the precise language used in insurance policies and the different interpretations it can lead to. These lexical ambiguities can result in court cases over whether an insured event is covered or not. Such disputes can also revolve around the extent of compensation owed to policyholders or their beneficiaries.
A case in point is Guilford Lumber v. Nationwide Ins. Co., an Ohio case (1974). In Guilford, the policy in question contained the phrase "relative humidity does not exceed 70%." A tax in New York City required an increase in electric power to maintain the requisite humidity to keep a document safe, which resulted in an unexpected burden of $80,000 on the insured. The court found for the plaintiff and the carrier was ordered to pay $80,000 plus interest and costs because it was convinced that $80,000 was the minimum reasonable cost to insure that the relative humidity never rose above 70%.
The moral of the story is that when offering double indemnity insurance, it’s critical to be as clear and precise as possible in defining what the insurance does and don’t cover.
Key cases like Nash v. Prudential Ins. Co. of America (1960) establish that, when faced with an estimated expense, a court is likely to favor the insured. In Nash a husband and wife planned to go into retirement together in the near future. He was killed in a vehicular accident and his widow submitted a claim for death benefits from the National Life Insurance Company, which carried a policy that offered 10 years of full payments, 10 years of half-payments, and five years in case of accidental death. The carrier denied her claim, arguing that the death was due to suicide, hence, not covered under the policy. The Court of Appeal found that regardless of the riskiness of the carrier’s investment policy, it must still meet standard requirements of prudent investment. It was also determined that, in case of double indemnity, the court should interpret the policy in favor of the less sophisticated party that is less likely to conduct all the required calculations when purchasing a policy for double indemnity.
Another case that demonstrates how lexically vague a contract could be is Umekubo, Suwa & Nabeta v. State Farm Mutual Automobile Insurance Company. The insured was a lawyer who held two different car insurance policies with State Farm. After a motorcycle accident that involved his car, he sued State Farm for double indemnity payments under the "borrowed car clause" for drivers of other vehicles. The lawyer claimed the clause, which stated that the insurance would cover vehicles that had been borrowed for individual use, was effective for his wife’s car. And since his wife permitted him to use her car for fun, the lawyer thought he would be covered.
However, what the lawyer did not account for was the fact that the borrowed car coverage was effective only if the insured had permission from the owner of the vehicle. Since his wife had never granted him such permission, the Court ruled against him.
Effects on Policyholders and Beneficiaries
The existence of double indemnity provisions can significantly affect the rights of policyholders and beneficiaries. Assuming life insurance policies are part of an estate, they will be subject to probate and will not pass outside the estate, but legally-effectuated transfers will not be part of an estate and upon death will transfer to beneficiaries outside of probate and as such will generally have no tax implications. Because the beneficiary in such cases, may be a spouse or other family member, the courts will uphold the law in an attempt to confer the benefit of financial security on the spouse or other beneficiary.
A further result of the double indemnity laws is that wrongful acts associated with the acquisition or maintenance of the policy cannot be attached to benefits due under the policy. Any default under the terms of a law or statute cannot be imputed to the limitation period of the insurance contract. Generally, the courts do not allow their power to be used to defeat the intent of the legislature. "Where a contract is valid and binding , the right of the parties to the contract will be determined, and not affected by the motives, purposes, or purposes, or even the illegal acts or methods of the parties or third persons, in procuring its existence." Miller v. American Central Ins. Co., 3 Norris, 10. In such a case, a wife has the right to recover for the wrongful killing of her husband if she was an actual beneficiary under the policy.
The broad statute, which allows double recovery, is driven by a socially beneficial purpose, so the courts are not inclined to allow exceptions. Where an insured fails to pay the extra premium for double indemnity, and her husband’s death results from his own wrongful act, the insured, is still entitled to benefits under the double indemnity clause. Where an insured paid the extra premium, her husband was injured and died later as a result of the injury, it is irrelevant that the injury was occasioned by his own felonious act.
Best Practices for Double Indemnity Claims
Helpful Tips for Managing Double Indemnity Claims
In order to understand double indemnity, it is important to speak with a double indemnity lawyer. However, understanding how to manage the claim is also important. The following is a general guide for clients and policyholders on how to file and handle double indemnity cases.
It is common for life insurance companies to issue denials of double indemnity claims. Common reasons for the denial of double indemnity insurance claims are: (1) suicide exclusion; (2) limitation on benefits in cases of homicide or serious injury to another; (3) policy limitations on payment for the first few years; (4) exclusion for unintentional death; (5) exclusions for violation of law; and (6) limitations based on the type of death. Relatively few of double indemnity cases end up before the jury because insurance companies rarely litigate depositions and discovery. That said, many cases settle after depositions. A policyholder who has been denied is going to have to prove that the death was accidental in order to recover. An insurance company will not be in a hurry to pay until there is some podium verdict or discovery that creates sufficient leverage. The costs in pursuing double indemnity cases are not significant compared to the recovery. Given the low risk and high reward, it makes sense to hire the best lawyer you can for your case.
The Future of Double Indemnity Law
The future trends in double indemnity law are largely tied to the overall concerns and trends in the insurance industry. As technology continues to advance and consumers demand more digital solutions, many insurers are developing more sophisticated tools to help determine eligibility and premium pricing, often based on heavy use of algorithms and other "big data" information. While this information can lead to more tailored and affordable options for consumers, it also leads to more committees deciding eligibility behind the scenes, and more judges and juries deciding disputes over alleged bad faith and fraudulent denials of claims. As the quantity of insurance companies’ data expands, the role of the courts in analyzing that data in the context of a specific claim will become more important.
Again, the continuing growth of insurance industry technology will affect the amount and nature of litigation over double indemnity claims. Cases where decisions were made by a committee of humans who reviewed documents, drafts of claims decisions , and notes about phone calls with the claimants require different sort of proof than cases where an algorithm or bot made the decision or provided instructions for human review. Do we trust the determinations made by an automated program? Are they robust enough to carry the weight of a penalty that is often hundreds of thousands of dollars?
Insurance companies continue to consolidate. While at times this leads to better options for insurance customers, sometimes the expansion of large insurance companies comes at the expense of small local insurance providers that lose business. The growth of larger insurance companies also increases the complexity of double indemnity cases as the responsibility for a denial of a claim becomes more diffuse. Where an insurance company formerly had seven adjusted in one city handling claims, it now has three teams in different regions, divided up on a regional basis. Assertions of "everybody knows how we do business in this region" cannot be reconciled with denials of coverage by people in other regions. Further, as a result of this consolidation, it’s becoming more common for two international corporations to have standing under the same umbrella insurance policy, leading to complex contractual disputes.