Analysis on Incontestable Clause

Analysis on ICCB Case 6

and Incontestable Clause

16 December 2012

Table of Contents

1. Introduction2

2. Origin and Legal Development2

2.1 Origin of the Incontestable Clause 2

2.2 Evolution and Legal Development 3

3. Effects of the Incontestable Clause 5

3.1 Advantages5

3.2 Disadvantages6

4. Applications8

4.1 Characteristics8

4.2 Interpretation and Application in Hong Kong 9

5. Conclusion 10

6. Recommendations 10

1.        INTRODUCTION

The Incontestable Clause is a provision in a life insurance policy that precludes the insurer from alleging that the policy, after it has been in effect for a stated period (typically two or three years), is void because of misrepresentations made by the insured in the application.^[1]

In ICCB case 6^[2], the policyholder died 3 years after the policy was in force. His wife claimed the death benefits, but the insurer discovered that the policyholder had been treated for cancer over the past 3 years, which was not disclosed in the underwriting, and therefore refused to pay the death benefits. Investigating further, it was found that the policyholder had disclosed information of flu symptoms at the time of submitting application, and it was four days after signing the application that he went to a doctor and discovered that his flu symptoms were consistent with cancer. In examining the case, the ICCB found that the incontestable clause was of great importance in this case, since more than two years had passed between the policy’s inception and the policyholder’s death. As there was no apparent fraud, the ICCB found in favor of the beneficiary.

From the above case, we can conclude that the incontestability clause prevents an insurer from denying benefits on the grounds of misrepresentation in the application. It strikes a balance between providing predictable coverage and protecting the right of insurers to select the precise risks they seek to insure. This clause, however, has also been the source of much misunderstanding and considerable controversy.

Accordingly, this report will investigate several cases involving the incontestable clause in life insurance contracts, explore its origin and evolution, analyse the positive and negative effects, the current application of incontestable clause all over the world, and in the last section, provide a conclusion as well as recommendations.