Does insurance coverage continue when a named policyholder dies?

Is an additional insured under a policy entitled to coverage following the death of the named insured? What if the additional insured continues to pay the policy’s premiums and the policy undergoes an automatic renewal following the death of the named insured? Further, what if a liability claim is made against an additional insured after the death of a named insured in a state that restricts the insurer’s ability to retroactively rescind liability coverage? Under the terms of most policies, an insurer is under no obligation to provide coverage or defense under any of these circumstances except to the extent provided by the policy.

As with other contracts, a deceased person lacks the capacity to enter or extend the term of a policy for insurance. As the Fourth Circuit Court of Appeals has noted in Wilkins v. Inland Mutual Ins. Co., “[t]he requirement of notice of the death of a named insured is not an arbitrary thing inserted to entrap the unwary[,]” but rather the substitution of the named insured with another party “is a material change in the risk.”

Automobile insurance policies will often provide a bereavement period under which the additional insureds or the personal representative of the estate of the named insured may extend coverage, provided notice is provided to the insurer within sixty days of the named insured’s death.

Automobile policy case study

In Nielson v. Allstate Insurance Co., Johanna Timm was a Texas resident who purchased an automobile policy from Allstate Insurance Company in 1978. Timm died within five months of the one-year policy. The policy was renewed twice before Charlotte Doyle was killed in a two-car accident while driving the insured vehicle with the permission of the estate.

Michael Shou Nielson, the injured third party, obtained a default judgment against the estate and brought suit against Allstate. The assignment provision of the policy stated that coverage would only continue in favor of the executor or surviving spouse who remains a resident in the same household at the time of death, but this extension of coverage only lasts until the end of the policy period.

Nielson argued that Allstate had waived its right to rescind coverage due to its continued acceptance of policy premiums and renewal of the policies following the death of Timm. The court was unpersuaded and ruled in favor of Allstate.

On appeal, the Texas Court of Appeals held that the deceased Mrs. Timm lacked the capacity to renew coverage, and the terms of the policy were based upon the safety and driving record of Mrs. Timm, and that “allowing other parties…to renew and extend coverage to other individuals would vary the risk assumed by Allstate and would consequently create a new contract.”

Thus, a renewal policy in the name of a deceased named insured is void in its inception, even where an agent advises that coverage would continue to the benefit of the additional insureds. Further, the publication of an insured’s obituary in newspapers does not provide constructive notice to insurers.

State statutes on rescinding policies

The general rule holds true in liability insurance policies, but in the automobile context, it is unclear whether a state statute preventing an insurer from retroactively rescinding a liability insurance policy (below the state minimum coverage) applies where the policy could be declared void ab initio (void in its inception).

Such statutes generally prevent retroactive rescission where, for example, a material misrepresentation in the application results in liability coverage that would not have been issued, would not have been issued in the same manner, or would not have been issued with the same premium had the true facts been known. The death of the named insured prior to the renewal of the policy is distinct from such misrepresentations, as one of the parties to the contract lacked the capacity to enter the contract.

Exceptions to the rule

One exception to the general rule may exist where other parties have a cognizable interest in the property that is set forth in the policy. In these cases, a renewal of the policy following the death of the named insured may not void the policy.

In Georgia, a mortgagee who was listed on a fire insurance policy renewed the policy on its mortgagor’s behalf not knowing that the mortgagor/insured had died. In S. General Insurance v. Key, the named insured’s lack of capacity did not void the renewal policy because the mortgagee had an interest in the policy, and the policy included a “New York standard” clause that permitted the mortgagee to recover under the policy notwithstanding any act or omission of the mortgagor.

However, in another case with similar facts where the mortgagee had knowledge of the death of the mortgagor/insurer and nevertheless renewed of the policy, the mortgagee was not entitled to coverage following a fire. Where an insurer receives constructive notice of the named insured’s death but renews the policy, the insurer may be estopped from denying coverage and a contract implied-in-fact may be found to exist.

Insurers carefully measure the risk in issuing policies, and courts will generally allow rescission where a policy is automatically renewed or renewed by someone standing in the shoes of the deceased insured. The right to rescind may be limited where the insurer has actual or constructive notice of the death of the named insured yet renews the policy or continues to accept premium payments. Case law is not clear whether a liability policy which is automatically renewed in the name of a deceased insured may be rescinded where the state has a statute preventing retroactive rescission of insurance policies.

Derek J. Goff, an associate at Swift, Currie, McGhee & Hiers, focuses his practice on first- and third-party coverage opinions and litigation and bad faith insurance litigation. Contact him at Derek.goff@swiftcurrie.com.

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