An incontestability clause makes a health or life insurance policy indisputable after a certain period of time (e.g., two or three years). It normally provides that, after the expiration of a certain period of time, the insurer may not set up matters that would have been a defense to a suit on the policy prior to the expiration of the period of time. Such matters that would have been a defense to the policy during the contestability period usually relate to misrepresentations made by the insured in his application for the policy. The purpose of an incontestability clause is to act as a type of statute of limitations to protect insureds from lawsuits or defenses by insurers after a certain point in time.

Incontestability by statute

Many states have statutes that provide that insurance policies shall contain incontestability clauses. If a policy is issued after the statute was passed, the statute applies to the policy. However, if a policy is issued before the statute was passed, the statute is generally held not to apply retroactively to that policy.

Incontestability in absence of a statute

Even if there is no statute requiring an incontestability clause in a policy, such a clause is still enforceable if it is included.

Effect of incontestability clause

If a policy contains an incontestability clause, an insurer must act within the designated contestability period in order to preserve its defenses to contest the policy. A contest is made only by legal proceedings. Thus, the insurer must either take affirmative action to cancel or rescind the policy or set forth its defense in an action brought by the insured or a beneficiary. The insurer's mere declaration of an intention to cancel the policy is not sufficient to qualify as a contest of the policy. The insurer's failure to contest the policy within the contestability period makes the policy indisputable.

Because incontestability clauses are for the benefit of the insured, they do not affect the right of the insured to file suit against the insurer.

Exceptions from operation of incontestability clause

An insurer may except from the operation of the incontestability clause provisions relating to certain benefits, including disability or double indemnity for accidental death. To do so, the insurer must use clear language, and any ambiguity in the exception will be construed against the insurer so that the exception will not be upheld.

Calculating contestability period

In computing the time when the contestability period began to run, courts usually use the date that would enable the insured to maintain his action. Normally, the date from which the contestability period is calculated is the date of issue of the policy. However, some states use the date of the application, the date of the policy, or the date of delivery.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.