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Written by AMLO.

Mehr Fairbanks Trial Lawyers turned $40,000 life insurance contract into $428,000 recovery for widow

Morton v. Bank of the Bluegrass

Fayette County, KY (2001)

James Morton borrowed money from his local bank, giving them a mortgage on his home. The bank suggested that he also purchase a “credit life insurance” to protect his family in the event that he died. James agreed. The bank set the note up for annual renewal. Thus the life insurance was also annually renewed. It was a typical “guarantee issue” insurance policy for $40,000. In other words, there were no requirements of good health to qualify for the insurance. If you qualified for the loan, you qualified for the insurance. James was healthy and working in 1986 when he began buying the insurance.

James health changed. In 1993 he was diagnosed with cancer. He was relieved that he had purchased the life insurance since the diagnosis was not good. However, when the bank sent him the annual renewal papers, the credit insurance was missing. When he asked the bank why, they explained that the insurance company would no longer let them insure him because he had cancer. The Fayette Circuit Court threw out the bad faith case.

This groundbreaking decision now stands as precedence that group life insurance policies cannot discriminate against unhealthy people, unless those conditions are placed in the policy. In this case they were not.

Court of Appeals

The Court of Appeals found that, as a matter of law, James was wrongfully denied coverage because neither the policy nor the application indicated that the insurance could be denied for medical reasons. Austin Mehr relied upon a little known statute, KRS 304.16-150 (that had never been subject to litigation) in the Court of Appeals. That little known statute provided that the policy had to set forth any basis for which the insurance company could refuse to issue insurance on a group basis. The court of appeals reversed, finding that issues of fact existed as to whether the bank breached its judiciary duty to disclose material facts about eligibility for the credit life insurance. The court also held that the widow of Mr. Morton was entitled to a trial against the insurance company as to whether they committed false, misleading, or deceptive acts in representing to the Mortons that her husband was not eligible for continued insurance coverage.

The jury trial

Because of the reversal by the Court of Appeals, the case was ultimately tried in Fayette Circuit Court: The Bank settled and a judgment was entered for $389,000 against the insurance company. This result took seven (7) years to accomplish because of the numerous appeals. But a $40,000 insurance company ultimately paid $389,000, plus a confidential amount from the Bank.