In Cardenas v. United of Omaha, the Fifth Circuit Court of Appeals ruled that, under Texas law, the two year contestability period runs from the time a policy is reinstated.
The insured purchased the life insurance policy in 2001. The policy lapsed for nonpayment of premiums in 2005. The insurance company reinstated the policy in 2006, after the insured submitted a reinstatement application. The insured died in 2007.
The insurance company refused to pay the benefits, contending the insured made material misrepresentations in the reinstatement application. A jury agreed.
On appeal, the beneficiary contended that the two year contestability period ran from the initial policy term in 2001, not from the reinstatement in 2006. The court of appeals disagreed.
However, the court of appeals did affirm that, under Texas law, if an insured survives the two-year contestability period following the issuance of a policy, the policy cannot be challenged except for nonpayment of premiums. This bar to contestability applies even if the insured made a material misrepresentation in the application.