The Case of the Faulty Conditional Receipt

An insurance advisor was asked to procure life insurance policies for two business owners who were in the process of obtaining an SBA loan. As a prerequisite for the policies to be put in place, both clients would need to submit to examinations with coverage contingent upon the exams outcome. The application also required the advisor to confirm by checking a box “YES” that his clients had been advised of the conditional nature of the binder and that no coverage was in force until exam results were approved by the insurer. The agent checked the “NO” box. The clients signed the application, paid the initial premium and were provided copies of the Conditional Receipt.

A month later, one of the applicants suddenly died before the medical examination was completed. The insurance company denied the claim for the $250,000 life benefit citing the terms of the “Conditional Receipt.” In short order, a suit was filed against the advisor.

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