Recent South Carolina Case Addressing False Answers on Life Insurance Policy Application

The South Carolina Court of Appeals recently overturned a directed verdict finding no coverage under a life insurance policy where false answers were provided in Shenandoah Life Insurance Company v. Lakeisha Smallwood.  Ms. Smallwood purchased the policy to cover her deceased husband who had twice admitted to medical professionals that he had used alcohol and drugs, particularly cocaine, and believed he suffered from post-traumatic stress disorder (“PTSD”)  following his military service.  Despite these facts, on his life insurance application, Mr. Smallwood denied use of cocaine with the last five years and any diagnosis or treatment for a “mental or nervous disorder, alcohol or drug dependency” within the last ten years.

The trial court granted Shenandoah’s motion for directed verdict at the close of evidence finding that Shenandoah clearly and convincingly proved that Mr. Smallwood intended to defraud Shenandoah with his false denials.  The Court of Appeals reversed finding that Shenandoah failed to prove that Mr. Smallwood intended to defraud Shenandoah, because a reasonable jury could find several plausible explanations for the false answers existed, such as the possibility that Mr. Smallwood desired to keep his drug use and PTSD secret from his family.

The Court of Appeals distinguished Smallwood from several very similar cases on the bases of differences in the facts concealed relative to the risk insured.  The Court held that the instant matter did not present “one of those rare cases where the only reasonable conclusion from the uncontradicted facts is that [Mr. Smallwood] intended to deceive and defraud” Shenandoah.  Unlike similar cases finding an intention to defraud the insurance company based on concealed facts that related directly to a significantly increased risk of death, the Court of Appeals found that Mr. Smallwood did not associate his drug use with any increased medical risk.  In so doing, the court appeared to rely heavily on the lack of a formal diagnosis of PTSD or drug abuse and the lack of testimony in the record by Mr. Smallwood’s treating physicians that Mr. Smallwood was made aware of the risks associated with PTSD and drug use.

David Harmon, Partner
Carlock Copeland & Stair
40 Calhoun Street
Suite 400
Charleston, South Carolina 29401