American General is owned by AIG, which so far has taken $134 billion in federal bailout money. (As you'll remember, they also gave $165 million in bonuses to the same geniuses in the business unit that helped crash the economy.) Yet when it
November 21, 2010

American General is owned by AIG, which so far has taken $134 billion in federal bailout money. (As you'll remember, they also gave $165 million in bonuses to the same geniuses in the business unit that helped crash the economy.)

Yet when it comes to paying out life insurance policies for much less than the controversial bonuses they gave, they're suddenly very thrifty indeed:

American General Life Insurance Co. markets its policies as protection for "the hopes and dreams of American families" — a promise Ian Weissberger took to heart during his losing battle with Lou Gehrig's disease.

But after the Cathedral City mortgage broker died in 2005, American General cancelled his life insurance policy and refused to pay his widow the $250,000 benefit.

The Weissbergers' premiums were paid up. There was no foul play suspected. There was no question Sheila Weissberger was the widow and sole beneficiary. And Ian's illness was diagnosed months after he took out the policy.

The problem, the insurer told Sheila Weissberger, was that Ian's application for coverage was incomplete.

American General concluded that he had failed to disclose conditions, including bipolar disorder and pulmonary disease, that, according to his doctors, he did not have.

For the company, which collected $2.3 billion in premiums last year, the amount at issue was minute. But it was no small matter for Sheila, 62, who reached a confidential financial settlement with American General earlier this year.

"I lost my house. I lost everything," she said in an interview. "It was very, very devastating."

More often than not, life insurers make good on policies, paying $38 billion in death benefits on individual policies last year. But what happened to Sheila Weissberger was not unusual. The claims of thousands of beneficiaries are denied or disputed every year — more than 5,000 last year alone — many for allegedly flawed applications, a Times review found.

[...] To stop abuses by insurers, most states long ago banned limitless rescissions, but in California and elsewhere, they are allowed during the two years immediately after a policy is signed.

Experts and consumer advocates say some insurers have turned that into a "gotcha period," seizing on flaws after claims are made that they could have looked for before issuing coverage.

"Regulators need to come down hard on companies that are rushing applications through in order to gain premium income without taking time to screen the risks, then using rescission to control payouts and increase profits," said Amy Bach, an advisor to National Assn. of Insurance Commissioners and executive director of United Policyholders, a nonprofit consumer group.

Industry representatives say the power to rescind policies and withhold benefits is essential and fair. Accurate information is "crucial to the agreement and to the actuarially sound pricing of the product," said Steven Brostoff, a spokesman for the trade group the American Council of Life Insurers.

Yet some companies deny benefits far more than others.

American General, which ranks 11th in national market share, withheld more money than any other life insurer — $36 million — in disputes of 79 individual death claims in 2009, including several rescissions.

The company, a Houston-based subsidiary of American International Group Inc., declined to comment on the Weissberger case. In a statement, the insurer said that its record should be considered in light of its size and that it follows "the standard that has been California law for more than 100 years."

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