The company is going to lose BIG TIME on this one.
Not if Settlers Insurance can prove that the late Mr. McCraw knew that he had Hepatitis C. This isn't really about the cause of death it's about lying on the life insurance application. From TFA;
"The law in Tennessee is clear that the cause of death is not relevant," [Company President] Lowe said. "What is relevant is whether the insured truthfully informed the company of his health at time of his death. If an applicant lied, the company has a right to deny the claim."
Under state law, Lowe said, insurance companies have a two year period to contest the information in a policy holder's application. If in that time, the company "discovers the applicant did not tell the truth about his health, the company can void or rescind the policy even if the person has died."
Still the policy was only for $25k - it will cost the company more than that in bad press. They should just settle (it's in their name after all;-).