ALBANY — The Court of Appeals ruled against the insurance industry on an important policy issue yesterday, holding that the standard “incontestability clause” bars insurers from denying benefits to policyholders who knowingly failed to disclose a preexisting medical condition when they bought their policy.

Insurance companies are actively litigating the issue nationally and the New Jersey Supreme Court has ruled in their favor. But New York’s high court found that allowing insurers to challenge claims after the two-year incontestability period expires would undermine the Legislature’s intent in requiring carriers to put incontestability provisions in all of their life, health and accident policies.