Dallas Fort Worth Insurance Lawyer Blog

Exclusions in life insurance policies are common.  The Texas Insurance Code, Section 1101.055 limits the permissible life insurance exclusions to suicide, stated hazardous occupations, and aviation activities.  Courts have construed this list to render void other exclusions, such as one excluding a loss caused by a preexisting condition.

A 1921, Texas Supreme Court case does a good job of explaining limits on exclusions.  The opinion is styled, First Texas State Insurance Company v. Smalley.

As explained in Smalley:  It was formerly usual for policies of life insurance to contain numerous conditions on which the amount or amounts promised to be paid on the death of the insured might be reduced or entirely defeated.  Among common conditions were those relating to the insured’s occupation, habits, residence, and suicide.  Not infrequently the amount of the insurance was stated in bold type, on the face of the policy, while the conditions were inconspicuously put on the back.  Such policies could be used to lead the unwary into the belief that they held enforcible promises of real and substantial benefits, when the promises were so limited and conditioned as to have slight actual value.  In this way premiums could be collected from the insured in exchange for apparent, rather than real, obligations on the part of the insurers.

This may seem strange but there are times an insurance company will deny a claim for life insurance benefits based on their assertion that the insured has not been proven to be dead.  This is discussed in the 1987, Texas Supreme Court opinion styled, Davidson v. Great National Life Insurance Company.

Here are some interesting facts.  In May 1980, a man identifying himself as Dauod Alquassab applied for a $1,000,000 life insurance policy with Great National.  Alquassab had previously used the names of David Kassab and David Kay; was a convicted of felony fraud charges under a different name.  Alquassab named Ilan Eiger, his partner in a real estate business, as the beneficiary when Great National issued the policy in June 1980.  In September 1980, Alquassab changed the beneficiary designation from Eiger to Phyllis Davidson, his former wife from whom he was divorced in 1968.  Alquassab then traveled to Tel Aviv, Israel, in February 1981.  Prior to his departure, the record indicates that Alquassab allegedly defrauded First City Bank in Houston, of approximately $1.5 million dollars, and committed additional acts of fraud upon other banking institutions.

On Wednesday, February 11, 1981, a body was discovered approximately 100-200 yards from the hotel where Alquassab was registered.  The body, which Davidson claims was Alquassab, had been struck by a car and then dragged face down.  Great National was notified of Alquassab’s alleged death on February 12; the body was buried the following day, Friday, February 13.  After Davidson made a formal claim under the policy to Great National on June 1, Great National rescinded the policy because of Alquassab’s alleged fraud in procuring the policy, and refused to pay any beneficiary proceeds to Davidson.

Who has an insurable interest in a life insurance policy?

The Texas Supreme Court, in 1979, in the case styled, Empire Life Insurance Co. v. Moody, held that a tenant holding property or an estate during the life of another has an insurable interest in the latter’s life.

Is an insurable interest essential to the validity of the life insurance contract?

Life insurance lawyers can tell you that sometimes a corporation can be a beneficiary to a life insurance policy.  The key word here is “sometimes” because it does not mean a corporation can always be a beneficiary of a life insurance policy.

Corporations may name themselves beneficiaries of policies they buy on the lives of their important officers, directors, and stockholders, but that insurable interest does not survive the relationship that created it, and if the relationship has been terminated or the business entity no longer exists, the proceeds go to the insured’s estate.  This is discussed in a 1942, Texas Supreme Court opinion styled, McBride v. Clayton and the 1998, Tyler Court of Appeals opinion styled, Stillwater v. Travelers Insurance Company.  Historically, this type of insurance has been called “key man” coverage, because the business has an economic interest in those officers, directors, and shareholders that are “key” to the operation of the business.

A corporation does not have an insurable interest in all its officers and employees, as stated in the McBride and Stillwagoner opinions, only those of “extensive experience and skill on whom the corporation depended for its continued success.”

A 1938, opinion from the Amarillo Court of Appeals helps answer the above question.  The case is styled, Smith v. Metropolitan Life Ins. Co. et al.

This lawsuit is a contest over the proceeds of a life insurance policy in the sum of $500 issued upon the life of John Wesley Smith by Metropolitan.  At the time the policy was issued the insured was an employee of Southern Pacific Railway Company, but prior to his death, he had been retired by the railway company and collecting a $40 a month pension.

The record reveals that in June, 1927, the insured was married to Jessie Smith, who was plaintiff in the trial court.  Long prior to the issuance of the policy the insured had ceased to live with the Smith, although they were never divorced.  The policy was originally payable to Emaline Bell and Ella White, who were shown by the record to be the nieces of the insured.  In March, 1936, the insured designated his niece, Ella White, as the sole beneficiary in the policy, such designation having been authorized by the terms of the policy.  The contest over the proceeds of the policy was therefore between the Smith, and Ella White joined by her husband, Rolly White.  The insurance company acknowledged its liability upon the policy, paid the $500 into the registry of the court and was therefore discharged with $50 attorney’s fee allowed it as a stakeholder in the controversy.  The trial court rendered judgment for the White, from which judgment Jessie Smith appealed.