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Insurance lawyers will testify that one of the biggest reasons they see for denial of coverage is the insurance company allegation that there was one or more misrepresentations in the policy application.

This issue is discussed in the 1969, San Antonio Court of Appeals opinion styled, The Prudential Insurance Company of America v. Ignacia Torres et ux.

This lawsuit, a declaratory judgment action, is asking the court to rescind and cancel a policy due to misrepresentations in the policy application.

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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.

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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.

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Knowing the statute of limitations on a case is vital.  This is illustrated in a 2018, Southern District of Texas, Houston Division opinion styled, Lillian Smith v. Travelers Casualty Insurance Company of America.

Smith sued Travelers for violations of the Texas Deceptive Trade Practices Act (DTPS), Texas Insurance Code violations, and breach of contract.  Travelers filed a motion for summary judgment based on the statute of limitations.

The allegations in the case are that a lightening strike caused damage to Smith’s home and air conditioner.  The claim was reported on September 5, 2013, and acknowledged on September 7, 2013.  An investigation was conducted in September and October of 2013.  Travelers issued a denial letter on November 13, 2013.

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Here is a case from the United States 7th Circuit that deals with life insurance when the policy is an Employee Retirement Income Security Act (ERISA) policy.  The case is styled, Emma Cehovic-Dixneuf v. Lisa Wong.

Pursuant to 29 U.S.C., Section 1104(a)(1)(D), ERISA requires administrators of employee benefit plans to comply with documents that control the plans.  In the case of life insurance policies, that means death benefits are paid to the beneficiary designated in the policy, notwithstanding equitable arguments or claims that others might assert.

In this case, the employee, Georges Cehovic, had two life insurance policies through his employer and the policies named his sister Emma as the sole and primary beneficiary.  When Georges died, his ex-wife, Wong, claimed that she and the child she had with Georges were entitled to the policy benefits.

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The United States Southern District of Texas, Houston Division, issued an opinion on July 3, 2018, that is not usually relevant to most claims but in case a situation arises where it is relevant, it is good to know.  The opinion is styled, Zurich American Insurance Company a/s/o Precision Castparts Corp. v. Rajwant Kaur d/b/a Lifetime Cargo, et al.

This case is before the Court on a Motion to Dismiss for Lack of Subject Matter Jurisdiction.  The motion was denied.

Precision Castparts (PCC) manufactures structural castings and forged components and owned a Behringer HBM-540A automatic horizontal bandsaw machine used in its business.

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Texas law requires pre-suit notice in many situations.  The Texas Insurance Code requires pre-suit notice before certain homeowners claims can be litigated.  An example of this is found in the 2018 opinion, Dwight Davis v. Allstate Fire and Casualty Insurance Company.  The opinion is from the Eastern District of Texas, Sherman Division.

Davis filed a first party lawsuit against Allstate.  Allstate filed a Verified Motion to Abate Pursuant to Texas Insurance Code, Section 542A.103.

The purpose of the notice requirement is to discourage litigation and encourage settlements.  The statute reads in part:

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The United States District Court, Eastern District, Marshall Division, issued an opinion on June 27, 2018, that discusses the law regarding the above title.  The opinion is styled, Medallion Transport & Logistics, LLC v. AIG Claims, Inc., Granite State Insurance Co., and Jay Carman.

The facts of the case will not be discussed here but can be read in the opinion.  It deals with the refusal of an insurer to pay a Stowers demand.  The opinion is a good read for it’s discussion of Texas Insurance Code, Section 541.060(a).  The allegation was that the defendants in the case failed to effectuate a prompt, fair, and equitable settlement of a claim for which the insurer’s liability had become reasonably clear.  Also, part of the claim dealt with Texas Insurance Code, Section 541.060(a)(7) wherein the defendants were accused of refusing to pay a claim without conducting a reasonable investigation of the claim.

The Texas Supreme Court has held that liability under the language of Section 541.060(a)(2)(A) requires the insured the show “that (1) the policy covers the claim, (2) the insured’s liability is reasonably clear, (3) the claimant has made a proper settlement demand within policy limits, and (4) the demand’s terms are such that an ordinary prudent insurer would accept it.”  Unlike a Stowers claim, the statute requires a bad-faith component.  The statute defines the foregoing failure to act in good faith as an unfair or deceptive act.  That means in the context of resisting a “no evidence” motion for summary judgment, the plaintiff must show some evidence that the insurer had no reasonable basis for denying or delaying payment or settlement of a claim.

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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?

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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.”

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