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Life Insurance Lawyers can inform their clients that a creditor can have an insurable interest in a life insurance policy.  There is a caveat.  A creditor may designate itself the beneficiary of a policy purchased by it on the life of its debtor, but its insurable interest is limited to the loan balance at the insured’s death; the rest of the policy proceeds belong to the insured’s estate.  This is confirmed in the 1968, Texas Supreme Court opinion styled, McAllen State Bank v. Texas Bank & Trust Co.

The bank asserted rights to the life insurance policy as a beneficiary of the proceeds of the policy in this case.  The insured had pledged policy proceeds as security for the debt.

The assignment or pledge of a policy as security creates a lien on the proceeds on behalf of the assignee.  While some authorities limit the rule, it is generally held that the rights of an assignee under a valid assignment of the policy for security are superior to those of the beneficiary to the extent of the indebtedness secured where the policy provides that insured has the right to change the beneficiary, especially where the beneficiary joins in the assignment; but the beneficiary is entitled to the excess of the proceeds over the amount of the indebtedness secured.

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Life insurance lawyers will see fights over who is entitled to life insurance proceeds.  One of the fights is over whether or not the named beneficiary had an insurable interest in the life of the insured.

The main case cited for dealing with this issue is a 1942, Texas Supreme Court opinion styled, Drane v. Jefferson Standard Life Insurance Co.

In the Drane case, Harry E. Ezell, Jr. was named as the beneficiary under two policies insuring the life of Dorothy A. Drane.  Hugh Drane, the executor of Dorothy’s estate filed a lawsuit seeking to prevent Ezell from recovering the money and for the money to go to Dorothy’s estate.

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Not just anybody can be a beneficiary to a particular life insurance policy.  The person must have an insurable interest.

A 1894, Texas Supreme Court case styled, Cheeves v. Anders, makes clear that it is well settled that a life insurance beneficiary must have an insurable interest in the insured’s life.

The basis for this rule is twofold: 1) no one should have a financial inducement to take the life of another; and 2) a life insurance policy for the benefit of one without an insurable interest is a wagering contract.  (It should be pointed out there are legal ways to have a life insurance policy on another).

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The law in Texas is pretty clear, an insurance company is entitled to received a notice before a lawsuit is filed.  This is recently illustrated in a Southern District, Houston Division, opinion styled, Jose Luis Perrett v. Allstate Insurance Company.

This is a dispute arising out of damage caused by Hurricane Harvey.  Perrett sued Allstate and Allstate moved to have the case abated due to Perrett’s failure to comply with Texas Insurance Code, Section 542A.003, which requires a presuit notice.  The Court granted Allstate’s motion.

542A.003 says:

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Employee Retirement Income Security Act (ERISA) cases are difficult at best.  But finally, here is a win in the courts.  The 5th Circuit issued a ruling on June 13, 2018, in favor of a claimant.  The case is styled, Ester Hill White v. Life Insurance Company of North America.

Among other issues, the Court first addressed whether LINA had a conflict of interest.  This issue arises when the insurer of the plan also determines whether the claimant is entitled to benefits.  A conflict of interest, such as the one in this case, should prove more important where circumstances suggest a higher likelihood that it affected the benefits decision.

The Court was concerned with LINA’s failure to address Dr. Fochtman’s report in its denial of life insurance benefits.  White argues that such failure amounts to procedural unreasonableness.  Procedural unreasonableness is important in its own right and also justifies the court in giving more weight to the conflict.

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Married persons naming their spouse as a beneficiary in a life insurance policy is common and maybe even the most often seen beneficiary under a life insurance policy.

However, Texas law makes clear that a spouse can designate his or her estate as the beneficiary of the policy, at the expense of the other spouse, absent a showing of actual or constructive fraud.  This was made clear in the 1994, Fort Worth Court of Appeals opinion styled, Street v. Skipper.

In the 1981, Eastland Court of Appeals opinion styled, Pilot Life Insurance Co. v. Koch, the policy at issue contained provisions automatically divesting the spouse of any interest in the proceeds, if the parties are “legally separated” or divorced.  Also, the divorce decree may divest the former spouse of any right to the insurance proceeds.  This was made clear in the 1987, 14th Court of Appeals opinion styled, Novotny v. Wittner.  By statute, a divorce invalidates any pre-divorce designation of the former spouse as beneficiary, unless the former spouse is re-designated.  If the pre-divorce designation is invalidated, the proceeds may go to any alternate beneficiary or to the insured’s estate.  If the insurer pays the former spouse based on an invalidated designation, the insurer is liable to pay the proper beneficiary.  This is made clear in the Texas Family Code, Section 9.301.

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Here a situation that is not seen very often, but it does occur.  This 2018,  case is from the Tyler Court of Appeals and is styled, In Re: Metropolitan Property And Casualty Insurance Company, et al.

This is a mandamus action wherein Metropolitan is appealing the trial court’s decision of denying Metropolitan’s Motion to Transfer Venue.

In 2013, Patti Wan was involved in an automobile collision with Fidel Campos’s minor son, an uninsured motorist.  Wan was covered by an insurance policy issued
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Coverage for punitive damages are not always covered in an insurance policy.  This issue came up in the 2018, case styled, Richard Brett Frederking v. The Cincinnati Insurance Company, Inc.  The case is from the U.S. District Court, Western District of Texas, San Antonio Division.

This is a summary judgment case if favor of Cincinnati.  The Court held that the insurance policy at issued does not afford coverage for the punitive damages award attributed to the negligence of Carlos Sanchez.

Frederking was injured when his vehicle was struck by an intoxicated driver, Carlos Sanchez.  A trial was held in State Court and the jury found Sanchez was grossly negligent and awarded Frederking $207,550.00 in punitive damages plus interest.  The issue is whether the policy held by Sanchez’s employer covers this punitive damages award.

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A starting point for understanding an Examination Under Oath (EUO) is start with the principle that an insured has a duty under their insurance contract to cooperate with the insurer’s investigation of a claim.

In the first-party setting, which is the setting under which EUO’s are sought:  Duties of cooperation include the duty to submit to an EUO, the duty to respond to reasonable requests for information and documents, and the duty of candor which would prohibit the insured from concealing information from the insurer or providing false information in support of the insured’s claim.  An EUO and the information obtained therefrom is the core of the duty to cooperate.  The regard the courts have for the duty to cooperate is illustrated in the case, Aetna Casualty & Surety Co. v. State Farm Mutual Auto Insurance Co., a federal case out of Pennsylvania.  Mona Dobbins, the State Farm insured, refused to give a statement to State Farm regarding a car wreck that occurred in August, 1987.  In the accident, Dobbins struck and killed a pedestrian with the vehicle she was driving, which had been leased by her employer Brookline Social Club.  Dobbins fled the scene of the accident.  In light of the criminal proceedings against her, Dobbins refused to give a statement to State Farm based on her 5th Amendment privilege against self-incrimination.  Later, in August of 1987, State Farm sent Dobbins a reservation of rights letter.  In December of 1987, a civil action was filed against State Farm’s insured, Dobbins, by the estate of the pedestrian killed.  After a default judgment was obtained by the estate against Dobbins, State Farm sent two letter to Dobbins in March of 1989 “denying coverage under its liability policy issued to the Brookline Social Club and refusing to defend or indemnify her because of her refusal to cooperate with State Farm’s investigation.  Following State Farm’s denial of coverage, the estate of the pedestrian killed presented an uninsured motorist (UM) claim to Aetna, the uninsured motorist insurer.  After Aetna paid the UM claim, it filed an action against State Farm for indemnification from State Farm for the UM claim paid by Aetna.  The jury returned a verdict in favor of State Farm finding that State Farm insured, Dobbins, breached her duty to cooperate and that State Farm had suffered substantial prejudice.  Aetna filed a motion for judgment notwithstanding the verdict.  Upon consideration of Aetna’s motion for judgment notwithstanding the verdict, the court upheld State Farm’s coverage denial, rejecting Aetna’s argument that Dobbins’ 5th Amendment privilege excused her breach of contract as a matter of law.  As one commentator indicated, “In these trying times of exaggerated and intentionally false claims, EUO’s offer the insurance company’s best chance of aggressively investigating first party claims in a good faith atmosphere.  EUO’s should be effectively utilized by the insurance company in its search for truth in the war against arson and false claims.”

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A frequent phone call to insurance law lawyers is someone asking about participating in an examination under oath (EUO).

Most people understand what taking the 5th means.  It refers to our right to not be compelled to say anything that may be self-incriminating.  It usually is discussed in the context of a criminal proceeding or investigation.  However, the privilege against self-incrimination also applies in civil proceedings.  Just because you are in a civil case rather than a criminal case does not require a person to surrender this right.

In an insurance situation, an insurance investigation is contractual in nature.  Almost all insurance policies are going to contain a cooperation clause that requires the insured to cooperate with the investigation of a claim for which the insured is seeking policy benefits.  Courts in interpreting the cooperation clause have universally found that the insured cannot use the 5th Amendment to avoid cooperating with the insurance company yet insist that the insurance company provide the requested coverage.

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