Fraud In Insurance Cases

How does a person in Grand Prairie, Arlington, Mansfield, Aledo, Burleson, Bedford, Euless, Lancaster, Hurst, Fort Worth, or any other city in Texas know when their insurance company or agent is committing fraud? The problem with fraud is that a person usually does not know when it happens.
USLegal defines fraud as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.
The Texas Supreme Court, in 1977, defined fraud in the case, Stone v. Lawyers Title Insurance Corp., saying:
A fraud cause of action requires proof of the following elements:
(1) a material representation was made;
(2) the representation was false;
(3) the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion;
(4) the speaker made it with the intention that it should be acted on by the party;
(5) the party acts in reliance upon it; and (6) the party suffered injury.
In Stone, the purchaser of a tract of land sued Lawyers Title Insurance Corp. on an owner’s policy covering the tract for damages sustained due to the failure of the policy to show pipeline easements as exceptions. The Court held the title-agency president’s statement that “everything was squared away” constituted some evidence that he represented that there were no easements on the property. As a result, the Court found evidence of actionable fraud against the title agency and its president.
Another example of fraud is found in, Pankow v. Colonial Life Insurance Co. of Texas. This is a 1996, Amarillo Court of Appeals case.
In Pankow, Pankow sued Colonial Life Insurance Co. of Texas, a credit life insurer, after it failed to pay policy proceeds on grounds that the policy had not been reinstated before the insured’s husband died. Pankow alleged that employees of Colonial misrepresented that the policy would be reinstated and that they would secure the transfer of monies from an escrow account to pay outstanding premiums. These were actionable representations, as they involved misrepresentations of a future act which could be performed in compliance with policy terms.
Celestino v. Mid-American Indemnity Co., is an example of a case where the court said there was not any fraud. This is a 1994, Corpus Christi Court of Appeals case.
In Celestino, an employer’s excess policy contained an exclusion for punitive damages. The declaration page, which specified that the umbrella policy conferred one million dollars in excess employer’s liabiity coverage, did not amount to a fraudulent misrepresentation merely because the Mid-American Indemnity Co. policy contained the punitive damages exclusion. Celestino alleged that, by virtue of the exclusion, the policy in essence provided no employer’s liability coverage at all. But the court stated that it could not isolate a general provision within a contract and label it a misrepresentation merely because subsequent exceptions preclude the effect of that provision. Furthermore, the language of the exclusion was plain, and its placement was prominent.
With the examples given above, it can be seen that each case is fact specific and has to be looked at closely to see if the allegation of fraud applies.