Fraud And Misrepresentations In Insurance

Grapevine insurance attorneys need to be able to recognize when fraud or misrepresentation occurs in the insurance context.
To accuse an insurance agent or insurance company of fraud there needs to be 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 suffers injury.
These elements are set out in the Texas Supreme Court case, Stone v. Lawyers Title Insurance Corp.
The Texas Insurance Code, Section 541.061, deals with misrepresentations made in insurance policies.
In the Stone case, the purchaser of a tract of land sued a title agency on an owner’s title policy covering the tract for damages sustained due to the failure of the policy to show pipeline easements as exceptions. The Texas Supreme Court held the title insurance agency’s president statement that “everything was squared away” constituted some evidence that he represented that there were no easements on the property. The Court found evidence of actionable fraud against the title agency and its president.
In the 1996, Amarillo Court of Appeals case, Pankow v. Colonial Life Insurance Company of Texas, an insured sued a credit life insurance company after it failed to pay policy proceeds on grounds that the policy had not been reinstated before the insured’s husband died. The plaintiff alleged that employees of the insurance company 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.
In the 1994, Corpus Christi Court of Appeals case, Celestino v. Mid-American Indemnity Insurance Company, 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 liability coverage, did not amount to a fraudulent misrepresentation merely because the policy contained the punitive damage exclusion. The plaintiffs 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.
A false representation must involve an existing or past material fact, rather than a statement of opinion, judgment, probability, or expectation in order to constitute actionable fraud. Statements concerning future contingent events, sales talk, “puffing,” and other similar statements are not considered actionable misrepresentations. Similarly, representations concerning future events are not actionable unless at the time the statement or promise was made, the person making it did not intend to perform.