Life insurance Reinstatement

Dallas life insurance attorneys need to read this opinion just issued from the Fifth Circuit Court of Appeals. The style of the case is, Cardenas v. United of Omaha Life Insurance Company.
This case arises from United of Omaha Life Insurance Company’s denial of Cardenas’s claim for benefits from a life insurance policy taken out by Cardenas’s daughter, Elvia Sierra. The policy lapsed and was subsequently reinstated; Sierra died thirteen months after the reinstatement. As required by the Texas Insurance Code, the policy contained a provision that it would become incontestable if it remained in force “for two years from its date of issue during the lifetime of the insured.” Although the policy does not have a provision dealing with contestability following reinstatement, the parties agree there is such a period. They differ over how the death of the insured during the contestability period will affect the reinstatement. The district court found that the reinstated policy never became incontestable because Sierra died before the two-year period ran. Cardenas argues that a section of the Texas Administrative Code controls and requires finding that the reinstated policy became incontestable.
United of Omaha Life issued a life insurance policy to Cardenas’s daughter, Elvia Sierra, on March 26, 2001. The policy lapsed for nonpayment of premiums in June 2005.
United of Omaha reinstated the policy on January 3, 2006, after Sierra submitted reinstatement application. Sierra made several misstatements about her health in the reinstatement application. The application required Sierra to certify that she had not lost more than ten pounds in the prior year, and that in the prior five years, she had not undergone any blood tests, laboratory tests, or special examinations, been ill or injured, or received medical or surgical advice or treatment.
In fact, Sierra suffered from Crohn’s disease and had been hospitalized for four weeks during June and July 2005. She lost thirty pounds between March and July 2005, including eighteen pounds in one week. Sierra died on February 20, 2007. Her death certificate lists toxic megacolon, sepsis, cachexia, and Crohn’s disease as the causes of death. Cardenas filed a claim for benefits on March 26, 2007. United of Omaha denied the claim on May 14, 2007, and on May 23, 2007, informed Cardenas that it was rescinding the policy due to misrepresentations it found in the reinstatement application.
Each party filed motions for summary judgment. The trial court denied both motions.
The case went to trial. Cardenas filed a motion for judgment as a matter of law at the close of evidence, which the court denied. The jury returned a verdict in favor of United of Omaha, finding that Sierra’s representations in the reinstatement application were material and intentional. Cardenas file a renewed motion for judgment as a matter of law after the verdict, contending that: (1) the insurer could not contest the reinstatement because the policy did not provide for a contestability period after reinstatement; (2) § 3.104(a) of the Texas Administrative Code provides an absolute two-year deadline for contesting the reinstatement; and (3) insufficient evidence supported the jury’s findings. The district court denied the motion and entered judgment for United of Omaha.
At the heart of this case is the question whether a life insurance policy, after it has been reinstated, automatically becomes incontestable after two years, or whether the insured must survive that two-year period. The answer to this question depends on how to interpret two key statutory and regulatory provisions, one of which expressly requires that in order to become incontestable, a policy must be in force for two years “during the lifetime of the insured.”
Section 1101.006 states that “a life insurance policy must provide that a policy in force for two years from its date of issue during the lifetime of the insured is incontestable, except for nonpayment of premiums.” Section 3.104(a) provides, in relevant part, that “if a reinstatement is contested for misrepresentation, no representation other than one causing the reinstatement may be used to contest the policy, any contest of the reinstatement may be for a material and fraudulent misrepresentation only and reinstatement may not be contested more than two years after it is effectuated . . . .”
This appeals court concluded that § 1101.006 applies to reinstatements.