Credit Disability Insurance

Duncanville insurance attorneys need to be able to discuss credit disability issues with a prospective client. A 1996, Austin Court of Appeals opinion helps to understand credit disability issues. The case is styled, American National Insurance Co. v. Paul. Here is some of the relevant information.
The Pauls purchased a van from Dodge. In the negotiations, Mr. Paul asked the salesman whether the purchase price included credit disability insurance. The salesman did not know. There was no further discussion regarding credit disability insurance. The Pauls came into the car dealership later, stated that they were in a hurry and needed to buy the van over the lunch hour. The Pauls met the finance agent who prepared documents which included an application for credit disability insurance provided by American National. The total purchase price included premium payments for this coverage. The finance agent did not orally disclose the existence of the credit insurance application and the Pauls did not read the paperwork.
The insurance application contained a paragraph entitled “Applicant’s Statement” which required the applicant to affirm that she was in good health and had not consulted a doctor within three years for certain conditions. Mrs. Paul signed the statement even though at the time she suffered from Lou Gehrig’s disease. As of April 1, 1994, Mrs. Paul became permanently and totally disabled and unable to continue working. On May 5, 1995, she applied for disability insurance benefits pursuant to the credit disability insurance policy which American National denied. When American National discovered her condition, they refunded the premium payment to Chrysler Credit which in turn refunded it to the Pauls.
The Pauls filed suit against American National and Dodge alleging violations of the DTPA, Insurance Code, and breach of contract.
At trial, the court rendered judgment in favor of the Pauls on their breach of contract claim against American National in the amount of $18,317.00, representing the present value of payments remaining on the van, plus any premium payments already refunded.
The court found that the finance agent was a duel agent for American National and Dodge and he engaged in unfair and deceptive acts or practices. Therefore, the court ruled that the Pauls were entitled to recover from American National and Dodge jointly and severally an additional $5,000.00 in emotional distress pursuant to the DTPA and Insurance Code. Finally, the court determined that American National and Dodge were jointly and severally liable for the Pauls’ reasonable and necessary attorney’s fees. American National and Dodge appealed.
Damages and attorney’s fees for breach of contract awarded against American National were affirmed. Damages and attorney’s fees against both American National and Dodge for alleged violations of the DTPA and Insurance Code were reversed. Plaintiffs were to take nothing against Dodge.
Mrs. Paul’s statement in the application that she was in good health and had not consulted a doctor was a “representation” and not a condition precedent to the insurance policy. If language of a policy expressly provides that coverage does not take effect unless the applicant is in good health, the good health provision is enforceable as a condition precedent. The language in this policy was not a condition precedent.
In order to recover mental anguish damages under the DTPA or Insurance Code, in the absence of a resulting physical injury, a plaintiff must show that defendants committed the acts with a heightened culpable mental state, i.e., that the defendants acted “knowingly.” “Knowingly” is defined as “actual awareness of the falsity, unfairness or deception of the act.” In this case, the Pauls did not plead or prove a heightened culpable mental state. Therefore, the finding of mental anguish damages was in error and thus reversed. Also, since there were no other damage awards under the DTPA or Insurance Code, no attorney’s fees may be awarded under those claims without other actual damages.