Life Insurance Application

Life insurance attorneys can tell you that the life insurance application is very important.  This is illustrated in a 1997, United States 5th Circuit opinion.  The case is styled, Riner v. Allstate Life Insurance Company.

Following his divorce in 1994, Mr. Marriott wanted to replace his life insurance policy, which named his ex-wife as beneficiary, with a new policy naming his daughters (Riner and Ms. Marriott) as beneficiaries.  Mr. Marriott had endured five back surgeries and was in chronic pain at the time the Allstate agent took his application.  In the application, Mr. Marriott disclosed that he had chronic back problems and certain other medical problems.  The application, however, was marked “no” with respect to whether he had ever received treatment for the use of alcohol or depression within the last three years.

After completing the application, the agent accepted an initial premium check which was completed by the agent because Mr. Marriott was too affected by the pain killers to do so.  The agent then issued a “Receipt and Temporary Insurance Agreement” which he left with Mr. Marriott.  The agent did not leave a copy of Mr. Marriott’s application with Mr. Marriott.  The Agreement provided that the temporary coverage would start when Mr. Marriott’s medical examination was completed.  The medical examination was completed on July 26, 1994.  Six days later, Mr. Marriott died of either an aneurysm or heart disease.  Allstate refused to pay under the Agreement because Mr. Marriott failed to reveal his prior treatment for the use of alcohol and depression.

Riner and Ms. Marriott filed suit and moved for summary judgment.  The trial court, however, sua sponte, granted a Motion for Summary Judgment in favor of Allstate.  Riner and Ms. Marriott appealed.

The judgment in favor of Allstate was reversed.  Judgment was issued in favor of Riner and Ms. Marriott on the issues of Allstate’s obligation to provide coverage and benefits under the Agreement and on Allstate’s breach of contract.  Plaintiffs’ claims for breach of duty of good faith and fair dealing and violations of the Texas Deceptive Trade Practices Act and Texas Insurance Code were remanded for further development.

Allstate cannot rely on misrepresentations contained in Mr. Marriott’s application because it was not attached to the Agreement as required by Section 705.103 of the Insurance Code.  Allstate’s argument that the Agreement does not constitute a “contract of insurance” is without merit.  According to the unambiguous terms of the Agreement, coverage was effective on the date Mr. Marriott’s physical examination was completed.  Allstate never terminated that coverage.

Allstate’s argument that the Insurance Code provision making coverage void or voidable based on misrepresentations in an insurance application is of no effect.  Allstate’s remedy of an affirmative policy defense is available only when the representation is material and the application is attached to the contract or policy of insurance.  Allstate could have made insurability or acceptability a condition precedent to coverage under the Agreement or required the insured to be in good health as a condition precedent to coverage becoming effective.  It did not do so.