Life Insurance – To Void Policy, There Must Be Intent To Deceive

Mason life insurance lawyers must understand that for an insurance company to prevail on a defense of misrepresentation, the insurer must prove the intent to deceive.  This is discussed in a 2013, Dallas Court of Appeals opinion styled, Medicus Insurance Company v. Frederick Todd, II, M.D.

Medicus provides medical malpractice insurance to physicians and health care providers.  Dr. Todd submitted a two page application for insurance.  The application asked if Todd had “ever been the subject of an investigation by any … licensing authority,” and he checked the “No” box.  In fact, Dr. Todd had been twice investigated by the Texas Medical Board for having three or more medical malpractice claims in a five-year period.  The credentialing application also asked if he had “ever had any malpractice actions within the past 5 years (pending, settled, arbitrated, mediated or litigated),” and Dr. Todd checked the “Yes” box and attached a description of four lawsuits filed against him between May 2000 and when he signed the application in May 2005.  Dr. Todd omitted one lawsuit from the list of claims filed between May 2000 and May 2005.  Dr. Todd also failed to disclose another lawsuit filed between his signing the credentialing application and his applying to Medicus.

The underwriter suggested to Medicus that the application be denied but Medicus decided to accept it.

There are other facts in the opinion not listed here.

Medicus denied Dr. Todd’s claim for coverage and filed a declaratory judgment action based on these misrepresentations when Dr. Todd was sued for malpractice.

Medicus’s when seeking to declare an insurance policy void because of material misrepresentations in the application for insurance must prove the insurance applicant intended to deceive the insurer.  Medicus argues that an insurer seeking to have an insurance policy declared void due to misrepresentations in the application has two alternative remedies: the common-law remedy, in which the insurer must prove an insured intended to deceive the insurer, and the statutory remedy under section 705.004 of the Texas Insurance Code, which does not expressly require the insurer to prove the insured had the intent to deceive.  Medicus asserts it brought suit under the statutory remedy, not the common-law remedy; therefore, it contends, it was not required to prove Dr. Todd intended to deceive it with the misrepresentations in the application concerning his claims history.

Section 705.004(a) of the Texas Insurance Code states an insurance policy cannot provide that false statements in the application for the policy make the policy void or voidable.  However, “Subsection (a) does not apply if it is shown at trial that the matter misrepresented: (1) was material to the risk; or (2) contributed to the contingency or event on which the policy became due and payable.” Ins.§ 705.004(b).  The statute does not expressly require, and never has required, the insurer to prove the insured’s intent to deceive.

Although the statute does not expressly require the insurer prove the insured’s intent to deceive, the supreme court has imposed that requirement.  In 1933, in a case involving misrepresentations in an application for life insurance, the commission of appeals quoted the statute, article 5043 of the 1925 Texas Revised Civil Statutes, and also stated,

The great weight of authority sustains the rule that under the provisions of these statutes a misrepresentation, or breach of warranty, by the insured, to avoid the policy, must be willful, or made fraudulently with intent to deceive….  It is a settled rule in this state that false statements to avoid a policy must have been willful and made with a design to deceive or defraud.

Although the statute permitting an insurer to include language in a policy authorizing it to declare the policy void for misrepresentations in the application does not require the misrepresentation be made with the intent to deceive, the supreme court has continued to impose that requirement.

This court discussed at length the common law and statutory history and law related to misrepresentations in insurance applications and is a must reading for life insurance lawyers and any lawyer practicing insurance law.