Application And Life Insurance Policy

The application for a life insurance policy has to be attached to a life insurance policy.  This is illustrated in a 1994, Texas Supreme Court case styled, Fredonia State Bank v. General Life Insurance Company.

The insured died as the result of a gunshot wound to the head.  Prior to his death, he had purchased two life insurance policies, each in the amount of $250,000.00 issued by General.  General denied the beneficiary’s claim for benefits.  Fredonia State Bank, an assignee of one of the two policies and executor of the insured’s estate, sued to collect the proceeds of the policy.

General asserted as defenses that the insured had committed suicide and that the insured had made misrepresentations regarding his medical history, which were material to the risk assumed by General.

The Bank argued that the insured’s application did not contain misrepresentations and the even if it did, the misrepresentations would not constitute a defense since the application was not attached to the policies when they were issued.

The jury found that (1) the insured did not commit suicide, (2) the medical portion of his application was not attached to the insurance policies, and (3) the insured did not misrepresent his medical history in order to obtain insurance.  The trial court granted judgment for the Bank.  The Appellate Court reversed the trial court’s judgment finding that the great weight and preponderance of the evidence was contrary to the jury’s findings and that the insured had made misrepresentations in order to obtain insurance.

The Texas Supreme Court granted writ and ultimately reversed the appellate court’s decision.  According to the Court, Texas Insurance Code, Section 1101.003 precludes an insurance carrier from relying on misrepresentations contained in an application as a basis for denying claims, unless the application is attached to the insurance policy.

This requirement is intended to enable the insured to have the material terms of the contract at hand, so that he may correct any misrepresentations which may have been the basis of the insurance coverage.   In this holding the Texas Supreme Court is ruling that representations in an application not attached to a life insurance policy can not be the basis of a misrepresentation defense.

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