Bad Faith Life Insurance Denial

Imagine this.  A life insurance claim is denied.  The beneficiary goes to an attorney who makes sends a demand letter to the life insurance company demanding payment and monies for their bad faith actions.  In response to the demand letter the life insurance company sends the policy proceeds, plus interest.  Does that end the matter?

This was answered as far back in Texas as 1908, in the Texas Supreme Court opinion styled, Penn Mutual Life Ins. Co. v. Manor.

For the full facts the opinion, which is kinda long, needs to be read.

This case was in the Court of Appeals who certified questions to the Texas Supreme and the following is relevant.

With the foregoing statement and explanation, the Court of Civil Appeals certifies to the Supreme Court for decision these questions:

“1. Do the facts and evidence set out above show such demand by appellee and refusal to pay by appellant as rendered it proper for the trial court to instruct a verdict for appellee for statutory damages and for ten percent attorney’s fees, assuming that in all other respects the clear and undisputed facts showed that she was entitled to recover such damages and attorney’s fees?

“2. If the first question be answered in the negative, then should the question of demand and refusal have been submitted as a question of fact to the jury, or should the court have instructed a verdict for appellant upon the subject of damages and attorney’s fees?”

To the first question we answer, yes. The right of the appellee to recover 12 percent damages and attorney’s fees in this case depends upon the sufficiency of the demand for payment made by her attorneys, Crawford, Lamar Crawford. If the statute was complied with, then she is entitled to recover the damages and attorney’s fees, otherwise, not. The following article of the Revised Statutes prescribes the demand to be made:

“In all cases where a loss occurs and the life or health insurance company liable therefor shall fail to pay the same within the time specified in the policy, after demand made therefor, such company shall be liable to pay the holder of such policy, in addition to the amount of the loss, twelve percent damages on the amount of such loss, together with all reasonable attorney’s fees for the prosecution and collection of such loss.”

After waiting for some months for a settlement of her claim, Mrs. Maner, through her agent, Mr. Coffman, employed Crawford, Lamar Crawford, of Dallas, to collect the policy. On the 11th day of October, 1905, the attorneys addressed to the insurance company at its home office in Philadelphia, the following letter:

“Dallas, Texas, Oct. 11, 1905.

The Penn Mutual Life Ins. Co., Philadelphia, Pa.


Mrs. Lee Maner, widow of Dr. F.B. Maner, of Itasca, Hill Co., Texas, has placed in our hands for collection your three (3) policies Nos. 282557, 291544 and 294031 on the life of Dr. Franklin B. Maner. You have heretofore received proofs of death.

As the statutes of Texas provide for attorney’s fees and a penalty in case of suit, we think it courteous and fair to you to notify you and request payment in advance of litigation.

Very respectfully yours,

Dic. WLC|L. Crawford, Lamar Crawford, Attorneys.”

The insurance company acknowledged receipt of this letter and sent to its attorneys, Locke Locke, of Dallas, a draft for the amount of the policy, leaving it to the attorneys to do as they might deem best with regard to the payment. The attorneys for the company did not disclose to Mrs. Maner’s attorneys the fact that they had the draft, but entered into negotiations with them with regard to the compromise of this policy, and two others, but the parties failed to agree, and, on the 22d day of November, 1905, suit was filed upon the policy for $5,000 claiming damages, interest and attorney’s fees. On the next day, 23d of November, Locke Locke tendered to the *Page 564 attorneys of Mrs. Maner $5,075, being the principal of the policy and 6 percent interest thereon.

The sole question before us is, did the letter of Crawford, Lamar Crawford constitute such a demand as is required by Article 3071, above copied. Bouvier defines the word “demand” thus: “A requisition or request to do a particular thing specified under a claim of right on the part of the persons requesting.” (9 Am. Eng. Ency., Law p. 198.) A demand being a request to do a particular thing specified under a claim of right, it follows that a request to do the same thing under the same claim of right would be equivalent to a demand for the same thing. The letter which expressed the request did so under a claim of right in favor of Mrs. Maner against the insurance company and requested the performance of a particular thing, that is, the payment of the money due to her upon the policy. If the word “demand” had been used instead of “request,” the company would not have more definitely understood that the money was then and there demanded and that a failure to pay the money would result in a suit upon which the damages and attorney’s fees would accrue. It does not matter in what terms the demand may be couched, the substance of it is that there is an assertion of a right and a demand for the recognition and performance of the obligation upon which such right rests. The fact that the attorneys for the insurance company proffered to pay the principal and six percent interest before the suit was brought does not affect the question, because there was no actual tender of the money and, as it appears from the statement, the time had elapsed within which the money should have been paid according to the terms of the policy, therefore, upon the demand and failure of the company to make payment the right to damages and attorney’s fees accrued and became as much a part of the claim as the principal and the interest and nothing done thereafter by the insurance company could divest that right.

So, the bottom line here is that a lawsuit can still be pursued for the bad faith causes of action and attorney fees and whatever else may apply.

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