Articles Posted in Claims Denial

Being able to discuss the potential recovery when an insurance company wrongfully denies a claim is a topic any Dallas or Fort Worth insurance lawyer needs to be able to discuss with a client.

Policy benefits are the basic recovery allowed for an insurer’s breach of its contractual obligations.  An insurer’s refusal to pay the insured’s claim causes damages at least in the amount of the policy benefits wrongfully withheld, according to the 1988, Texas Supreme Court case, Vail v. Texas Farm Bureau Mutual Insurance Company.  The same Court in a 1996, opinion said that breach of contract allows recovery of benefit of the bargain damages, according to the case styled, Transportation Insurance Company v. Moriel.

In addition, an insured should be able to recover consequential damages that are the foreseeable result of the insurer’s breach of contract.  Numerous cases hold that insurance policies are subject to the same rules as other contracts.  This is exemplified in Hernandez v. Gulf Group Lloyds, a 1994 opinion.  It says one of the best established rules is that:

Relevant to Texas Insurance Law is a case reported on by the Cook County Record, an Illinois publication.

A Judge’s ruling in a traffic crash personal injury case could cost the insurance company, Liberty Mutual, $4.5 million, even though the policy at the heart of the case is supposedly capped at $25,000.

The judgement issued in this case is currently stayed pending an appeal at the U.S. Court of Appeals for the Seventh Circuit.

Information for Palo Pinto County Insurance Lawyers –

The Texas Supreme Court, in 1996, issued an opinion in a case styled, Liberty National Fire Insurance Co. v. Akin, that said:  “Insurance coverage claims and bad faith claims are by their nature independent but, in most circumstances, an insured may not prevail on a bad faith claim without first showing that the insurer breached the contract.”

In 1998, the same court, in an opinion styled, Vail v. Texas Farm Bureau Mutual Insurance Co. said that contractual liability is not essential to establish extra-contractual liability, but it helps.  The example in that case is an insurer that owed policy benefits under the contract may also be found to have acted unfairly in refusing to pay those benefits.

Weatherford insurance lawyers who handle insurance related matters need to understand that an anticipatory breach of the insurance contract has remedies under the law.   This is best illustrated in disability policies where the insurance company is obligated to make monthly payments to the insured.

According to the 1937, Texas Supreme Court opinion styled, Universal Life & Accident Insurance Co. v. Sanders, when an insurance company is obligated by contract to make monthly payments of money to another absolutely repudiates the obligation without just excuse, the obligee is “entitled to maintain his action in damages at once for the entire breach, and is entitled in one suit to receive in damages the present value of all that he would have received if the contract had been performed, and he is not compelled to resort to repeated suits to recover the monthly payments.”  Repudiation is conduct that shows a fixed intention to abandon, renounce, and refuse to perform the contract.

Another Texas Supreme Court is opinion is from 1976, and styled, Republic Bankers Life Insurance Company v. B.L. Jaeger.

Here’s something a lot of insurance attorneys may not realize.

An oral contract to insure is valid and enforceable.  This is confirmed in the 1949, Texas Supreme Court opinion styled, Pacific Fire Insurance Company v. Donald.  The oral agreement “is presumed to be made in contemplation of a policy containing the terms and conditions in customary use, and impliedly to adopt the same, and it is on this ground that such agreements are sustained as complete and binding contracts.”

Donald brought this suit against four insurance companies, one of which is Pacific to recover for the loss of 5500 bales of hay which were destroyed by fire while stored in a building.  Donald based his action on an alleged oral contract between himself and Henry Moore, agent of Pacific. Donald prevailed at trial and this appeal followed.

Insurance lawyers want to pursue the best theories of recovery when a client has a claim wrongfully denied.  Some people just want to file a complaint with the Texas Department of Insurance.  But, there are better ways to improve the situation.

Recovery based on theories of misrepresentation were discussed in the last posting.

Another way of recovery is based on “non-disclosures.”  Closely related to misrepresentation is the theory that the insurance company, agent, or insured failed to disclose information.  For example, if an exclusion is not adequately disclosed, the insurance company may be liable for breach of contract by relying on the exclusion to deny a claim.  Failing to adequately disclose limitations or exception to coverage may also make the insurance company or agent liable for unfair insurance practices or deceptive trade practices.

The San Antonio Court of Appeals issued an opinion in USAA Texas Lloyd’s Company v. John Doe and Jane Doe, and as next friends of XXX, a Minor.  The case is an appeal from a motion for summary judgment in a declaratory judgment action filed by USAA seeking a declaration that it had no duties under a renters policy insuring the Doe’s.

The Doe’s thirteen year old son had sexually assaulted a five year old and the Doe’s were sued by the parents of the five year old and the Doe’s sought to have USAA defend them under the renters policy.

USAA claimed there was no coverage for the incident, pointing to the liability section of the policy which read:

Here is a 2003 case from the Amarillo Court of Appeals that deals with a situation where the spouse is innocent but an insured on the policy is committing fraud.  The case is styled, McEwin v. Allstate Texas Lloyds.

Here are the facts.

The husband and wife were both named insureds on their homeowners policy.  The husband set the house on fire but the wife was unaware of the arson and was not involved.  The proof of loss form did not inquire into whether the insureds were involved and did not reference the origin of the fire.  An examination under oath was taken from both insureds who both denied knowledge or involvement in the loss.  The husband was subsequently convicted of the arson and the couple divorced.  The insurer denied the claim presented by the wife who had received all interest in the insurance proceeds in the divorce and the wife filed suit.  The insurer argued that denial was proper based on the concealment or fraud provision of the policy, which stated in part that “this policy is void as to you or any other insured, if you or any other insured … intentionally concealed or misrepresented any material fact or circumstance, made false statements or committed fraud relating to this insurance ….”  The trial court found this provision to be unambiguous and held that the husband’s fraudulent misrepresentations, concealment and fraud voided the policy as to all insureds, thereby precluding the wife’s recovery for the fire loss.  The wife claimed she was an innocent spouse and that all policy benefits would be her separate property pursuant to the divorce decree.  She further asserted that Texas Insurance Code, Section 705.003 required that the insurer prove it waived or lost a valid policy defense based on misrepresentation in order to void the policy.  The trial court disagreed and granted the insurer’s motion for summary judgment.  This appeal followed.

As all insurance attorneys should know, intent to deceive is a requirement that has to be proved for an insurance company to deny a claim based on a misrepresentation.  Even when faced with irrefutable evidence of a misrepresentation, intent to deceive still has to be proved.  Due to the inherent difficulty in assessing the subjective mental state of an insured, insurance companies have a difficult time establishing this element of the misrepresentation defense.  Insurance companies try to take the position that the intent can be proved as a matter of law and rely on two Texas Supreme Court decisions – Odom v Insurance Company of the State of Pennsylvania and Mayes v Massachusetts Life Ins. Co.

Mayes is a declaratory judgment action brought by the insurer based on misrepresentations in the application.  The jury in this case concluded that the intent to deceive was not intended.  The insurer argued that intent was established as a matter of law because the jury found that the misrepresentations were material to the risk and relied upon by the insurer.  The Court agreed with the jury that the misrepresentation was inadvertent.

In Odom, the court made the following statement:

How long does an insurance company have to discover and assert the defense of misrepresentation?  This is discussed in a 2008, Amarillo Court of Appeals opinion styled, Myers v. Mega Life and Health Insurance Company.

Myers filed suit based upon an insurance contract issued by Mega Life.  In addition to a declaratory judgment action, Myers sought damages for breach of contract and violations of the Texas Insurance Code.  Mega Life asserted the policy was rescinded due to misrepresentation in the insurance application.

Myers asserted that Texas Insurance Code, Section 705.005 prevents Mega Life from asserting the misrepresentation defense.  This section reads: