Articles Posted in Life Insurance

Here is a curious 1933 opinion from the Texas Court of Commission of Appeals.  It is styled, American National Insurance Co. v. Huey.

This is a case wherein an insurance agent is alleged to have misrepresented the terms of an insurance policy wherein the insured was to receive monthly benefit.  This was not what the policy provided.  When the claim for benefits was denied, the insured filed suit alleging the misrepresentations by the agent.

It appears from the record and findings of the jury that, Huey made an application for insurance to the insurance company.  As actually written and signed, this application called for the issuance of a life insurance policy for $2,000, providing for double indemnity in case of accidental death, and waiver of premiums in case of total disability.  On March 12, 1929, a policy of insurance issued by such company was delivered to Huey in all things conforming to the application as written.

Area life insurance attorneys need to know the reasons an insurance company can rescind an insurance policy.

In addition to the common law standards, several statutory provisions regulate an insurer’s ability to avoid coverage based on a misrepresentation by the insured.  These are found in Texas Insurance Code, Chapter 705.

The statute provides:

Parker County life insurance lawyers know how the courts look at warranties in life insurance policies.

As stated in the 1997, 5th Circuit opinion styled, Riner v. Allstate Life Insurance Company, “Warranties in insurance applications are strongly disfavored in the law, and even fairly obvious attempts to create warranties in the application process have been rejected by Texas Courts.”  There is a line of cases holding the same as Riner.  Courts thus have been disinclined to find that contract language creates a warranty or condition precedent unless the language allows no other conclusion.

The language used the 1966, Texas Supreme Court case, Great American Reserve Insurance Co. v. Britton, said that “the policy shall not take effect until it has been delivered to its owner during the lifetime and good health of the Insured.”  The court found this was a condition precedent.

Aledo life insurance attorneys need to know the difference between a misrepresentation in a life insurance policy application and a condition precedent.  There is an important distinction between statements by the insured that are considered to be representations and those considered to be conditions precedent.  If the insured’s statement is considered a representation, a false statement alone will not let the insurer avoid coverage.  Each of the elements discussed by the Texas Supreme Court in the 1980, opinion styled, Mayes v. Massachusetts Mutual Life Insurance Co., must be shown.  In contrast, if the insured’s statement is considered a condition precedent, then falsity alone will allow the insurer to avoid coverage.

This representation versus warranty issue is well developed under Texas law.  If the statements are representations, then to avoid liability under the policy the insurance company must plead and prove:

1) the making of the representation;

Lawyers handling accidental death life insurance policies would want to read all cases dealing with this subject.  Here is a 5th Circuit opinion styled, Abdul Salam Badmus v. Mutual of Omaha Insurance Company.

In August 2010, Mutual issued an Accidental Death Policy to Selem Babtunde Badmus (Selem), providing a $750,000 death benefit.  The policy provided no beneficiary but was changed to designate Selem’s brother, Abdul Salam Badmus (Badmus) as beneficiary in July 2013.  In March 2013, Badmus filed a claim seeking the policy benefits, alleging Selem died in an auto accident in Lagos, Nigeria, on January 24, 2014.  Mutual sent Badmus forms to complete and requested documents in support of the claim.  They received back partially completed forms and none of the requested documents.  Upon discovery of numerous discrepancies Mutual hired Worldwide Resources, Inc. (Worldwide) to investigate the claim.  Worldwide ultimately concluded that most of the information submitted was suspect and Mutual denied the claim.

In May 2015, Badmus filed suit for breach of contract and violations of numerous sections of the Texas Insurance Code.  Again choosing to undertake an independent investigation, Mutual uncovered a series of name-change forms indicating that “Selem Babatunde Badmus,” residing at Badmus’s address in Houston, Texas, applied for a name change to “Abdul Salam Badmus” on May 21, 2016, over two years after Selem’s alleged death in Nigeria.  shortly thereafter, Badmus was indicted for felony insurance fraud based on the insurance claim he filed with Mutual.

The Northern District of Texas, Dallas Division ruled on an interpleader case recently.  It is styled, Primerica Life Insurance Company v. Sherry Purselley, et al.

The co-defendants in this case are Henslee, Lee, and Sherry Purselley.  This is an effort to determine who owns the life insurance proceeds at issue.

Lee purchased the Policy and he was owner with Sherry the primary beneficiary.  Later, Lee executed a Change Form that designated Sherry the Policy owner in 1992.  She thus, became the new owner.

Fort Worth insurance lawyers need to be aware of a life insurance policy’s incontestability clause.

All life insurance policies must contain an incontestability clause, which is a provision  that the policy will be incontestable after it has been in force during the lifetime of the insured for two years from its date, except for nonpayment of premiums.  The statute requiring this is found in the Texas Insurance Code, Section 1131.104 for life insurance policies and Article 3.50, Section 2(2) for group life insurance policies.  Also, look at Sections 705.101 to 705.105.  The effect of these clauses is to limit the preceding defenses so they can apply only during the first and second policy years.

The purpose of the incontestability clause is to protect the insured from a contest as to the validity of the policy after the set period has expired.  This is discussed in the 1972, Texas Supreme Court opinion styled, Minnesota Life Insurance Co. V. Morse.

Arlington life insurance lawyers know the requirements insurance companies must meet to successfully defend a life insurance case based on the defense of misrepresentation.  Misrepresentation in the policy application is the most common reason for denial of a claim for benefits.

The Texas Insurance Code, Sections 705.001 to 705.005, prohibits a defense to coverage based on misrepresentations in an application, unless the application is attached to the policy.  The statute is affirmed in the 1994, Texas Supreme Court opinion, Fredonia State Bank v. General American Life Insurance Co.

As was stated in another Texas Supreme Court opinion in 1975 styled, Johnson v. Prudential Insurance Co. of America, “Applications for insurance and other written statements made in that connection are often filled out or written by insurance agents or others and only signed by the insured.  It has often been held that it is the underlying legislative intention to require that the insured have the material terms of the contract at hand during his lifetime in order that he might examine and correct any misrepresentations which have been made the basis of the insurance coverage.”

Grand Prairie life insurance lawyers know that for a life insurance company to establish misrepresentation as a defense for refusing to pay on a claim, that the life insurance company must plead and prove five elements:

  1.  the making of the misrepresentation;
  2.  the falsity of the misrepresentation;

A 1982, 14th Court of Appeals opinion recognizes and upholds that life insurance policies typically exclude suicide as an assumed risk of the carrier.  The opinion is styled, Parchman v. United Liberty Life Insurance Co.

In Parchman the policy excluded suicide as an assumed risk for two years from the policy date and provided a reduced benefit of the premiums paid if death resulted from suicide within that period.

As another example, a 1986, Amarillo Court of Appeals opinion styled, Southern Farm Bureau Life Insurance Co. v. Dettle, provided:  If the insured within two years from the date of issue of this policy shall die by his own hand or act whether sane or insane, the liability of the Company shall be limited to an amount equal to the premiums actually paid, without interest.