Articles Posted in Life Insurance

What if life insurance policy benefits use to a lapse in payment?  Talk to an experienced life insurance lawyer.
Here is a 2000, opinion from the San Antonio Court of Appeals dealing with this issue.  The opinion is styled, MacIntire v. Armed Forces Benefit Ass’n.
Here are the Facts:  Linda and Scott MacIntire submitted a joint application for term life insurance to the Armed Forces Benefit Ass’n (AFBA) in April of 1996.  The payments were made automatically via a computerized bank deposit scheme, but for unknown reasons, the payments were never made.  The few payments that the MacIntires did make were not enough to keep the policy in force and it lapsed on March 31, 1998 according to AFBA.  Scott MacIntire died from a terminal illness in August of 1998 and Linda inquired regarding the policy in September of that year.  Upon discovery of the failed automatic deposit setup, Linda tried to pay delinquent payments directly to AFBA, but AFBA denied the payments and coverage, stating that Scott’s policy had already been cancelled.  Linda sued AFBA, alleging violation of the Texas Insurance Code, violation of the DTPA, breach of contract, negligence, breach of duty of good faith and fair dealing, breach of implied warranty, ambiguity of contract, seeking to recover the death benefits and additional damages.  The trial court granted AFBA’s motion for summary judgment on the basis that no genuine issue of material fact existed.  Linda appealed, claiming that genuine issues of material fact existed in her claims for breach of contract, breach of implied warranty and ambiguity of contract, DTPA violations, Texas Insurance Code, Section 541.060, breach of duty of good faith and fair dealing, and negligence.

Life insurance claims that are denied by an insurance company should always be put in front of an attorney who handles life insurance claims.  The vast majority of the time an attorney experienced in handling life insurance claims can help.
Here is a 2005 opinion from the Fifth Circuit Court of Appeals that serve as an example of why claims denials should be presented to an experienced life insurance lawyer.  The opinion is styled Monumental Life Insurance Company v. Hayes-Jenkins.
Here are the Facts:  In November 2000, the insureds, husband and wife, purchased a house executing a mortgage note and an escrow agreement with the lender.  Two months later the lender, by agreement with the insurer, mailed an unsolicited application for a mortgage life insurance policy underwritten by the insurer.  All the enclosed materials promised a payoff of the mortgage balance up to $300,000 in the event of one of the insured’s death and emphasized a “no risk” 30 day trial.  The insureds promptly completed and mailed the application.  The husband died four days after the policy became effective, but before the mortgage company issued the first month’s premium payment and the wife demanded that the proceeds of the mortgage policy be applied to liquidate the remaining loan balance pursuant to the terms of the policy.  The insurer refused and filed a declaratory judgment action seeking a ruling that at the time of the husband’s death the policy was not in forced for failure by the insured to pay the required premium.  The wife counterclaimed against the insurer for breach of contract and violations of the Texas Insurance Code and DTPA.  She also filed a third-party complaint against the mortgage lender asserting claims for breach of the escrow agreement, negligence, and violations of the DTPA and Insurance Code.  The district court granted the insurer and the lender’s motion for summary judgement, dismissing all of the wife’s counterclaims and third party claims and this appeal followed.

Here is a 2007, United States Fifth Circuit Court of Appeals opinion dealing with life insurance claims and “Good Health” clauses.  The opinion is styled, Assurity Life Insurance Company v. Grogan.
The insured purchased a $1,000,000.00 whole life insurance policy from the carrier with the condition precedent for coverage that the policy did not go into effect until the “first full premium was paid during the Proposed Insured’s lifetime and continued good health.”  Shortly after purchasing the policy, the insured had a biopsy performed on a lump on his neck and was diagnosed with Hodgkin’s disease.  The insured died from complications a few months later.  The carrier brought a declaratory judgement action seeking a declaration that the life insurance policy never took effect due to the failure of a condition precedent.  The wife counter-claimed for breach of contract.  The carrier subpoenaed the insured’s medical records, which showed that the insured had ongoing medical treatment for issues related to the lump on his neck for the past several years.  The trial court held for the wife, finding that the insurance policy did take effect and that the wife was entitled to the proceeds.  The carrier appealed.
The Fifth Circuit Court of Appeals reversed, holding that the “good health” condition precedent for coverage had not been met because although the Hodgkin’s disease had not been officially diagnosed before the policy took effect, it had manifested itself earlier through the insured’s ongoing neck problems.  The court found that the “good health” condition precedent was well established in Texas law and this case presented no exception which warranted coverage.  The policy unambiguously stated that in order for it to take effect, the insured/proposed insured must make the first premium payment while in good health.

Here is a 2008, life insurance misrepresentation case.  It is from the United States 5th Circuit Court of Appeals.  It is styled, Liu v. Fidelity and Guaranty Life Insurance Company.
Liu filled out a life insurance application which stated that he had not been diagnosed with cancer within the previous ten years.  The policy was issued two days after he was diagnosed with cancer.  The carrier denied coverage arguing that the representation in the application was a condition precedent.  The trial court found coverage and was affirmed on appeal.
The Fifth Circuit stated that: “Under Texas law, the responses given in a life insurance application are mere representations, rather than warranties that would be capable of making coverage void or voidable.  Short of inserting an unambiguous “good health warranty” demonstrating that the parties intended the contract to rise or fall on the literal truth of an insured’s general certification of good health.  Texas has not allowed an insurer to change that result by contracting to make truthful application answers a condition precedent to coverage.

Many life insurance cases are fights between potential beneficiaries of the life insurance policy.  That was the case in this 2023, opinion from the Southern District of Texas, Houston Division.  The opinion is styled, Tommy Marion v. Principal Life Insurance Company and Nicky B. Thompson.
Marion sued Principal Life and Thompson alleging that Thompson fraudulently removed Marion as the beneficiary on a life insurance policy taken out by now-deceased John Thompson.
The facts of the case can be ciphered by reading the case.  Thompson filed a motion to dismiss Marion’s claim.  Here we will deal with the law regarding the alleged fraud.

Who can be sued when a life insurance claim is denied is an important consideration by strategic considerations.  Here is some insight.
Chapter 541 of the Texas Insurance Code defines and prohibits unfair and deceptive insurance practices.  Specifically, look at sections 541.001 to 541.061, 541.151 to 541.162, and 541.453.
The statute allows a private cause of action by any person who has sustained actual damages caused by another’s engaging in any act or practice that is defined as an unfair method of competition or unfair or deceptive act or practice in the business of insurance, or defined as an unlawful deceptive trade practice.  This is found in Section 541.151.  The definitions of unfair and deceptive practices are found in two places: (1) Texas Insurance Code, Sections 541.051 to 541.061, and (2) Section 17.46(b) of the Business & Commerce Code, the Texas Deceptive Trade Practices — Consumer Protection Act (DTPA).  See Texas Insurance Code, Section 541.051.

What if a life insurance agent does something he is not supposed to do when he sells a life insurance policy?  What if the insurance company ratifies what the agent did?
An insurance company may be liable for unauthorized conduct of an agent or other person, if the insurance company ratifies the conduct.  Ratification may occur when the insurance company, though having no knowledge of the unauthorized act, retains the benefits of the transaction after acquiring full knowledge of it.  The critical factor is the insurance company’s knowledge of the transaction and it actions in light of that knowledge.  Ratification extends to the entire transaction.  This is discussed in the 1980, Texas Supreme Court opinion styled, Land Title Co. of Dallas, Inc. v. F. M. Stigler, Inc.
Here is an example.  In the 1989, Fourteenth District Court of Appeals opinion styled, Paramount National Life Insurance Co. v. Williams, the insurance company issued a hospitalization policy, without further investigation, despite having an application indicating the insured’s advanced age and poor health, and despite having knowledge of the agent’s inexperience.  By nevertheless accepting premiums, the insurance company ratified the agent’s misrepresentations made in the sale of the policy.

What is the difference between a “recording” agent and a “soliciting” agent?  Does it make a difference?
The law is this area can be confusing, despite the relatively straightforward principles. Historically, there was a distinction between “recording” agents and “soliciting” agents.  A recording agent had authority co-extensive with that of the company, so there was no question of the agent’s actual or apparent authority.  This was stated in the 1979, Texas Supreme Court opinion styled, Royal Globe Insurance Company v. Bar Consultants, Inc.  The court noted that the authority of a soliciting agent was much more limited that the actual authority of a recording agent.  The court went on to hold that the insurance company was liable for the agent’s misrepresentation of coverage.
This led some courts to conclude mistakenly that an insurance company could be liable for misrepresentations by a recording agent, but not by a soliciting agent.  This can be seen in the 1984, First District Court of Appeals opinion styled, Guthrie v. Republic National Insurance Co.  This analysis was wrong, which was made clear when the Texas Supreme Court decided the 1994 opinion styled, Celtic Life Insurance Company v. Coats.

What if the life insurance agent varied the life insurance contract terms?  What is your recourse?
There are Insurance Code statutes dealing with this.  An agent is not authorized by the statutes to alter or waive a term or condition of an insurance policy or an application for an insurance policy.  The statutes governing this are section 4001.051(c), and 4001.053.  Nevertheless, an insurance company will be liable “for purposes of the liabilities, duties, and penalties provided by” certain statutes pursuant to Texas Insurance Code, Section 4001.051(b).  The referenced statutes include the prohibitions found in Chapter 21 and now found in the new codification, sections 4001.051 and 4001.009.  The Texas Supreme Court explained the interaction between these provisions under the older statutes as follows in the 1979 opinion styled, Royal Globe Insurance Company v. Bar Consultants, Inc.:
We are not to be understood as holding that the statutory authority granted an agent under Article 21.02 authorizes that agent to misrepresent policy coverage and bind the company to terms contrary to those of the written policy; that question was decided by us in International Sec. Life In. Co. v. Finch, 496 S.W.2d 544 (Tex. 1973).  However, an insurance company that authorizes an agent to sell its policies may not escape liability for the misrepresentations made by that agent which violate article 21.21 or section 17.46 merely by establishing that the agent had no actual authority to make such misrepresentations.

An insurance company cannot always escape liability just by showing that it did not authorize the specific wrongful act.  This is discussed in the 1994, Texas Supreme Court opinion styled, Celtic Life Insurance Co. v. Coats.
The Celtic court said:
In determining a principal’s vicarious liability, the proper question is not whether the principal authorized the specific wrongful act; if that were the case, principals would seldom be liable for their agents’ misconduct.  Rather, the proper inquiry is whether the agent was acting within the scope of the agency relationship at the time of the act ….  The misrepresentation in the present case was made in the course of explaining the terms of the policy – a task the jury specifically found to be within the scope of the agent’s authority.  Thus, Celtic cannot escape liability on the basis that it did not authorize particular representations concerning the policy.
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