Here is a life insurance denial case that is a bit confusing at the least. The opinion is a 2020, opinion from the Western District of Texas, San Antonio Division. It is styled, Tina M. Hale, as next of kin of Michael Hale, Deceased v. Assurity Life Insurance Company.
On May 4, 2016, Mr. Hale obtained a 20-year term life insurance policy with a face value of $250,000 (the “Policy”) issued on form “I L0760”. Mr. Hale paid a monthly premium of $141.81, based on the rate for a 42-year-old non-smoker. After Mr. Hale’s death, an investigation revealed that he had been untruthful in his answer to the tobacco question on his life insurance application, and the Policy should have been issued with a Standard Tobacco rating rather than a Standard Non-Tobacco rating. Assurity applied the premiums as if they had been paid toward a policy with a Standard Tobacco rating issued on form I L0760 and determined that the benefits payable under the policy were $99,724.74. Id. In April 2019, Plaintiff obtained an illustration from Assurity, using form “I L1702”, for a 42-year-old male, tobacco-rated, 20-year level term policy with a benefit of $250,000, indicating a monthly premium of $107.23—less than the premium Mr. Hale had paid on his non-tobacco-rated policy. Plaintiff asserts that the illustration demonstrates that she is entitled to an additional death benefit of $150,275.76 (the difference between the face value of the Policy and the settlement amount), plus a refund for premium over payments totaling $726.18, and 3% interest from the date of Mr. Hale’s death.
A lawsuit resulted wherein Plaintiff asserting cause of action for negligence, negligent misrepresentation, gross negligence, deceptive insurance practices, and violations of the Texas Deceptive Trade Practices Act (“DTPA”), DTPA tie-in statutes, Texas Insurance Code and Breach of Contract.
Assurity filed a Rule 12(b)(6) motion for dismissal for “failure to state a claim upon which relief can be granted.” Fifth Circuit case law says “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Under Rule 8(a), a claim for relief must contain: (1) “a short and plain statement of the grounds for the court’s jurisdiction”; (2) “a short and plain statement of the claim showing that the pleader is entitled to the relief”; and (3) “a demand for the relief sought.” A plaintiff “must provide enough factual allegations to draw the reasonable inference that the elements exist.”
Claims alleging fraud and fraudulent inducement are subject to the requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b) states that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.”
Articulating the elements of fraud with particularity requires a plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent. Directly put, the who, what, when, and where must be laid out. Facts and circumstances constituting charged fraud must be specifically demonstrated and cannot be presumed from vague allegations. Anything less fails to provide defendants with adequate notice of the nature and grounds of the claim. Although the language of Rule 9(b) confines its requirements to claims of . . . fraud, the requirements of the rule apply to all cases where the gravamen of the claim is fraud even though the theory supporting the claim is not technically termed fraud. Thus claims alleging violations of the Texas Insurance Code and the DTPA and those asserting . . . negligent misrepresentation are subject to the requirements of Rule 9(b).
The Court then gets into a discussion why Plaintiff had not properly satisfied the legal requirements of Rule 9(b). This is a good read for an insurance attorney wanting to understand how the Federal Courts look at pleadings. It is different than most State and County Courts.
One other statement of law that is important in insurance cases and in particular life insurance cases is this: The materiality of a misrepresentation made in an application for an insurance policy is a question of fact. Here, the Court is quoting from the Texas Insurance Code, Section 705.004.