Credit Life / Disability Policies

Car buyers in Grand Prairie, Arlington, Fort Worth, Mansfield, Dallas, Mesquite, Garland, and other places in North Texas should be interested in this case.
The case is from 1996, and was decided by the Austin Court of Appeals. The style of the case is, American National Insurance Company and Heart of Texas Dodge v. Rosemary Paul and Don Paul. Here are some of the facts.
On February 16, 1993, the Pauls purchased a van from Dodge. Before this date, Mr. Paul negotiated the purchase terms of the van with one of Dodge’s agents. Mr. Paul asked the sales agent whether the purchase price included credit disability insurance. The agent responded that he did not know. Beyond this inquiry there was never any discussion of whether credit disability insurance was to be included in the transaction.
On the day of the purchase, the Pauls arrived at the dealership during Mrs. Paul’s lunch hour in order to meet the finance officer and close the deal. After waiting a short while, the Pauls informed a Dodge agent that they were in a hurry and that if they could not meet soon, they would have to return later. Shortly thereafter the Pauls met with the finance agent who prepared the documents for a 72-month financing term for the van purchase. The documents also contained an application for credit disability insurance to be provided by American National.
The finance manager did not orally disclose the existence of the credit insurance application to the Pauls. The Pauls did not read the paperwork, and they signed all the documents where instructed by the finance agent. Consequently, the Pauls were unaware that they were purchasing credit disability insurance.
The application contained a paragraph entitled “Applicant’s Statement,” which required the applicant to state that she was in good health and had not within the last three years consulted a doctor for certain conditions, including treatment of the nervous system. Mrs. Paul signed the statement even though at the time she suffered from amyotrophic lateral sclerosis, commonly known as “Lou Gehrig’s Disease,” a terminal and degenerative illness affecting the nervous system. She had consulted a doctor regarding her condition within the last three years.
The trial court made a finding that Mrs. Paul did not intend to deceive or induce American National into issuing the policy.
As of April 1, 1994, Mrs. Paul became totally and permanently disabled and was unable to continue working. On May 5, 1995, pursuant to the credit disability insurance policy, she applied for disability insurance benefits, which American National denied.
The Pauls filed this lawsuit alleging breach of contract, violations of the Texas Insurance Code, and violation of the Texas Deceptive Trade Practices Act (DTPA).
Here is some of the legal discussion.
American National argued that Mrs. Paul’s good health constituted a condition precedent to the insurance contract and since she was not in good health the contract was never effectively consummated. The Pauls responded that the Applicant’s Statement was merely a representation.
In order to rescind the contract due to the Pauls misrepresentation, they must have made the misrepresentation with the intent to deceive. There was no allegation by American National that the Pauls intended to deceive. Their argument was solely reliant on her medical condition being a condition precedent.
There was then a discussion about the difference between a misrepresentation and a condition precedent. The importance between the two being that for American National to be able to void the policy due to a misrepresentation they would have to show an intent on the part of the Pauls, which they did not even attempt. To void the policy due to the failure of a condition precedent would be successful avoidance for American National, but the court interpreted the language to be that of a misrepresentation not that of a condition precedent.
Much of the law regulating these credit life / disability policies is found in the Texas Insurance Code. Of relevance is Section 705.004, which says a misrepresentation is of no effect unless certain elements are shown.
Anyone who has one of these types of policies who finds their claim being denied needs to consult with an experienced Insurance Law Attorney. Most of these denials can be defeated.

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