Delay In Asserting Misrepresentation Defense

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  Mega Life asserted the policy was rescinded due to misrepresentation in the insurance application.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:

Sec. 705.005. NOTICE TO INSURED OF MISREPRESENTATIONS. (a) This section applies to any suit brought on an insurance policy issued or contracted for after June 29, 1903.

(b) A defendant may use as a defense a misrepresentation made in the application for or in obtaining an insurance policy only if the defendant shows at trial that before the 91st day after the date the defendant discovered the falsity of the representation, the defendant gave notice that the defendant refused to be bound by the policy:

(1) to the insured, if living; or

(2) to the owners or beneficiaries of the insurance policy, if the insured was deceased.

(c) This section does not:

(1) make available as a defense an immaterial misrepresentation; or

(2) affect the provisions of Section 705.004.

In support, Myers asserted that, during her deposition on October 14, 2003, as well as in documents produced to Mega Life’s attorney on November 10, 2003, she supplied sufficient information to put Mega Life on notice that the representations in the policy application were false and Mega Life subsequently failed to give notice of rescission of coverage within the statutory mandated time period, 91 days.

The timeliness of Mega Life’s notice of rescission was raised when Mega Life filed its counterclaim asserting a misrepresentation defense.  Statutory notice is an essential element of a defense based on misrepresentation or rescission.  As such, Mega Life had the burden of pleading and proving each element of its affirmative defense, including notice of rescission.

At trial, there was sufficient evidence warranting the submission of a jury instruction on the timeliness of Mega Life’s notice of rescission.  Myers testified she was deposed on October 14, 2003, by Mega Life’s attorney in the presence of Jacquelyn Brabham, Mega Life’s designated corporate representative for claims.  At the deposition, Myers testified the insured had been kicked by a horse, suffered from coughs and colds, and had kidney stones prior to the submission of his health insurance application.  She also testified that, prior to submitting the application, the insured had taken Skelaxin for pain.  The application did not disclose these prior medical conditions, and Mega Life did not dispute Myers’s testimony.  Myers also testified she attended Bradham’s deposition on the same day and recalled that Bradham was aware Long’s application was inaccurate.

Thus, there is evidence of record indicating Myers disclosed sufficient information in her deposition on October 14, 2003, for Mega Life to have discovered the falsity of the representations in the application.  Therefore, in order to meet the statutory requirements, notice of rescission was due from Mega Life on or before January 13, 2004.  This was not done until March 19, 2004.