Fraud By The Insurance Agent

Life Insurance lawyers who read this Blog, or for that matter, anybody who reads this Blog eventually learns that there are many wrongs an insurance agent will commit to get a sale.  Most of their income from an insurance company is based on getting a percentage of the premiums.  In other words, most agents work on a commission basis.

The Texas Department of Insurance regulates life insurance agents and the Texas Insurance Code also regulates insurance agents.

Today’s short focus is on a different form of fraud which is sometimes committed by an agent when selling life insurance.

Here is a recent query from an attorney who handles life insurance cases.

The attorney had a potential new client (PNC) come see him.  The PNC was supposed to the beneficiary of the life insurance policy and the two were close to each other and the insured had told his brother, the (PNC) that he wanted the life insurance money to be used to help take care of the insured’s children in case something ever happened to the insured.

The insured died.  The PNC made a claim for benefits and found out that he was not the named beneficiary.  The named beneficiary was a female he did not know.  The PNC was positive his brother had not lied to him but who knows about this type of thing when men and women get together in a relationship and the feelings and actions that follow.

However, the PNC later found out that the named beneficiary was actually the insurance agent who sold the life insurance policy.

On top of that, the PNC learned that another relative had bought a policy from this agent and the agent had also named herself as the beneficiary on that policy.

So, … what can be done?

There is an obvious case against the agent for fraud.  However, many of the people who would do this type of thing are not people who have assets that can be obtained through litigation and their E&O coverage will not cover intentional criminal acts.

This leaves the insurance company.  What can be done against the insurance company?

An attorney has to be careful with their pleadings but the agent is also or can be an agent of the insurance company.  Naming herself as beneficiary had to be approved by the life insurer and should have sent a million red and every other color flags up.  Being the agent and being the beneficiary is classic fraud in the life insurance business.  Life insurance companies are supposed to look for this when issuing policies.

Arguably, the life insurer, by approving the beneficiary, ratified the fraud.

That’s the argument and depending on the exact sequence and timing of events, a recovery should be made against the life insurance company.

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