Insurance Agents – Fraud

Claims denial attorneys know that many claims arise because an insurance agent committed a fraud when selling the policy.  A fraud cause of action requires proof of the following elements:

1. a material representation was made;

2. the representation was false;

3. the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion;

4. the speaker made it with the intention that it should be acted on by the party;

5. the party acts in reliance upon it; and

6. the party suffered injury.

The above was set forth in the 1977, Texas Supreme Court opinion styled, Stone v. Lawyers Title Ins Corp.

In the Stone case the purchaser of a tract of land sued a title agency on an owner’s title policy covering the tract for damages sustained due to the failure of the policy to show pipeline easements as exceptions.  The Court held the title-agency president’s statement that “everything was squared away” constituted some evidence that he represented that there were no easements on the property.  The Court found evidence of actionable fraud against the title agency and its president.

In the 1978, Amarillo Court of Appeals opinion styled, Pankow v. Colonial Life Ins. Co. of Tex., an insured sued a credit life insurance company after it failed to pay policy proceeds on grounds that the policy had not been reinstated before the insured’s husband died.  The plaintiff alleged that employees of the insurer misrepresented that the policy would be reinstated and that they would secure the transfer of monies from an escrow account to pay outstanding premiums.  These were actionable representations, as they involved misrepresentations of a future act which could be performed in compliance with policy terms.

Another example is found in the 1994, Amarillo Court of Appeals opinion styled, Celestino v.Mid-American Indem. Ins. Co.  In Celestino an employer’s excess policy contained an exclusion for punitive damages.  The declarations page, which specified that the umbrella policy confirmed one million dollars in excess employer’s liability coverage, did not amount to a fraudulent misrepresentation merely because the policy contained the punitive-damage exclusion.  The plaintiffs alleged that, by virtue of the exclusion, the policy in essence provided no employer’s liability coverage at all.  But the Court stated that it could not isolate a general provision within a contract and label it a misrepresentation merely because subsequent exceptions preclude the effect of that provision.  Furthermore, the language of the exclusion was plain, and its placement was prominent.

Keep in mind that the elements of fraud include intent to induce reliance , not intent to deceive.  An intent to induce reliance may be shown by evidence that the person made a false statement, knowing it to be false, with the intent to induce action.

Generally, the purchase must follow the inducing misrepresentation.


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