Insurance Company Misrepresentations

What are examples of misrepresentations made by insurance companies that they can be held liable for making?

Different types of misrepresentation are prohibited by the Texas Insurance Code.  Misrepresentations are also unlawful under the incorporated DTPA, Section 17.46(a).  These misrepresentations also include non-disclosure.

Section 541.051 broadly prohibits making any statement misrepresenting the terms of a policy, or the benefits, advantages, or dividends of a policy, making misrepresentations about the financial condition of an insurer, misrepresenting the true nature of any policy or class of policies, or making any misrepresentation to a policy holder for the purpose of inducing or intending to induce the policy holder to allow an existing policy holder to lapse, forfeit, or surrender his insurance.  This provision is sometimes referred to as the “anti-twisting” provision, because the latter portion is aimed at preventing one insurer stealing away the insureds of another insurer by making misrepresentations.

Section 541.061 prohibits misrepresenting an insurance policy in the following ways:

a.  making an untrue statement of material fact;

b. failing to state a material fact necessary to make other statements made not misleading, considering the circumstances under which the statements were made;

c.  making a statement in such a manner as to mislead a reasonably prudent person to a false conclusion of a material fact;

d.  making a material misstatement of law;

e.  failing to disclose a matter required by law to be disclosed, including failing to make disclosure in accordance with another provision of the Insurance Code.

The statute thus forbids statements that are outright false, as well as those that are misleading.

Here are a few examples.

In the 1987, Texas Supreme Court opinion styled, Aetna Casualty & Surety Company v. Marshall, the Court said an insurer may be guilty of making a misrepresentation by contractually promising benefits and then refusing to pay them.

In the 1979, Texas Supreme Court opinion styled, Celtic Life Insurance Company v. Coats, the Court said an insurer also may be liable for misrepresenting that a policy offers benefits that it does not have.

In 2000, the Austin Court of Appeals in, Stumph v. Dallas Fire Insurance Co., said an insurer was liable for misrepresentations by its underwriter that the insured could continue to send premium payments to his agent, described by the underwriter as a “good man” but who had in fact been suspended.

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