Life Insurance And The DTPA

Life Insurance lawyers need to know the relevant issues regarding the Texas Deceptive Trade Practices Act (DTPA) and how they interact with life insurance policy issues. This is discussed to a certain extent in a recent U.S. District Court, Tyler Division opinion. It is styled, Marcia Slack v. The Prudential Insurance Company of America.
Tom Slack, purchased a life insurance policy from Prudential in 2001. Mr. Slack named Marcia as the beneficiary of the Policy. After Mr. Slack died on December 2, 2012, Marcia filed a claim for death benefits under the Policy, and Prudential paid Mrcia $274,391.56.
Marcia contends that after purchase of the Policy, Pruential represented to the Slacks that Ronnie William Shaffer was the “representative with whom they should and could communicate regarding the Policy, including any questions concerning payment of premiums.” Marcia contends that the Slacks used community funds to pay the annual premium payment of $10,580.00 plus an additional payment of $6,720.00 from 2001 to 2010 because Prudential represented to them that if they made the additional payment, the premium due under the Policy would vanish after ten years.
Marcia states that in 2011, Mr. Slack received a notice from Prudential stating that his annual premium was due, which was contrary to Prudential’s original representation of vanishing premiums. Marcia asserts, however, that the notice also stated that Mr. Slack’s policy had a “cash value of the Additional Paid-up Insurance of $108,984.93 and that the Policy had a total cash value of $164,134.93.” Marcia states that Mr. Slack then contacted Shaffer to request the premium be paid from a portion of the Policy, and Shaffer called Prudential to approve the payment method; Prudential approved the payment and told Mr. Slack he could set the payment to be automatically paid from the Policy values 45 days after the premium due date if Mr. Slack did not make the premium payments within 31 days of the due dates. Marcia states that Mr. Slack completed the necessary paperwork on July 18, 2011. Marcia also contends that the Slacks relied on Prudential’s representations that the payments could be taken directly from the Policy values instead of paid out of pocket on an annual basis. Prudential, in its answer, stated that Shaffer did contact Prudential and spoke with “Justin,” but denies that Prudential stated that the 2012 premium would be automatically paid from the Policy values.
Marcia asserts that in June of 2012, Mr. Slack requested an accounting of the Policy values to determine if they were sufficient to satisfy the 2012 premium, and the document he received showed that he had a “cash value of paid up additional insurance” of $100,304.07 and a “total net cash surrender value” of $163,370.77. Marcia states that Mr. Slack then received a notice of payment due dated July 19, 2012, stating that he was to pay $17,300.00 for his 2012 annual premium, but that the Slacks took no action because Prudential previously represented that the premium would automatically be paid 45 days after the payment was due if the Slacks did not make the payment within 31 days after the due date.
Further, Marcia claims that Mr. Slack contacted Prudential on September 2, 2012, to ensure that the 2012 premium would be paid in the same way as the 2011 premium; Marcia states that during that conversation, Prudential represented that the 2012 premium would, in fact, be automatically paid from the Policy values. However, Prudential sent Mr. Slack a letter dated September 20, 2012, stating that his policy lapsed due to nonpayment. Marcia asserts that Mr. Slack then contacted Shaffer, who in turn contacted Prudential and determined that the Policy lapse was a mistake and that the Policy would be reinstated. Marcia then asserts that Mr. Slack received a letter from Prudential on November 8, 2012, stating that if he wished to reinstate the Policy, he was required to pay $17,300.
When Mr. Slack died and Marcia filed a claim for death benefits under the Policy, Prudential paid Marcia $274,391.56. Marcia asserts that Prudential researched the reasoning for the issuance of less than $500,000 for over a year and then “advised Marcia that Prudential, without any authorization from the Slacks and over the objections of Prudential’s designated agent, Shaffer, had unilaterally used the over $160,000.00 in cash value of this Policy account and almost $200,000 in premiums paid by the Slacks since 2001 to purchase what Prudential characterized as ‘Reduced Paid-up Insurance’ with a death benefit of $270,000.00.”
Prudential urges the Court to decide that Marcia does not have standing under the DTPA because as the designated beneficiary, Marcia is not a “consumer” as defined by Section 17.45(4). Prudential further asserts that because (1) Marcia was not involved with the “Policy until after the alleged wrongdoing occurred,” (2) she does not explain her reliance on Prudential’s representations, and (3) her “only relation to the insurance policy is to seek policy proceeds,” she is not a consumer. Prudential argues that Marcia “alleged that all representations were made to Mr. Slack, and she failed to allege that she – as opposed to Mr. Slack – acted in reliance on them.”
Marcia argues that she is entitled to consumer status as the intended third party beneficiary of the life insurance policy. Additionally, Marcia asserts that because “the Slacks” paid the Policy premiums from community funds, Marcia is a consumer under the DTPA. In support of her argument, Marcia cites case law stating that one’s “standing as a consumer is established by the plaintiff’s relationship to the transaction and not their contractual relationship with the defendant.”
DTPA, Section 17.45(4) states to obtain consumer status under the DTPA, a person must seek or acquire goods or services by purchase or lease. The Texas Supreme Court has provided courts with guidance, stating “we must give the [DTPA], under the rule of liberal construction, its most comprehensive application possible without doing any violence to its terms.” It is well settled that there is no requirement of privity between a plaintiff and a defendant in order for a plaintiff to assume consumer status. Instead, the only additional requirement is “that the goods or services sought or acquired by the consumer form the basis of the plaintiff’s complaint.” As such, Marcia correctly points out that whether she is a consumer under the DTPA is determined by her relationship to the transaction, not by a contractual relationship with Prudential.
With respect to Prudential’s argument that Marcia was not involved with the Policy until after the alleged wrongdoing occurred, the Texas Supreme Court has held that “there is no requirement that the defendant’s unconscionable act occur simultaneously with the sale or lease of the goods or services that form the basis of the consumer’s complaint. If, in the context of a transaction, … any person engages in an unconscionable course of action which adversely affects a consumer, that person is subject to liability under the DTPA.”
For the foregoing reasons, the Court denied Prudential’s Motion for Judgment on the Pleadings with regard to Marcia’s DTPA claim.

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