Insurance attorneys need to know about the law related to life insurance applications

Life insurance application – Insurance attorneys need to know about the law related to life insurance applications. A 1994, Texas Supreme Court case discusses one aspect of this. The style of the case is, Fredonia State Bank v. General Life Insurance Company.
The principal issue in this case is whether an insurance company may assert the defense of misrepresentation for statements made in an application not attached to a life insurance policy.
The insured died as a result of a gunshot wound to the head. Prior to his death, he had purchased tow life insurance policies issued by General American. General American denied the beneficiary’s claims for benefits. Fredonia State Bank, an assignee of one of the two policies and executor of the insured’s estate, sued to collect the proceeds of the policy.
General American asserted as defenses that the insured had committed suicide and that the insured had made misrepresentations regarding his medical history, which were material to the risk assumed by American General.
The bank argued that the insured’s application did not contain misrepresentations and that even if it did, the misrepresentations would not constitute a defense since the application was not attached to the policies when they were issued.
The jury found that (1) the insured did not commit suicide, (2) the medical portion of his application was not attached to the insurance policies, and (3) the insured did not misrepresent his medical history in order to obtain insurance. The trial court granted judgment for the bank. The Appellate Court reversed the trial court’s judgment finding that the great weight and preponderance of the evidence was contrary to the jury’s findings and that the insured had made misrepresentations in order to obtain insurance.
The Texas Supreme Court granted writ and ultimately reversed the appellate court’s decision. According to the Court, the Texas Insurance Code precludes an insurance carrier from relying on misrepresentations contained in an application as a basis for denying claims, unless the application is attached to the insurance policy.
This requirement is intended to enable the insured to have the material terms of the contact at hand, so that he may correct any misrepresentations which may have been the basis of the insurance coverage.
What is relevant about this case is that it makes clear that when an insurance company alleges misrepresentation in an application as grounds for denying a claim for benefits, the application must be have been made part of the insurance contract.
Texas Insurance Code, Section 1101.003, says it clearly. “A life insurance policy must provide that the policy of the policy and the application for the policy constitute the entire contract between the parties.”

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