Life Insurance Assignments

This 2018, Fort Worth Court of Appeals opinion is unique and involves a situation most life insurance lawyers will not ever see, however, it is worth knowing about due to some of the ruling by the appeals court.  The case is styled, Old American Insurance Company v. Lincoln Factoring, LLC.

Lincoln is an assignee of a portion of benefits under a life insurance policy.  Lincoln was assigned a portion of the benefits by the life insurance beneficiary for advancing costs of the burial of the insured.  The insured had a life insurance policy with Old American.

When the insured died, the beneficiary made a claim for benefits.  Instead of paying the benefits, Old American insisted they needed a copy of the death certificate.  When a copy of the death certificate was provided, Old American withheld payment because the death certificate stated that the manner of death of the insured was pending investigation.

The insured had died on September 28, 2014.  Old American received the final death certificate in June 2015, and described the cause of death as hypertensive cardiovascular disease.  Within days of receiving this final certificate, Old American paid all benefits under the policy.

A lawsuit was originally filed in a Tarrant County justice of the peace court.  The case was appealed from that court and filed in the Tarrant County Court at Law and then ended up in this court.

The procedural history and the facts are both somewhat extensive and the case should be read for a full understanding of these matters.

The issues in this case center around whether Lincoln had the proper standing to be suing on the causes of action for which it sued, i.e., breach of various insurance code sections, including the Prompt Payment of Claims Act.  Lincoln had won on these issues at the trial court and was awarded damages for attorney fees and statutory interest.  However, this Court reversed those finding and ruled in favor of Old American.

This Court pointed out that “Under the statute’s explicit language, a ‘claim’ that is subject to the provisions of subchapter B is a first party claim that is ‘made by an insured or policyholder under an insurance contract or by a beneficiary named in the policy or contract’ and that ‘must be paid by the insurer directly to the insured or beneficiary.'”  Under the plain meaning of subchapter B, only a beneficiary named in a policy or contract may sue for an insurer’s acts with respect to a claim.  The Court rejected Lincoln’s contention that has a position among the category of claimants who may sue under chapter 542.

The Court held that Lincoln which was  not the insured, policyholder, or beneficiary named in the policy or contract — but rather was a partial and successive assignee of benefits from the named beneficiary — does not have standing to assert prompt payment claims.