Life insurance lawyers deal with many situations and reasons that life insurance companies use for denying a claim for benefits. A twist to not paying is where the insurance company does not technically deny the claim, rather the company rescinds the policy.
As a general legal principle, prior to a loss an insurance company has the right to rescind the policy procured through mutual mistake or fraud. This was stated in a 1931, Amarillo Court of Appeals opinion styled, Forrester v. Southland Life Insurance Company.
The benchmark case on this issue was issued by the Texas Supreme Court in 1980, in an opinion styled, Mayes v. Massachusetts Mutual Life Insurance Co. In Mayes, the court stated that an insurance company may rescind a policy based on the insured’s misrepresentation, if the insurer pleads and proves the following elements:
(1) the making of the misrepresentation;
(2) the falsity of the representation;
(3) reliance thereon by the insurer;
(4) the intent to deceive on the part of the insured in making the misrepresentation; and
(5) the materiality of the representation.
In Mayes, the court held that the same rules for avoiding a policy based on a misrepresentation in the application would apply when the insured’s answers, although initially true, became false because of a change in the insured’s health before the policy was issued.
As another example, in the 1989, El Paso Court of Appeals opinion styled, Southwestern Life Insurance Co. v. Green, an insured had a history of alcoholism and died from liver disease, with a final diagnosis of chronic alcoholism accompanied by cirrhosis of the liver. A psychologist testified, as an expert, that the insured was an alcoholic, that a telltale trait of alcoholism is denial, and therefore the insured had no intent to deceive the insurer when he stated on his application that he had no alcohol problem. The Court upheld the jury finding that the insured did not intend to deceive the insurance company.
Something important for life insurance lawyers to know is that the Mayes rule requiring proof of a material misrepresentation made with an intent to deceive applies to the insured’s failure to disclose a change in conditions. The Mayes Court rejected the rule from the case, Stipcick v. Metropolitan Life Insurance Company, that was decided in 1927, which held that an insurance company could void a policy if the insured failed to disclose any material change.