Life Insurance Claim Denial – Mental Anguish

A question for lawyers who handle life insurance claim denials has to do with whether or not mental anguish is recoverable against the life insurance company who denied the claim.  This is addressed in a 1995, Texas Supreme Court opinion styled, State Farm Life Ins. Co. v. Beaston.
In 1982, Terri and David Beaston bought life insurance policies from Ted Heaton, a State Farm Life Insurance Company agent.  The Beastons failed to pay the premium on David’s policy due on December 28, 1983.  His policy lapsed as of December 28, 1983, and the thirty-one day grace period expired on January 28, 1984.  Three days after the expiration of the grace period, David died in an automobile accident.  State Farm refused to pay the benefits under his life insurance policy, claiming that coverage had expired before his death.
Terri brought suit asserting that the Texas Insurance Code had been violated.  She also contended that the terms of the policy guaranteed payment of a dividend at death which should have been used to pay a part of the premium that was in arrears and thereby “cure” the policy’s lapse.
At trial there was a finding of damages for mental anguish.
The Texas Supreme Court has held in a DTPA case that mental anguish damages are not recoverable where there was no willful conduct and no resulting physical injury.  The Texas Insurance Code, Section 541.152(b), was enacted to regulate practices in the insurance industry by prohibiting “unfair methods of competition or unfair or deceptive acts or practices.” 
The Court concluded that a finding of knowing conduct is a prerequisite to the recovery of mental anguish damages.
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