Life Insurance Claim Denial – Pham III

Here is a life insurance claim denial that is interesting factually and legally, and a must read for lawyers handling life insurance claims.  This is a case handled by the Law Office of Mark S. Humphreys.

The opinion is a December 10, 2021, summary judgment ruling from the Northern District of Texas, Dallas Division.  It is styled, Pham v. TransAmerica Premier Life Insurance Company.  Johnny Pham sues in his own right and Kim Van Bui sues on behalf of minor children SKB and BDB.

This case will be presented in multiple blogs.

In looking at this summary judgment case the Court stated:

The parties’ arguments and the record presented to the district court at summary judgment reveal a genuine dispute as to whether Bich’s application was amended.  Texas contract principles apply when determining whether the application was amended because, according to the Policy, the application is part of the parties’ contract for insurance.  Texas law provides that modification of a contract must include all the essential elements of a contract, including a “meeting of the minds.”  If the actions of the parties reflect a mutual intent to be bound, a binding agreement may be implied in fact.  Whether there was a “meeting of the minds” to form or amend a contract is usually a question of fact.  (This last sentence is important and the crux of what made it improper for the district court to have granted the summary judgment.)

Plaintiffs refer to several pieces of evidence that the parties agreed to amend the application.  First, they point to a provision in the Policy which indicates that any applications and amendments are part of a single contract for insurance.  In addition, two separate notices sent to Bich—the first stating that the application did not meet the premium-to-income underwriting guidelines and the second approving the application at the lower coverage amount—referenced the same application number.  Plaintiffs argue that this evidence demonstrates that there was a single application and that, because the coverage amount in the Policy was ultimately lower than that initially applied for, it necessarily follows that the application was amended.

Second, Plaintiffs argue that the Amendment of Application, which acknowledged the reduction of the coverage amount and was attached to the Policy delivered after Bich’s death, evinced a previous “meeting of the minds” to amend the application.

Finally, Plaintiffs argue that Transamerica’s compliance with the requirement that an insurer send an illustration to be signed and dated by an insured if a policy is to be issued other than as initially applied for, and Bich’s compliance in signing the illustration, provides further evidence that the application was amended.  This is allowed per the Texas Administrative Code, Section 21.2209(a)(2).

Other evidence in the record also supports Plaintiffs’ contention.  First, the Amendment of Application document, which was attached to the Policy when it was sent to Bich in late March 2018 stated, “The undersigned agrees that these changes shall be an amendment to and form a part of the original application . . . .”  Second, the application itself states that “this application shall consist of Part 1, Part 2, and any required application supplement(s)/amendment(s) . . . .”  Finally, it appears that decision makers at Transamerica believed that Bich’s application had been amended by Bich’s signing of the numeric summary; per one company official, as of at least March 8, Transamerica understood Bich’s application to be one for $525,114 in coverage.

Plaintiffs thus point to considerable evidence that there is, at a minimum, a genuine dispute of fact as to whether there was a meeting of the minds to amend the application.  Transamerica argues in response that this sequence of events, and in particular the exchange of the supplemental illustration and numeric summary, did not amend the application because the exchanges did not reference the application or the Conditional Receipt.  Transamerica contends that the “Amendment of Application” was the document intended to amend the application, and, because it was not signed by Bich, the application was not amended.  As support, Transamerica cites Hunton v. Guardian Life Ins. Co, in which a district court refused to read the terms of an illustration into an insurance policy at least in part because the application and policy did not reference the illustration, including in the merger clause.

Transamerica also cites one Texas state court decision in support of its argument, Stansbury v. Legal Sec. Life Ins. Co.  The court in Stansbury held that the parties had amended an application so as to establish temporary coverage.  The facts are almost identical to those in this case: an insurance policy was ultimately issued at a lower coverage amount than that applied for, and the parties disputed whether the plaintiff’s earlier agreement to the lower amount constituted an amendment to his application.  Relying on the fact that the insurer informed the plaintiff that it was decreasing the coverage from the applied-for amount and the fact that the plaintiff agreed to that change, the Stansbury court held that there was a meeting of the minds to amend the application.  The decision also noted that the conditional receipt expressly allowed for amendment of the application. Transamerica emphasizes this latter point in distinguishing Stansbury and arguing that here, the application could not have been amended because the Conditional Receipt did not explicitly contemplate amendment.

Ultimately, Transamerica’s arguments are insufficient to conclusively show that the application was not amended.  First, Hunton resolved very dissimilar facts where the plaintiff primarily asserted fraud and misrepresentation perceived in an illustration but explicitly contradicted in writing in the policy.  Nowhere in the district court’s opinion in Hunton is there disagreement with the “well-established law that instruments pertaining to the same transaction may be read together to ascertain the parties’ intent, even if the parties executed the instruments at different times and the instruments do not expressly refer to each other.”  Thus, even if the numeric summary here did not itself amend the application, it is evidence of the parties’ intent to amend the application.

The same is true of the Amendment of Application.  Even though Bich never signed that document, the parties’ agreement to amend the application may be binding even in the absence of a signature.  Further, the fact that Transamerica sent the Amendment of Application to Bich with the Policy bolsters Plaintiffs’ claim that the parties’ earlier actions amounted to an amendment of the application, which Transamerica was formalizing through this written instrument.

Transamerica’s discussion of Stansbury is similarly not determinative.  Transamerica’s attempt to distinguish that case based on the fact that the conditional receipt there contemplated amendment of the application is not convincing, given that the court relied on the fact that there was a meeting of the minds, which was sufficient to amend the application.  Moreover, it is unclear that the conditional receipt in Stansbury actually did contemplate an amendment reducing the coverage amount.  Though the Conditional Receipt here did not explicitly refer to amendments, the ultimate Policy did, and the Conditional Receipt did not explicitly foreclose amendments to the application.  In sum, Plaintiffs point to more than enough evidence in the record to raise a genuine dispute of fact as to whether there was a meeting of the minds to amend the application.

The next Blog will conclude this case.

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