Life Insurance Denial Based On Non-Payment Of Premiums

When a life insurance claim is denied due to non-payment of premiums, what can be done.  First, see an experienced life insurance lawyer.  Second, be aware of cases like this 2000 opinion from the San Antonio Court of Appeals.  It is styled, MacIntire v. Armed Forces Benefit Ass’n.
Linda and Scott MacIntire submitted a joint application for term life insurance to the Armed Forces Benefit Ass’n (AFBA) in April of 1996.  The payments were to be made automatically via a computerized bank deposit scheme, but for unknown reasons, the payments were never made.  The few payments made were not enough to keep the policy in force an it lapsed on March 31, 1998 according to AFBA.  Scott died from a terminal illness in August 1998 and Linda inquired regarding the policy in September of that year.  Upon discovery of the failed automatic deposit setup, Linda tried to pay delinquent payments directly to AFBA, but AFBA denied the payments and coverage, stating that Scott’s policy had already been canceled.  Linda sued AFBA, alleging violations of the Texas Insurance Code, the DTPA, breach of contract, negligence, breach of the duty of good faith and fair dealing, breach of implied warranty, ambiguity of contract, seeking to recover the death benefits and additional damages.  The trial court granted AFBA’s motion for summary judgment on the basis that no genuine issue of material fact existed.  Linda appealed, claiming that genuine issue of material fact existed in her claims of breach of contract, DTPA violations, Texas Insurance Code, breach of duty of good faith and fair dealing, and negligence.
The summary judgment in favor of AFBA was upheld.  The Appellate Court held that an Insurer had no duty to advise the insured of a cancellation due to nonpayment.  The Appellate Court held that the insurance contract was not ambiguous and the breach did not occur since the contract was no longer in force.  Regarding implied warranty, the Court held that “implied warranty for good and workman like performance was applicable to tangible goods and products, and no precedent existed for applying the doctrine to insurance companies.  Regarding the issue of good faith and fair dealing, the Court examined the two prong test used by the Texas Supreme Court: (1) there is an absence of a reasonable basis for denying or delaying payment of benefits under the policy and (2)the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim.  The Court ruled that AFBA had a reasonable basis for denying the claim.  Plaintiff also asserted claims under the DTPA and TExas Insurance Code, to which the Court stated that, if an insurer had a reasonable basis for denial of the claim – however erroneous – that the insurer enjoys immunity from statutory bad faith under the Texas Insurance Code and the DTPA.
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