Life Insurance – Duty Of Good Faith And Fair Dealing

This life insurance claim opinion is from the Northern District of Texas, Dallas Division, and is styled, Wharlest Jackson v. Farmers New World Life Insurance Company.

Among other causes of action, Jackson has sued Farmers under an insurance policy for violation of the “duty of good faith and fair dealing.” Farmers has filed a Partial Motion to Dismiss the lawsuit based on the allegation that Jackson has not properly pled a violation of the duty of good faith and fair dealing against Farmers.  The Court reviewed the papers filed with the Court and discussed and ruled as follows.

Crystal Jackson purchased a life insurance policy from Farmers.  Wharlest Jackson was the sole beneficiary of the policy.  Crystal died in a motorcycle accident and Wharlest made a claim which Farmers denied based on alleged misrepresentations in the policy application.

Farmers filed the Motion for Partial Dismissal on various causes of action and the duty of good faith and fair dealing cause of action is discussed here.

Farmers believes that Wharlest’s claim is characterized by “legal conclusions” that “simply track the elements of” a breach-of-the-duty-of-good-and-fair-dealing claim.  Specifically, Farmer’s contends that Wharlest has failed to show facts that demonstrate “that ‘there was no reasonable basis for denial of the claim or delay in payment or a failure on the part of Farmers to determine whether there is any reasonable basis for the denial or delay.’”   Additionally, Farmer’s argues that to sustain such a claim, Wharlest must also plead extra-contractual damages, which Farmer’s contends Wharlest did not do.  In response, Wharlest asserts that his amended complaint contains facts that support the conclusion that Farmer’s conducted an “unreasonable investigation resulting in the denial of Wharlest’s claim without a reasonable basis.”  Wharlest states that there was:

no inquiry or determination of Crystal Jackson’s intent to deceive, no investigation as to whether any alleged error on the Application is a result of a mistake or carelessness, no acknowledgement of Farmer’s knowledge of the medical information disclosed on the Application,and no investigation into what its agent Heather knew.

Wharlest himself notes that his arguments for why his DTPA and Texas Insurance Code claims should be sustained “apply equally to Wharlest’s claim for breach of the duty of good faith and fair dealing.”  Wharlest also asserts that he need not plead extra-contractual damages for his claim because the claims are “often ‘largely interwoven’”with insurance contract-based claims.

To sustain a breach-of-the-duty-of-good-faith-and-fair-dealing claim in relation to an insurance policy, a plaintiff must “allege that there is no reasonable basis for denial of a claim or delay in payment or a failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay.”  Here, Wharlest does no more than recite this legal standard.  “Farmer’s breached the common law duty of good faith and fair dealing by denying the claim without a reasonable basis and by failing to conduct a reasonable investigation . … Farmer’s  also breached its duty by unreasonably delaying payment of the claims and failing to settle said claim when it knew or should have known that it was reasonably clear that the claim was covered.”  Although the facts Wharlest points to in his response, may sustain a breach-of-the-duty-of-good-faith-and-fair-dealing claim, those facts are found nowhere in the amended complaint and thus cannot be considered in this motion to dismiss.  Wharlest’s allegations as set forth in his complaint are conclusory and insufficient at the motion-to-dismiss stage.

Accordingly, Farmer’s motion to dismiss Wharlest’s breach-of-the-duty-of-good-faith-and-fair-dealing claim is granted. The claim is Dismissed Without Prejudice.

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