Life insurance lawyers need to know this 2008, 5th Circuit opinion. It is styled, Liu v. Fidelity and Guaranty Life Insurance Company.
The importance of this opinion is the court stating that warranties are not favored in life insurance policies.
Liu filled out a life insurance application which stated that he had not been diagnosed with cancer within the previous ten years. The policy was issued two days after he was diagnosed with cancer. The carrier denied coverage arguing that the representation in the application was a condition precedent to coverage. The trial court found coverage which was affirmed on this appeal.
The 5th Circuit stated that: “Under Texas law, the responses given in a life insurance application are mere representations, rather than warranties that would be capable of making coverage void or voidable. Short of inserting an unambiguous “good health warranty” demonstrating that the parties intended the contract to rise or fall on the literal truth of an insured’s general certification of good health, Texas has allowed an insurer to change that result by contracting to make truthful application answers a condition precedent to coverage.”
Alternatively, a “good health provision” that “expressly provides that coverage does not take effect unless the applicant is in good health” operates as a condition precedent. In this case, the Health as Stated (Good Health) Clause incorporated the application, which turned on the truth of the statements at the time they were made. Thus the clause violated the Texas Insurance Code, Section 1101.007, which states that a provision that voids a policy because of a misrepresentation is void unless certain requirements are met. The policy was automatically void.