Dallas Fort Worth Insurance Lawyer Blog
Life Insurance Lawyers who handle claims denied due to the claim that a misrepresentation was made in the life insurance application must read this 2021, opinion from the Amarillo Court of Appeals. It is styled, Bertha Arce, Individually And As Representative Of All Others Similarly Situated v. American National Insurance Company.
The deceased insured, Sergio Arce, Jr. took out a policy of life insurance with American. Within days, Sergio was killed in a car accident and a claim for benefits was made by Bertha Arce (Arce). American denied the claim based on the assertion that Sergio misrepresented his health condition in the application for the life insurance.
American filed a motion for summary judgment in the trial court which was granted and this appeal followed.
While there were other issued in the appeal, the focus here is on the misrepresentation ruling.
Arce contends the trial court erred in granting summary judgment in American’s favor because it failed to prove Sergio intended to deceive American for the purpose of obtaining a life insurance policy. Both parties agree misrepresentation to avoid a policy is governed by the Texas Insurance Code. However, the parties disagree as to the standard to be applied here. Arce argues
American was required to prove the common law–imposed element of intent to
deceive to obtain the insurance policy in addition to the elements set forth in the statute. American argues that section 705.051 of the Insurance Code applies and, due to the recodification of the applicable provisions, it was not required to prove intent to deceive because that element does not appear in the statute.
Chapter 705 of the Texas Insurance Code is divided into three subchapters. The
first, Subchapter A, section 705.001–705.005, provides general default provisions
applicable to all insurance policies but provides it does not apply to a life insurance policy with a two–year incontestability provision2 on which premiums have been duly paid. The second, Subchapter B, section 705.051, is a provision applicable to life, accident, and health insurance policies. The third, Subchapter C, section 705.101–.105, establishes provisions applicable to misrepresentations in life insurance applications.
American asserts that because Arce submitted a claim within one year of the issuance of the policy, section 705.051 controls. Arce does not agree. Rather, she argues that the common law–imposed requirement of intent to deceive is an additional element that must be proven. Section 705.104, the only other section relating to misrepresentation defenses that mentions intent, is inapplicable because it applies only to suits brought on or after the second anniversary of the issuance of the policy. Section 705.051, on the other hand, does not speak to an intent to deceive and therefore, American argues, it was not required to prove Sergio intended to deceive American before it denied Arce’s claims on the basis of Sergio’s misrepresentation.
Section 705.051 is entitled “Immaterial Misrepresentation in Life, Accident, or
Health Insurance Application.” It provides that “[a] misrepresentation in an application for a life, accident, or health insurance policy does not defeat recovery under the policy unless the misrepresentation: (1) is of a material fact; and (2) affects the risks assumed.” American argues that when these elements are proven, there can be no recovery under the policy. It contends that Arce did not challenge either of those elements and thus, it was entitled to summary judgment as a matter of law. American also argues that as recodified, the provision does not require that American prove anything else, including an intent to deceive. Accordingly, American contends the trial court did not err in granting summary judgment in its favor.
Arce first attacks American’s focus on the recodification of the Texas Insurance Code as being based on a faulty premise. American argues that when the Code was re–codified, it resulted in a substantial change in the language of the statute,
thereby eliminating the intent to deceive element for avoiding a life insurance policy based on misrepresentation. Consequently, it contends, to deny Arce’s claim, it was only required to satisfy section 705.051 of the Code, a provision requiring only proof of misrepresentation of a material fact and that the misrepresentation affected the risk assumed, and it was not required to satisfy the five–part test set forth in Mayes v. Mass. Mut. Life Ins. Co., 608 S.W.2d 612, 616 (Tex. 1980). In response, Arce argues recodification did not change the existing law and thus, American had the burden of proof to prove the element of intent to deceive in order to deny Arce’s claim under her son’s life insurance policy. Because it did not, Arce asserts, the trial court erred in granting summary judgment in American’s favor.
As Arce points out, the Texas Insurance Code was recodified effective April 1, 2005, and while the recodification involved the renumbering of statutes, it expressly did not change substantive law. Section 30.001(a) states, “The program contemplates a topic–by–topic revision of the state’s general and permanent statute law without substantive change.” Prior to recodification, the statutory provision addressing misrepresentation in an application for an insurance policy did not include an express intent to deceive element. Rather, that element was incorporated from the common law. The recodification of the Code did not change any of the substantive law relevant to this matter and, as Arce notes, both the prior statutes and the recodified versions include the term “misrepresentation.” The definition of that term includes the intent to deceive or deception according to Black’s Law Dictionary, 1016 (7th ed. 1999) (defining “misrepresentation” as “[t]he act of making a false or misleading statement about something, usu. with the intent to deceive”).
In accordance with the law as it existed prior to the recodification, American was required to prove Sergio acted with an intent to deceive in applying for the life insurance policy. Because intent to deceive is not a basis on which summary
judgment may be granted, the trial court erred in granting American’s motion.