Life Insurance Policy Benefits Denied – Non-Payment

What if life insurance policy benefits use to a lapse in payment?  Talk to an experienced life insurance lawyer.
Here is a 2000, opinion from the San Antonio Court of Appeals dealing with this issue.  The opinion is styled, MacIntire v. Armed Forces Benefit Ass’n.
Here are the Facts:  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 made automatically via a computerized bank deposit scheme, but for unknown reasons, the payments were never made.  The few payments that the MacIntires did make were not enough to keep the policy in force and it lapsed on March 31, 1998 according to AFBA.  Scott MacIntire died from a terminal illness in August of 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 cancelled.  Linda sued AFBA, alleging violation of the Texas Insurance Code, violation of the DTPA, breach of contract, negligence, breach of 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 issues of material fact existed in her claims for breach of contract, breach of implied warranty and ambiguity of contract, DTPA violations, Texas Insurance Code, Section 541.060, breach of duty of good faith and fair dealing, and negligence.
The Court upheld that the summary judgment in favor of AFBA was proper.  The Appellate Court held that the insurer had no duty to advise the insured of a cancellation of policy due to nonpayment.  The Appellant Court held that the insurance contract was not ambiguous and the breach could not occur since the contract was no longer in force.  Regarding implied warranty, the Court “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 good dealing, the Court examined 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.  MacIntire also submitted claims under the DTPA and Insurance Code, to which the Court stated that, if an insurer had a reasonable basis for denial of the claim – however erroneous – that insurer “enjoys immunity from statutory bad faith under the Texas Insurance Code and the DTPA.
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