Prompt Notice Must Be Given When Insurance Company Plans To Deny A Claim Based On A Misrepresentation

With regards to life insurance policies, what if the insurance company denies a claim for benefits based on their assertion that a misrepresentation was made in the policy application?

This is covered by the Texas Insurance Code, Sections 705.001 to 705.005 and 705.101 to 705.105.  This is also addressed by a San Antonio Court of Appeals opinion from 1969.  The style of the San Antonio case is, The Prudential Insurance Company of America v. Ignacio Torres et ux.

The facts in Torres are substantially undisputed.  Torres was an employee of Gonzaba, who had six employees.  Gonzaba was considering purchasing group life and health insurance for his employees and their families when he eventually purchased a policy through a new employee, Avalone, of Prudential.

Each employee was required to complete an application and Torres, who had limited education and read very little English, wanted to take the application home to his wife to read.  Avalone told Torres that was not necessary and that as soon as he signed the application there would be coverage.  Avalone signed the application and it turned out that three of the answers on the application were false.

The record is not clear as to when Prudential learned of the misrepresentations in the policy application.  However, there is evidence this was discovered in March and it was not until September that a letter was sent denying the claim based on the misrepresentations.

This Court ruled that the amount of time that lapsed was an amount of time that was more than reasonable for Prudential to have notified the insured’s that they intended to deny the claim based on misrepresentations in the application, that they apparently learned in March, and which was not done until they sent such a letter to the insureds in the following September.