Federal Court of Appeals affirms denial of life insurance benefits

In a very recent decision, the Fifth Circuit Court of Appeals affirmed a federal magistrate judge’s decision to deny life insurance benefits. The life insurance company claimed it was proper to deny the life insurance benefits to a widow, because her husband had misrepresented his smoking history on the life insurance application. After a bench trial the magistrate agreed and the court of appeals affirmed the denial decision.

Mirna Guzman filed a lawsuit against Allstate over a life insurance policy of $250,000 bought by her late husband, Saul Guzman. In his life insurance application Mr. Guzman disclosed his history of seizures but stated that he had never used tobacco or nicotine products, leading to his receiving a policy with non-tobacco user premiums. After Mr. Guzman's death due to a seizure Mirna Guzman, as the primary beneficiary, claimed the policy proceeds. During Allstate's investigation for claims within the contestable period, they uncovered medical records indicating Mr. Guzman was a smoker, contradicting his initial application.

Allstate argued that the policy would not have been issued under the same terms had Mr. Guzman's smoking history been disclosed. Allstate decided to rescind the policy and deny payment. In response, Mirna Guzman sued Allstate in state court, alleging breach of contract and violations of the Texas Deceptive Trade Practice-Consumer Protection Act and the Texas Insurance Code. Allstate moved the case to federal court, and filed a counterclaim seeking a declaratory judgment affirming the rescission of Mr. Guzman's policy due to the alleged material misrepresentations on his application.

The case was heard before a magistrate judge. After a two-day bench trial, the court ruled that Allstate had met all requirements under Texas law to rescind Mr. Guzman's life insurance policy due to misrepresentation. Specifically, the court found that Allstate was entitled to cancel the policy under section 705.051 of the Texas Insurance Code, which permits rescission for misrepresentations made by the policyholder.

In her appeal Mirna Guzman presented two main arguments. First, she contended that the court made a clear error in ruling that Allstate had proven the necessary intent to deceive for rescission. Second, she argued that the court improperly exercised its discretion by allowing testimony from Allstate’s former chief underwriter.

The Fifth Circuit affirmed the magistrate judge’s decision. While Texas law requires the life insurance company to prove that the insured intended to decisive the insurance company in the application, the court of appeals found ample evidence in the record of such intent.

Mirna Guzman did not deny that evidence could suggest her husband intentionally misled Allstate. Yet, she argued that other evidence contradicted any intent to deceive. The appeal court emphasized the significant respect given to a trial court’s findings, noting that when evidence allows for two reasonable interpretations, the judge's choice between them is not clearly erroneous. Thus, the court of appeals found no clear error in the trial court's decision regarding Mr. Guzman's alleged intent to deceive Allstate.

Regarding Mirna's second point, she challenged the district court's decision to allow testimony from Allstate’s chief underwriter about the sensitivity of the nicotine urine test administered to Mr. Guzman. She claimed the testimony was expert in nature and did not meet the standards set by the Daubert case. Allstate countered, arguing that the testimony was based on personal knowledge, not expertise, and any error in admitting it was harmless.

In this instance, the court of appeals concluded that even if the underwriter's testimony was erroneously admitted, Mirna Guzman did not demonstrate how this affected her substantial rights. Since there was additional evidence supporting the trial court’s finding on Mr. Guzman’s misrepresentation, and Mirna did not show how the testimony impacted her rights substantially, the appellate court upheld the district court's evidentiary ruling.

We handle contested and denied life insurance beneficiary claims. It is very important to contact a lawyer experienced in life insurance cases. Call attorney J. Michael Young at (800) 323-1857.