Texas Supreme Court upholds intent to deceive standard
In a decision issued today, the Texas Supreme Court affirmed that the intent to deceive standard is still the law in Texas. I had written about the intent to deceive standard previously. Essentially, a life insurance company cannot deny payment on a claim because of a misrepresentation on a policy application, unless it can prove the applicant intended to deceive the life insurance company.
The case is American National Insurance Company v. Arce. The court summarized the issue and opinion as:
For more than a century, Texas courts have applied the settled rule that insurers may not avoid liability under an insurance policy based on a misrepresentation in an insurance application unless, among other things, the insurer pleads and proves the insured intended to deceive or induce the insurer to issue the policy. The primary issue before us is whether the common-law scienter requirement is repugnant to the plain language of section 705.051 of the Texas Insurance Code, 2 which 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.” Section 705.051, which dates back to 1909, has long functioned side by side with the common law, having been reenacted and recodified without substantive change, most recently in 2003. We hold that section 705.051 does not displace the common-law rule because the statute prescribes necessary, not exclusive or sufficient, conditions for denying recovery under a contestable policy. Finding no compelling reason to otherwise repudiate clear and longstanding precedent, we affirm the court of appeals’ judgment in part and remand the case to the trial court. We also reverse the court’s judgment in part and render judgment that, as a matter of law, the insurer was exempt from complying with the ninety-day notice provision in section 705.005.
This decision effectively overrules decisions from several federal district courts in Texas that granted summary judgments in favor of life insurance companies seeking to rescind policies and deny payments on claims.
Life insurance companies may deny a claim due to misrepresentation on a policy application in Texas for various reasons. Misrepresentation occurs when a policyholder provides false or inaccurate information during the application process, which can impact the insurer's underwriting and risk assessment. In cases of material misrepresentation, the insurer may have the right to rescind the policy, leading to a life insurance claim denial.
Insurers have a contestability period, typically two years from the policy's inception, during which they can investigate and deny claims if misrepresentations are discovered. This period protects insurance companies from fraudulent or dishonest applications.
The intent to deceive standard applies when an insurer evaluates whether a policyholder knowingly and willfully provided false or misleading information during the life insurance application process with the purpose of deceiving the insurance company. This standard plays a crucial role in determining the insurer's right to rescind a policy or deny a life insurance claim due to misrepresentation.
To apply the intent to deceive standard, insurers must establish that:
The policyholder provided false or misleading information on the application.
The policyholder was aware that the information was false or misleading at the time of submission.
The policyholder intended to deceive the insurer by providing the false information, usually to secure favorable policy terms or lower premiums.
When a misrepresentation is made without an intent to deceive, it may be considered an innocent mistake, and the insurer might not have the right to rescind the policy or deny the claim.
A life insurance lawyer can help policyholders navigate the complexities of denied life insurance claims due to misrepresentation. They can assess the validity of the insurance claim denial, determine if the misrepresentation is material enough to warrant rescission, and advise on the best course of action to secure a fair resolution.
If your claim for life insurance benefits is denied
Call attorney J. Michael Young at (800) 323-1857