Residents of Grand Prairie, Arlington, Fort Worth, Dallas, and other areas in the State of Texas would want to understand what happens when a policy payment is missed. The following case is one where the policy ended up lapsing. An experienced Insurance Law Attorney may have been able to get a different result.
The case is State Farm Life Insurance Company v. Beaston. The case decided in 1995, by the Texas Supreme Court. Here is some background.
Beaston purchased a graded premium whole life policy from State Farm. The premium on the policy was due on 12/28/93. The thirty-one day grace period expired on 1/28/94. Three days after the expiration of the grace period, Beaston died in an automobile accident. State Farm refused to pay benefits because coverage had expired. Beaston’s wife, the beneficiary, brought suit alleging that the policy remained in force because of its dividend-at-death provision. The trial court found the policy ambiguous and instructed a verdict in favor of Beaston with respect to coverage.
The jury found: (1) the defendants had engaged in unfair or deceptive acts and that such conduct was a producing cause of damages to Beaston; and (2) defendants did not: (a) engage in any false, misleading or deceptive act or practice; (b) engage in any unconscionable action or course of action; (c) commit negligence; or (d) commit gross negligence. The jury awarded no policy benefits but awarded $200,000 for past mental anguish and attorney’s fees in the amount of forty percent of her recovery. Based on the court’s directed verdict and the jury’s findings, the court entered judgment in favor of Beaston in the amount of $598,000. The court refused to award damages for mental anguish or to treble the award pursuant to Texas Insurance Code, Section 541.060, because there was no finding the defendants acted knowingly. The Court of Appeals held that mental anguish damages should have been awarded and actual damages should have been trebled. The Court of Appeals further held that Beaston’s contingent attorney’s fees should be calculated from the total recovery and not the total damages.
In it’s analysis of this case, the court said that the interpretation of an insurance contract is governed by the same rules of construction applicable to other contracts. The policy, viewed in its entirety, unambiguously provides that State Farm would use “any available dividend accumulations” to pay all or part of the unpaid premium. Beaston’s policy had not accumulated any dividends on its first anniversary and the policy lapsed before its second anniversary. Therefore, no dividend had accumulated. As a result, there were no dividend accumulations available to cure the lapse. Accordingly, Beaston had no coverage under the policy. On an issue of first impression, the Court held a “knowing” violation is required for an insured to recover mental anguish under Section 541.060. Thus, the judgment of the Court of Appeals was reversed and judgment rendered that Beaston take nothing.
This case has a harsh result.
Referring to the first paragraph above, this author is not saying that an experienced Insurance Law Attorney would have resulted in a favorable outcome. Rather, this author is saying that there are many ways to get around late payments and missed payments and that the odds of knowing about these ways are greatly increased with an attorney who has dealt with the situation in the past.
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