Life Insurance claims denial attorney are well aware of this 2023 opinion from the Texas Supreme Court. The opinion is styled, Arce v. American National Insurance Company.
The Court discussed the plain text of Texas Insurance Code, Section 705.051 wherein it states: “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.”
American National argued that this language encompassed every element of the common-law test except intent to deceive, thus indicating that the statute did not require intent to deceive.
The Court rejected this argument, finding that Section 705.051 states conditions that are only necessary, but not sufficient, to defeat recovery on a policy based on misrepresentations.
Based on its interpretation of the statute’s language, the Court found Section 705.051 sets a “floor” that cannot be removed by contract or common law.
The Court’s interpretation was a grammatical one, focusing on the statute’s use of the word “unless,” which implies the two enumerated elements are merely necessary. In rejecting American National’s interpretation would require rewriting the statute to read: “a misrepresentation in an application for a life, accident, or health insurance policy does defeat recovery under the policy if the misrepresentation:
(1) is of a material fact, and
(2) affects the risks assumed.”
Going further, the Court found Section 705.051 did not give insurers a rescission defense at all, much less set the exclusive terms for a rescission defense.