Attorneys in Grand Prairie, Irving, Arlington, Fort Worth, and other places in Texas need to understand the ways insurance law works and what constitutes a misrepresentation by an insurance agent.
Here is a case from 1990, that might be helpful in understanding a little bit of how this works. The case is styled, Preston Insurance Agency v. Daryl May et. al. and the opinion was issued by the Texarkana Court of Appeals.
Here is some background.
The Mays alleged that Preston and others negligently caused the loss of health insurance coverage for their son, which in turn caused them damages in unpaid medical and hospital bills, and mental anguish.
In 1982, on the recommendation of Daryl’s mother, the Mays went to Preston to seek insurance coverage. They asked about a particular plan which could be purchased through United Services Association of America (USAA). By joining USAA, the Mays were eligible to purchase a group policy, which they did. USAA controlled the policy and had the power to replace the company. This group policy allowed the carrier to terminate the entire group at any time, but not as to individual members. This right was made clear. The policy also contained a deferral provision concerning dependents who were hospitalized or totally disabled at the time coverage began which provided for deferred coverage until (1) the dependent was engaged in all normal activities of a person in good health of the same age and sex, (2) there had been furnished satisfactory evidence of the dependent’s insurabiity, and (3) the dependent was no longer confined to a medical facility.
The Mays had a son born in 1984, Jared. Jared suffered from serious medical conditions requiring hospitalization. The group insurance policy changed hands a few times and ended up with a company that discovered the condition of Jared and waived coverage as to him because he did not meet the requirements of the deferral rule contained in the policies.
The Mays sued Preston and the insurance companies involved and prevailed at trial. Preston filed this present appeal.
The Mays contended that Preston was negligent in placing their insurance in a plan inadequate to their needs and which exposed them to the possibility of having no coverage on their child.
The only fact asserted to be a direct cause of loss is that the group policies covering the Mays allowed the insurance company to terminate the policy as to the complete group, and that this termination right caused a “switching of underwriters” which ultimately left Jared without coverage. Thus, any liability of Preston, must be based on some negligence on its part in securing for, or inducing the Mays to purchase, that type of policy.
This appeals court then went over the evidence presented in the case. This evidence showed that there were discussions regarding the Mays and the fact that Ms. Mays had become pregnant and that the Mays were concerned that the insurance purchased cover their baby.
There was evidence of brochures being read and discussed regarding coverage and how it worked.
Ms. May testified that she was aware from conversations with Preston that any of the carriers who had the group policy could cancel the entire group, and that she had received a letter from USAA at one point, informing her that the group was being cancelled. She was also aware from what Preston told her that the cancellation could happen and that there was nothing USAA could do about it if the new carrier decided to cancel the policy.
In making a final ruling this court ruled in favor of Preston. In doing so the court stated, “An insurance agent or broker is not liable for an insured’s loss of claim or coverage, unless at the time the policy is purchased or at some later time when the insured could be protected, the agent knows or should know of facts which would put a reasonable agent on notice that the insurance presents an unreasonable risk, and then fails to use reasonable care to protect the insured. When the insured is fully apprised of the risk, and voluntarily chooses the policy and accepts that risk, the agent’s act in placing the coverage is not a proximate cause of the loss.”
The court went to point out that the undisputed evidence in this case showed that the Mays were fully aware of the termination right contained in the policy they chose, and were fully aware that if the insurance company chose to terminate the policy as to the whole group, as it had a right to do, they and their dependents could lose coverage.
This case is difficult for the insureds. However, it does a good job of pointing out the requirements / burdens on the agent. An experience Insurance Law Attorney being aware of these requirements / burdens helps provide guidance for evaluating the merits of a case and thus in valuable for advising a client how to approach their particular situation.
Updated: