Everybody in the Dallas, Fort Worth area, including Grand Prairie, Arlington, Mansfield, and out in Weatherford have some form of health insurance. The majority of this insurance is private plans.
The Texas Supreme Court decided a case in 1994 that still has relevance today. The style of the case is, Union Bankers Insurance Company v. Thomas D. Shelton and Ann Shelton. The issue in the case dealt with misrepresentation in the insurance policy application.
Here are the facts. In April 1988, Mr. Shelton applied to Union Bankers Insurance Company (Union) for a health insurance policy. Mr. Stone completed the application with the agent’s assistance. In response to certain medical history questions, Mr. Shelton indicated that he had never been treated for, and had no indications of, any disorders of the skeletal or muscular systems. Union subsequently issued a policy. Seven months after the policy was issued, Mr. Shelton underwent a total hip replacement to correct necrosis of his left hip joint. He then filed a claim for benefits. Union denied the claim, saying that the necrosis was an undisclosed pre-existing condition.
The Sheltons sued Union and its agent, alleging breach of contract, violations of the Texas Deceptive Trade Practices Act and the Texas Insurance Code, and breach of the duty of good faith and fair dealing. A jury trial resulted and failed to find that Mr. Shelton intended to deceive Union by misrepresenting his condition. The lower appeals court found that Union had breached its contract as a matter of law and remanded the case to the trial court for further findings concerning whether Union breached the duty of good faith and fair dealing in connection with its cancellation of Mr. Shelton’s policy.
Union argued that Texas Insurance Code, Section 1201.208, allows an insurance company to cancel a health insurance policy within two years from the date of its issuance on the basis of an insured’s innocent misrepresentation in the application for insurance. Union also pointed to policy language that allowed them to do this.
In a further appeal, the Supreme Court pointed out that, Texas Insurance Code, Section 1201.272, says that a misrepresentation in an application for any type of insurance must be material in order for an insurance company to avoid the policy. The idea that an insured’s intent to deceive is likewise required is well established in Texas law.
The Supreme Court stated, “It is now settled law in this state that these five elements must be pled and proved before the insurer may avoid a policy because of misrepresentation of the insured: (1) the making of the representation; (2) the falsity of the representation; (3) reliance thereon by the insurer; (4) the intent to deceive on the part of the insured in making the same; and (5) the materiality of the representation.”
All of the cases in Texas properly stand for the proposition that, in Texas, an insured’s intent to deceive must be shown in order for an insurance company to successfully raise a defense of misrepresentation on the basis of a false statement made by the insured in the application for any type of insurance.
The Supreme Court ruling was – “We hold, therefore, that an intent to deceive must be proved to cancel a health insurance policy within two years of the date of its issuance when the cancellation is based on the insured’s misrepresentation in the application for insurance.”
When someone has their health insurance policy cancelled within two years of it being obtained, or for that matter, anytime after it has been obtained, it is important that an experienced Insurance Law Attorney be consulted to make sure the cancellation is proper. Insurance companies often rely on the reality that most people will not truly fight the decision the insurance company makes. Most people will call the company or their agent and complain but will not take any action beyond filing some sort of complaint.
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