Articles Posted in Life Insurance

It is not an issue seen often by life insurance lawyers, but it does come up.  When is the date coverage is in effect?

Most policies expressly state the “effective date” of coverage.  This date may be earlier than, or later than, the date the first premium is paid or the dates the policy is issued or delivered.  Often, a policy may have an effective date, an issue date, and a policy date — and they may all be different, causing confusion or misunderstanding.  If the dates differ, disputes may arise over when the policy actually took effect or terminated.  The effective date can be important in setting the due date for subsequent premiums and thus the date of any lapse for failure to pay a premium.

For example, in the 1980, Texas Supreme Court case, Life Insurance Company of the Southwest v. Overstreet, a policy provided that its effective date was March 15th and each annual premium was due on the anniversary of that date.  The insured did not pay his first premium until April 18th.  Two years later, the insured died while his premium was due.  If the effective date was measured from March 15th, he died outside the grace period and had no coverage.  If measured from April 18th, he died within the grace period, and within coverage.  The Texas Supreme Court held there was no coverage, following the majority rule that “a definite statement in the policy of the date on which annual premiums will be due is the due date.  Such a statement of the due date controls even over a provision stating that a policy will not be in force until it is initially delivered and the first premium is paid during the good health of the insured.”

The Texas Insurance Code spells out in law a few things that life insurance companies cannot do in their life insurance policies.  Between the Texas Department of Insurance and the Texas Legislature here are a few things that are written into law.

A policy of life insurance cannot limit the time to sue to a period of time of less than two years.  This is found in the Texas Insurance Code, Section 1101.053.  A person needs to be aware that there are situations where the insurance company limits the time to sue to two years and one day.  While this is not common, it does happen, so be aware and don’t delay in talking to an attorney if your claim gets denied.  Procrastination could result in being out of court on a claim you may be able to prevail on.

Section 1101.054, states that a policy cannot purport to take effect more than six months before the original application date, if that would qualify the insured for a rate based on a younger age group.  For purposes of this section, the age of the insured on the date of the application is the age of the insured on the birthday of the insured that is nearest to the date of the application.  The benefit to the insurance company is that they get a higher premium from the owner of the policy.

Life insurance coverage is fairly straightforward.  If the insured dies during the policy term, the insurer pays the benefits.  The following reasons are some ways that disputes may arise:

•  An agent may misrepresent the benefits of his insurer’s policy to induce the insured to switch from another company.
• An agent may fail to disclose that health conditions may cause the insured’s application to be rejected.  If the insured was induced to let a rival policy lapse based on the expectations of replacement coverage, the insured may have no insurance.

Common life insurance types are term, whole life, and universal life.

“Term” policies simply provide a death benefit in return for a premium payment.  At the end of the policy year, or “term,” the insurance ends, and the policy has no value.  Term policies do not accrue cash value.  Because the insured is only paying for the death benefit, term policies are cheaper in the early years.  As the insured gets older, the risk of death increases and so does the premium, so term may become more expensive than the other types.  Insurers typically sell term policies that promise a fixed premium for a set number of years.  For example, an insurer may sell a 10 year term policy that the insured may purchase and renew for the same annual premium during those years, without having to re-qualify.

“Whole life” policies typically charge more in premiums than term policies, so that the premium pays for the death benefit and provides an excess that allows the policy to accrue a “cash value.”  This cash value is an investment, in addition to the benefits if the insured dies.  The policies derive their name from the fact that the insurer offers to insure the insured for her “whole life” — based on a certain stream of premiums.  An insurer may offer illustrations at the time the policy is sold showing how much cash value will accrue based on the premium payments, if the certain interest rates apply.  The illustrations usually project the expected value of the policy over time, and often contain disclaimers and numerous assumptions, making comprehension difficult.  This complexity causes insureds often to rely heavily on oral explanations by the agent, which may be inaccurate or misunderstood.  This can be a source of trouble if the policy’s actual performance does not match the insured’s expectations.

Life Insurance Lawyers in the Dallas and Fort Worth area will see situations on a regular basis where the person who died had a life insurance policy naming the other spouse as the beneficiary – but there was a divorce later and the policy naming the ex-spouse was never changed.  What to do?  This is discuss in a National Review article titled, Divorces Can Be Messy … For Life Insurers.

Divorces are often characterized as “messy” for good reason.  While divorce proceedings can prove particularly challenging for the individual participants, they can also pose challenges for those adjudicating competing life insurance claims when the decedent insured’s ex-spouse, who has been designated as a policy beneficiary, claims a right to the death benefit instead of the surviving spouse, the insured’s estate or a secondary beneficiary.

Divorce-related life insurance disputes can end up before courts in litigation over the decedent insured’s estate, in litigation brought by a purported beneficiary against the insurance company, or in inter-pleader actions filed by the insurer.  In an inter-pleader action, the insurance company files a petition with the court seeking an order determining, for instance, which spouse – surviving or ex – is entitled to the decedent insured’s policy proceeds following a divorce.

It’s bad enough when private insurance companies mistreat life insurance beneficiaries but an April 2017, story from the Chicago Tribune shows that the U.S. Government does the same thing.  The story is titled, USPS Agrees To $49 Million Settlement For ‘Dawdling” In Paying Life Insurance Beneficiaries.

It’s bad enough for family members when a loved one dies.

Getting cheated by Uncle Sam afterward makes it worse.

Life insurance lawyers know about Texas Insurance Code, Section 1103.151.  Also known as the Texas Slayer Statute, it states:

A beneficiary of a life insurance policy or contract forfeits the beneficiary’s interest in the policy or contract if the beneficiary is a principle or an accomplice in wilfully bringing about the death of the insured.

Section 1103.152, goes on to say the proceeds of the policy go to the contingent beneficiary if there is one or goes goes to the estate if there is not.

Irving life insurance lawyers need to know every little aspect of the law in order to properly represent their clients.  A 1996, San Antonio Court of Appeals opinion deals with one of these “little” aspects of the law.  The opinion is styled, Mendoza v. American National Insurance Company.

Jerry Mendoza purchased a $25,000.00 life insurance policy from American on August 1, 1991.  The October premium was not paid.  The policy provided for a 31 day grace period.  On November 1, 1991, the last day of the grace period, American’s district manager, Sitka, verbally agreed to extend the grace period until November 4, 1991.  The policy, however, specifically provided that only American’s president, vice president, or secretary had the authority to extend this time period.  Jerry Mendoza died in an automobile accident on November 3, 1991.  The premium was never paid.  In a prior appeal, this Court affirmed a summary judgment in favor of American on Plaintiff’s breach of contract, negligence and bad faith claims.  This appeal concerns the trail court’s granting of summary judgment on Plaintiffs’ claims for intentional infliction of emotional distress, Insurance Code and DTPA violations.

The Court held that in order to qualify as a consumer under the DTPA, a person must seek to acquire goods or services by purchase or lease and those goods or services must form the basis of the complaint.  Lack of privity between plaintiff and defendant does not preclude a plaintiff from establishing status.  Section 541.060 provides standing to “any person” who has been injured by another’s engaging in an unfair or deceptive act or practice in the business of insurance as declared in the Insurance Code; rules and regulations issued under the Insurance Code or Section 17.46 of the DTPA.  Therefore, a plaintiff may assert causes of action under the Insurance Code for violations of Section 17.46 of the DTPA even though the plaintiff is not a “consumer.”  Carrion, a named beneficiary of the policy, would clearly be injured as a result of Sitka’s alleged misrepresentations.  Therefore, Clarion has standing under the Insurance Code.  Mendoza’a mother, in her capacity as representative of the the estate, however, does not have standing to assert Insurance Code or DTPA claims because those claims do not survive Mendoza’s death and his mother is not a “consumer” in her own right.