Life Insurance Beneficiary And Bad Faith

Dallas life insurance attorneys need to know about this Federal case. It is a 1996, Southern District of Texas opinion. It is styled, Bates v. Jackson National Life Insurance Company. Here is some of the relevant information.
Bates’ children sued Jackson National for proceeds of a life insurance policy issued to Bates. Plaintiffs asserted causes of action for breach of contract, bad faith, Insurance Code violations and DTPA violations.
On October 31, 1991 and November 1, 1991, Bates was diagnosed with phlebothrombosis and diabetes, respectively. On November 12, 1991, Bates submitted an application to Jackson National in which he represented he had not consulted or been treated by a physician in the last five years and that he had not submitted to an x-ray or any laboratory studies or tests. Furthermore, Bates represented in the application that he had not been told he had any disease, abnormality or diabetes. The policy was issued and the application was attached to and made a part of the policy.
On November 11, 1992, Mr. Bates was murdered by an ex-lover of his girlfriend / common law wife. Plaintiffs timely filed a claim with Jackson National. Jackson National denied coverage based on material misrepresentations made by Bates in the application for insurance.
Plaintiffs acknowledge that the application contained false representations and that Jackson National relied on those representations. Plaintiffs dispute, however, that Bates intended to misrepresent information to Jackson National or that the misrepresentations were material.
In its’ discussion of this case this court said a material misrepresentation in an insurance application does not defeat recovery if the misrepresentation was made innocently and in good faith. An insured’s mere knowledge of his or her health condition is insufficient to prove intent to deceive as a matter of law. Accordingly, a fact issue exists as to whether or not Bates intended to deceive Jackson National.
Jackson National owed the beneficiaries of the policy no duty of good faith and fair dealing as they are merely third-parties claiming under the policy, not an insured of Jackson National. Even if Jackson National owed the beneficiaries a duty of good faith and fair dealing, the evidence demonstrates a reasonable basis for questioning their claim. Therefore, Jackson National did not breach the duty of good faith and fair dealing.
Plaintiffs do have standing under the Texas Insurance Code to assert Insurance Code violations. Section 541.060 allows “any person” who has sustained actual damages to assert claims under the statute. The Texas Supreme Court has narrowly construed the term “any person,” but has not squarely addressed the issue before this Court. This case is directly on point with another opinion. In the other opinion, the San Antonio Court of Appeals held that beneficiaries under a policy may assert claims under the statute. Until persuasive authority is presented that the Texas Supreme Court would hold otherwise, federal courts will follow the other opinion. Because a reasonable basis exists for Jackson National to question this claim, however, no violation of the statue occurred.
Accordingly, summary judgment is granted for Jackson National as to Plaintiff’s bad faith and Insurance Code claims. Plaintiffs’ breach of contract claim, however, must be tried to determine if Bates intended to deceive Jackson National.