Life Insurance Misrepresentation

People in Weatherford, Mineral Wells, Aledo, Hudson Oaks, Willow Park, Brock, Millsap, Springtown, Cool, Peaster, and other places in Parker County might be interested in this life insurance case.
The case is a 1996, opinion issued by the Southern District of Texas. The style of the case is Bates v. Jackson National Life Insurance Company. Here are some facts.
Bates’ children sued Jackson National for proceeds of a life insurance policy issued to Bates. The children 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 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. The kids timely filed a claim with Jackson National. Jackson National denied coverage based on material misrepresentations made by Bates in the application for insurance.
The kids acknowledge that the application contained false representations and that Jackson National relied on those representations. The kids dispute, however, that Bates intended to misrepresent information to Jackson National or that the misrepresentations were material.
The court held that 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. What this means is that Jackson National cannot get a favorable ruling in a declaratory judgment action or a motion for summary judgement, which means the kids get to present their case to a jury.
In 2003, the Texas Legislature passed relevant laws dealing with this issue.
Texas Insurance Code, Section 1101.006 says:
(a) … a life insurance policy must provide that a policy in force for two years from its date of issue during the lifetime of the insured is incontestable, except for nonpayment of premiums.
This means that misrepresentations do not matter after a person has had and been paying for the policy for a period of two years.
Texas Insurance Code, Section 1101.007 says:
A life insurance policy must provide that, in the absence of fraud, a statement made by an insured is considered a representation and not a warranty.
This means that a wrong statement has to be proven to have been made intentionally and not by mistake before the insurance company can hope to avoid payment on the policy.
What is relevant to the reader is that life insurance companies will look long and hard to find ways to keep from paying a policy claim. Upon being notified of a death, they will immediately order all the medical records they can on the insured, then compare those records to the application. When a claim is denied, for any reason, an Insurance Law Attorney needs to be consulted as soon as possible.