Life Insurance Misrepresentations

Dallas life insurance lawyers need to know this case. The case is styled Lilly Sharp v. Lincoln American Life Insurance Company. The opinion was issued by the Corpus Christi Court of Appeals in 1988.
This lawsuit was filed by Lilly Sharp after the death of her daughter.
Lincoln had denied the claim based on misrepresentations by the insured in the policy application. The trial judge ruled in favor of Lincoln and this appealed followed.
Here are some facts:
Lilly bought the policy on her daughter’s life, naming herself as beneficiary. Lincoln’s salesman filled out the application after asking Lilly questions on the form. The salesman was a neighbor. After the application was completed, the adult daughter entered the room, signed the form and then left the room. There is no evidence the daughter read the form before signing it. Lincoln then issued a policy.
The daughter died a year later of complications due to an overdose of illicit drugs. Upon investigation, Lincoln discovered misrepresentations in the application regarding the daughter’s health and denied the claim for benefits. Lincoln discovered the deceased had not disclosed her history of drug addiction and hospitalizations for drug dependency.
FIVE ELEMENTS MUST BE PLED AND PROVED BEFORE AN INSURANCE COMPANY MAY AVOID A POLICY BECAUSE OF MISREPRESENTATIONS 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 by the insured in making the representation; and 5) the materiality of the representation.
The parties stipulated to the existence of all the above elements except the insured’s intent to deceive.
In the court’s findings of fact, the trial court found that the daughter made false representations on the application concerning her health, with the intent to deceive the insurance company, and that those representations were material and were relied on by Lincoln.
Lilly complained that there was no evidence of intent to deceive.
In this opinion the appeals court stated, “One’s intent to deceive may be proven by circumstantial evidence as may other states of mind.” Thus the issue was whether the misrepresentation was innocent and made in good faith or willful with the intent to deceive. This court pointed out that a fact finder, in comparing the representation made on the insurance application with the insured’s knowledge, could determine that the misrepresentation was so outrageous and removed from the truth that it must have been made with the intent to deceive. In making it’s decision this court said that construing the evidence in the light most consistent with the finding of the trial court, that there is “some evidence” to support the conclusion that the misrepresentation was made with the intent to deceive.
This case is important for a life insurance attorney to know and understand because it sets out the elements that a life insurance company must prove in order to avoid a policy because of misrepresentations of the insured.