Dallas Fort Worth Insurance Lawyer Blog

Fort Worth insurance lawyers need to be aware of a life insurance policy’s incontestability clause.

All life insurance policies must contain an incontestability clause, which is a provision  that the policy will be incontestable after it has been in force during the lifetime of the insured for two years from its date, except for nonpayment of premiums.  The statute requiring this is found in the Texas Insurance Code, Section 1131.104 for life insurance policies and Article 3.50, Section 2(2) for group life insurance policies.  Also, look at Sections 705.101 to 705.105.  The effect of these clauses is to limit the preceding defenses so they can apply only during the first and second policy years.

The purpose of the incontestability clause is to protect the insured from a contest as to the validity of the policy after the set period has expired.  This is discussed in the 1972, Texas Supreme Court opinion styled, Minnesota Life Insurance Co. V. Morse.

Arlington life insurance lawyers know the requirements insurance companies must meet to successfully defend a life insurance case based on the defense of misrepresentation.  Misrepresentation in the policy application is the most common reason for denial of a claim for benefits.

The Texas Insurance Code, Sections 705.001 to 705.005, prohibits a defense to coverage based on misrepresentations in an application, unless the application is attached to the policy.  The statute is affirmed in the 1994, Texas Supreme Court opinion, Fredonia State Bank v. General American Life Insurance Co.

As was stated in another Texas Supreme Court opinion in 1975 styled, Johnson v. Prudential Insurance Co. of America, “Applications for insurance and other written statements made in that connection are often filled out or written by insurance agents or others and only signed by the insured.  It has often been held that it is the underlying legislative intention to require that the insured have the material terms of the contract at hand during his lifetime in order that he might examine and correct any misrepresentations which have been made the basis of the insurance coverage.”

Grand Prairie life insurance lawyers know that for a life insurance company to establish misrepresentation as a defense for refusing to pay on a claim, that the life insurance company must plead and prove five elements:

1.  the making of the misrepresentation;
2.  the falsity of the misrepresentation;

A 1982, 14th Court of Appeals opinion recognizes and upholds that life insurance policies typically exclude suicide as an assumed risk of the carrier.  The opinion is styled, Parchman v. United Liberty Life Insurance Co.

In Parchman the policy excluded suicide as an assumed risk for two years from the policy date and provided a reduced benefit of the premiums paid if death resulted from suicide within that period.

As another example, a 1986, Amarillo Court of Appeals opinion styled, Southern Farm Bureau Life Insurance Co. v. Dettle, provided:  If the insured within two years from the date of issue of this policy shall die by his own hand or act whether sane or insane, the liability of the Company shall be limited to an amount equal to the premiums actually paid, without interest.

The Texas Insurance Code, Section 1101.055 limits the permissible life insurance exclusions to suicide, stated hazardous occupations, and aviation activities.  Courts have construed this list to render void other exclusions, such as one excluding a loss caused by a preexisting condition.  This preexisting condition exclusion is discussed in the 1921 Texas Supreme Court opinion, First Texas State Insurance Co. v. Smalley and in the 1935 opinion, Atlanta Life Insurance Co v. Cormier.  It is also discussed in the 1942 Austin Court of Appeals opinion, Cook v. Continental Casualty Co. and the 1938 Dallas Court of Appeals opinion, Universal Life Insurance Co. v. Grant, which discussed an exclusion for death while committing crime.

In First Texas State when discussing the exclusion, the court stated: “It was formerly usual for policies of life insurance to contain numerous conditions on which the amount or amounts paid on the death of the insured might be reduced or entirely defeated.  Among common conditions were those related to the insured’s occupation, habits, residence, and suicide.  Not infrequently the amount of the insurance was stated in bold type, on the face of the policy, while the conditions were inconspicuously put on the back.  Such policies could be used to lead the unwary into the belief that they held enforceable promises of real and substantial benefits, when the promises were so limited and conditioned as to have slight actual value.  In this way premiums could be collected from the insured in exchange for apparent, rather than real, obligations on the part of the insurers.  The above were evils to be remedied by the statute, which was enacted in the interest of the insured.  To accomplish the legislative intent, the language of the statute must be given such signification as to afford a reasonable remedy for these evils.  The public policy declared is that the amounts promised to be paid on the death of the insured are not to be withheld nor diminished under limitations or conditions, except to the extent of subsisting the indebtedness to the insurer, including premiums, save in the specially enumerated instances of the insured’s death by suicide or from following specified hazardous occupations.  In this way the contract in this state as to benefits from life insurance is rendered simple and easily understood by all, including those lacking legal or business experience ….  Provisions inconsistent with the statute are void.”

For a beneficiary to recover death benefits, the insured must be dead.  Doubt may arise when the insured disappeared or when there is uncertainty over the identity of the dead body.  This is illustrated in the 1987 Texas Supreme Court case, Davidson v. Great National Life Insurance Co. and in the 1892 U.S. Supreme Court opinion, Mutual Life Insurance Co. of New York v. Hillmon.

Proof of the insured’s death may be aided by a legal presumption.  After a person is absent for seven years, the law will presume the person is dead.  This is pursuant to the Texas Civil Practice and Remedies Code, Section 133.001.

In Davidson, the insured traveled to Tel Aviv, leaving behind some questionable financial dealings.  A badly disfigured body was found near the hotel where he was registered.  His wife claimed the body was his, and she sought death benefits.  The insurer asserted there was a conspiracy to commit fraud and to fake the insured’s death.  Relevant evidence included testimony from an Israeli police officer identifying photos of the body as being photos of the insured.