To void coverage, is it necessary for an insurer to prove that a policyholder had an intent to deceive when making material representations in an insurance application? The Texas Supreme Court has agreed to hear this issue, with potential widespread implications.

In 2017, Sergio Arce applied for a life insurance policy with American National.  In response to a question on the application about whether he had ever been diagnosed with or treated for or given medical advice regarding hepatitis C, Sergio answered, no.  However medical records showed that Sergio was diagnosed with hepatitis C in 2013 and declined treatment for it.  American National issued the policy and 13 days later, Sergio was involved in a car accident and died. Sergio’s mother, Bertha, made a claim for benefits with American National.  American National denied on the claim on the basis that Sergio misrepresented his condition in the application.  This lawsuit followed shortly afterwards.

At the trial court level, Bertha’s claims were dismissed on summary judgment premised on Sergio making material misrepresentations on the insurance application. On appeal, the Amarillo Court of Appeals reversed the summary judgment, making some important findings along the way.

Bertha argued at the trial and appellate court level that established Texas case-law requires that American National establish that Sergio had an intent to deceive by making the material misrepresentation about his hepatitis C diagnosis. In contrast, American National argued that the case-law doctrine had been codified into Texas Insurance Code Section 705.051, which eliminated  (or at least did not expressly require) proof of the policyholder’s intent to deceive during the contestability period.

In holding for Bertha and reversing the trial court, the Amarillo Court of Appeals held that American National needed to prove that Sergio acted with an intent to deceive when failing to disclose his diagnosis on the application.  According to Court, whether intent to deceive existed is not a basis upon which summary judgment can be granted, and knowledge of a health condition by itself is insufficient to establish that intent.

American National sought review of the Amarillo Court of Appeals’ decision.  The Supreme Court granted the petition for review and is scheduled to hear oral arguments in the case on January 23, 2023.  In its briefing to the Texas Supreme Court, American National argued that the Court of Appeals had erred in grafting the intent to deceive into the text of Section 705.051. According to American National  the word “intent” only appears Section 705.104, a section that applies to suits brought on a policy more than two years after policy issuance. For suits brought less than two years after the policy was issued, Section 705.051 would apply, and the insurer would no longer have to prove intent.

The Texas Supreme Court’s decision will likely have a profound impact not only on life, accident, and health insurance policies, but on other types of insurance policies where a policyholder makes material misrepresentations on the application.  It will also provide some clarity about what happens when existing case-law is codified into statute, but one or more elements of the case-law doctrine are omitted.

The attorneys in our Austin and Dallas office are available to answer any questions you may have.  Please contact us at info@gstexlaw.com.

Legal Disclaimers

This blog is made available by Gerstle Snelson, LLP for educational purposes and to provide general information about the law, only.  Neither this document nor the information contained in it is intended to constitute legal advice on any specific matter or of a general nature.  Use of the blog does not create an attorney-client relationship with Gerstle Snelson, LLP where one does not already exist with the firm.  This blog should not be used a substitute for competent legal advice from a licensed attorney.

©Gerstle Snelson, LLP 2023.  All rights reserved.  Any unauthorized reprint or use of this material is prohibited.  No part of this blog may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system without the express written permission of Gerstle Snelson, LLP.