Wednesday, October 17, 2012

Misrepresentation: Is It As Easy As You May Think To Establish?


This article originally appeared in the September edition of Dickinson Wright’s Tennessee Insurance Legal News

Two recent decisions from the Tennessee Court of Appeals indicate that an insurer will face an uphill battle in attempting to establish the elements of a material misrepresentation defence effective to void coverage. At the very least, the following decision should give you pause before denying an insured’s claim based on perceived misrepresentations in the application for insurance.

Williams v. Tennessee Farmers Life Reassurance Co., No. M2011-01946-COA-R3-CV (Tenn. Ct. App. July 31, 2012), arose from the denial of death benefits under a term life insurance policy issued by Tennessee Farmers Life Reassurance Company (“Tennessee Farmers”) to the decedent, Barbara Williams (“Ms. Williams”). Tony Williams and Angela Williams (“Plaintiffs”) were the named beneficiaries under the policy of insurance.

Ms. Williams applied for and received a term life insurance policy from Tennessee Farmers in 2005. In 2006, Ms. Williams died of acute methadone intoxication. When Mr. Williams submitted a claim on the life insurance policy, Tennessee Farmers denied the claim, asserting that Ms. Williams failed to make certain disclosures in her application for insurance pertaining to methadone.

Plaintiffs subsequently filed a complaint seeking to enforce the insurance policy and recover the death benefit. The trial court found in Plaintiff’s favor and ordered Tennessee Farmers to pay the death benefit under the policy. Tennessee Farmers appealed, arguing that Ms. Williams made material misrepresentations in her application and that these misrepresentations increased its risk of loss.

Noting that the trial court’s findings of fact (i.e. that there was no proof that Ms. Williams was taking methadone at the time she submitted her application for insurance and that there was no proof that Ms. Williams was ever treated for alcohol or drug related problems) were to be reviewed with the presumption that they were correct, unless the preponderance of the evidence was otherwise, the Court of Appeals affirmed the trial court’s determination that Ms. Williams’ answers to the subject questions were truthful and complete.

In light of the foregoing, the Court of Appeals affirmed the trial court’s finding that Ms. Williams did not make material misrepresentations in her application for life insurance and, hence, that the policy was enforceable.

To read more about this case and an additional ruling from the Tennessee Court of Appeals, click here.