Court Opinion

ID: 14643
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:37:25+00
Date Added: 2024-06-11T08:19:44.697822
License: Public Domain

UNITED STATES COURT OF APPEALS
                         FOR THE FIFTH CIRCUIT

                      _________________________

                               97-50256
                      __________________________

               THE ESTATE OF MICHAEL W. HICKS, DECEASED
                          and CATHERINE HICKS

                                              Plaintiffs-Appellees,

                                versus

             ARMED FORCES BENEFIT ASSOCIATION, a/k/a
          ARMED FORCES RELIEF AND BENEFIT ASSOCIATION,
           and JOHN HANCOCK MUTUAL LIFE INSURANCE CO.,

                                             Defendants-Appellants.

_________________________________________________________________

           Appeal from the United States District Court
                 for the Western District of Texas
                           (EP-96-CV-305)
 _______________________________________________________________

                            April 7, 1998

Before DAVIS, JONES, and DENNIS, Circuit Judges:

PER CURIAM:*

          Appellants Armed Forces Benefit Association and John

Hancock Mutual Life Insurance Co. appeal from a district court

judgment granting appellees Catherine Hicks and the estate of

Michael Hicks the proceeds of a life insurance policy.     For the

following reasons, we AFFIRM.

     *
      Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
                                 A.     BACKGROUND

           On June 12, 1990, Michael Hicks and his wife Catherine

Hicks applied for a $50,000 insurance policy on Michael’s life.

The policy was provided by the Armed Forces Benefit Association and

underwritten by the John Hancock Mutual Life Insurance Company.

Although this policy did not require the insured to undergo a

medical examination, Michael and Catherine were required to sign an

application in which they certified that Michael “had no incidence

of drug or alcohol abuse, nor ever consulted, been treated by a

physician or hospitalized for any injury, illness, or medical

condition.”       Even though Michael had a history of drug abuse,

Michael and Catherine signed the application, and, on June 25,

1990, the policy was approved.

           In September of the same year, Michael was hospitalized

and   diagnosed       HIV   positive.      In   June   1992,     Michael   died   of

complications arising from AIDS.

           After the appellants refused to pay the death benefits

under the insurance policy, Catherine Hicks and the Estate of

Michael Hicks filed suit in state court.                The appellants removed

the case to federal court under diversity jurisdiction and denied

liability.      The appellants raised the affirmative defense of

misrepresentation and sought to have the policy rescinded based

upon false statements contained in the application for insurance.

           Following a bench trial, the district court found that

Michael   had     a    history   of     drug    and    alcohol    abuse    and    was

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hospitalized on various occasions for substance abuse treatment.

The district court also found that Michael and Catherine made

material misrepresentations when they signed the life insurance

application.     Nevertheless, the district court held that “any

misrepresentation made by the Plaintiffs in securing the issuance

of the policy were as a result of carelessness in completing the

application and were not made with the intent to deceive or

defraud.”    The district court concluded that the false statements

Michael and Catherine had made concerning Michael’s drug and

medical history did not authorize the appellees to rescind the life

insurance policy.     This appeal followed.

                              B.     DISCUSSION

            Under Texas law, an insurer must plead and prove five

elements to rescind a policy because of the misrepresentation of an

insured: (1) the making of the representation; (2) the falsity of

the representation; (3) reliance thereon by the insurer; (4) the

intent to deceive on the part of the insured in making same; and

(5) the materiality of the representation.          See Union Bankers Ins.

Co.   v.   Shelton,   889 S.W.2d 278,   282   (Tex.   1994);   Mayes   v.

Massachusetts Mut. Life Ins. Co., 608 S.W.2d 612, 616 (Tex. 1980).

Texas law is unique in that “an insured’s intent to deceive must be

shown in order for an insurance company to successfully raise a

defense of misrepresentation on the basis of a false statement made

by the insured on the application for any type of insurance.”

Shelton, 889 S.W.2d at 282; see also Parsaie v. United Olympic Life

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Ins. Co., 29 F.3d 219, 220 (5th Cir. 1994) (Davis, J.) (“[A]n

insurer     may     rescind     a   policy    based    on     the    insured’s

misrepresentations only if the insurer can prove the insured’s

intent to deceive.”).         Thus, “it is incumbent upon the insurer to

prove that the insured made some material representation ‘willfully

and with design to deceive or defraud,’ as an element of the

defense.”   Soto v. Southern Life & Health Ins. Co., 776 S.W.2d 752,

756 (Tex. App.--Corpus Christi 1989, no writ) (citing Allen v.

American Nat’l Ins. Co., 380 S.W.2d 604, 607-08 (Tex. 1974); Haney

v. Minnesota Mutual Life Ins. Co., 505 S.W.2d 325, 328 (Tex. Civ.

App.--Houston [14th Dist.] 1974, writ ref’d n.r.e.).

            In this case, the district court found -- and we agree --

that the appellants have failed to establish the intent to deceive.

Michael and Catherine agreed to meet and discuss purchasing life

insurance    from    the   appellants      after    they    had   received   an

unsolicited phone call from William Schilling, a sales agent for

the Armed Forces Benefit Association.              The soliciting materials

stated that no medical examination would be required for the policy

to be approved provided the applicant did not have a health

problem.    The Hicks’s decided to purchase $50,000 in coverage for

$4.00 per month, even though it was Catherine’s understanding that

they could purchase additional $50,000 increments in coverage for

$4.00 per increment per month.         Michael orally answered questions

posed by the sales agent, who completed the application.               Michael

then signed the policy to confirm his answers.              He never read the

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application.      Appellees understood the agent’s question concerning

hospitalization to mean physical sicknesses, injuries, illnesses,

or diseases. They did not comprehend that the sanitarium-type drug

treatment Michael had received constituted hospitalization, nor did

they perceive Michael to be sick, ill, or diseased at the time of

the application.         They considered drug treatment to be counseling

rather    than       medical    treatment.          Finally,    Michael    Hicks       had

regularly carried life insurance through various employers in

earlier years.        He was without life insurance in June 1990 because

he was currently unemployed.            There is no indication that he was

motivated to purchase life insurance by any perception that his

life was in danger.

               Although their conduct might be deemed incautious, or

even negligent, it does not demand a finding that Michael and

Catherine acted with the willful intention to deceive the insured.

In particular, their perception that they might have purchased more

insurance      for    nominal    additional        monthly     charges    --    even   if

incorrect -- is not disproved by the brochure they were given and

supports a finding of no intent to deceive.                        “In short, false

statements which are made negligently, carelessly or by mistake are

not sufficient to avoid a life insurance policy where the defense

is based upon the insured’s misrepresentation of a material fact.”

Soto, 776 S.W.2d    at    756;   see       also   Parsaie, 29 F.3d    at    221

(rejecting argument that under Texas law “a misrepresentation need

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not be intentional so long as it induces the insurer to issue the

policy”).

            Appellants argue that “[i]n cases such as this, in which

the falsity and materiality of the insured’s representations are

admitted, the requisite intent [to deceive] is established by proof

of   circumstances        that   render   the   insured’s     denial   of   intent

implausible.”      Because Michael revealed that he had a history of

drug abuse when he was admitted to the hospital in September 1990,

the appellants contend that his conduct could hardly be described

as careless.    Meanwhile, they charge that Catherine either knew of

her husband’s drug abuse or intentionally chose to remain ignorant.

            Even     if    appellants     are   correct     that   Michael’s    and

Catherine’s conduct was more than simply careless, this does not

prove an intent to deceive.          At most, appellants have established

that Michael and Catherine knowingly made false statements on the

application    for    health     insurance.      But   as    Texas   courts     have

repeatedly held, the fact that the insurance company proved the

insured     knowingly       misrepresented       his   health       condition     is

insufficient to establish an intent to deceive as a matter of law.

See, e.g., Garcia v. John Hancock Variable Life Ins. Co., 859
S.W.2d 427, 432-33 (Tex. App.--San Antonio 1993, writ denied).

Although on the basis of this evidence a factfinder might have

found an intent to deceive, we hold that the appellants have failed

to prove clear error or to satisfy their burden of proof to

establish an intent to deceive as a matter of law.                 See id. at 433;

                                          6
see also Flowers v. United Ins. Co. of Am., 807 S.W.2d 783, 786

(Tex. App.--Houston [14th Dist.] 1991, no writ); Estate of Diggs v.

Enterprise Life Ins. Co., 646 S.W.2d 573, 575-76 (Tex. App.--

Houston [1st Dist.] 1982), reh’g denied, 657 S.W.2d 813 (1983, writ

ref’d n.r.e.).

          For the foregoing reasons, we AFFIRM.

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