UNITED STATES COURT OF APPEALS For the Fifth Circuit
No. 96-20953
ANNETTE M. RINER; SUZETTE MARRIOTT,
Plaintiffs-Appellants,
VERSUS
ALLSTATE LIFE INSURANCE COMPANY,
Defendant-Appellee.
Appeals from the United States District Court for the Southern District of Texas December 16, 1997
Before KING, DAVIS, and DeMOSS, Circuit Judges.
DeMOSS, Circuit Judge:
Annette Riner (Riner) and Suzette Marriott (Marriott) sued
Allstate Life Insurance Company (Allstate) after Allstate refused
to pay benefits under a temporary insurance agreement on the life
of their father, Robert Marriott (Mr. Marriott). Allstate defended
on the theory that alleged misrepresentations in the insurance
application absolved it of liability. The district court granted
summary judgment in favor of Allstate, and Riner and Marriott
appealed. We reverse the district court’s judgment in favor of
Allstate and render judgment in favor of Riner and Marriott on the issue of coverage. We remand the cause to the district court for
further development of the remaining liability issues and for a
determination of damages.
MATERIAL FACTS
Prior to 1994, Mr. Marriott had five back surgeries, which
left him with chronic back pain. That back pain became aggravated
and was joined by a feeling of loneliness and sadness after his
wife of more than thirty years left him. Following his divorce in
June 1994, Mr. Marriott wanted to replace his life insurance
policy, which named his ex-wife as beneficiary, with a new policy
naming his daughters as beneficiaries.
Riner referred Mr. Marriott to an Allstate agent. On June 29,
1994, Allstate sent an agent to Mr. Marriott’s home to take his
application information. Allstate’s lengthy standardized
application contained a list of medical questions. The applicant
responded to those questions by checking boxes marked “yes” or
“no.” When a box was marked “yes,” the application contained
additional space for further explanation by the applicant. Mr.
Marriott disclosed that he had chronic back problems and certain
other medical problems. Mr. Marriott’s application is marked “no,”
however, with respect to whether he had ever received treatment for
the use of alcohol or received treatment for depression within the
past three years.
Mr. Marriott explained to the agent that he was “groggy” from
medication he was taking for back pain. After completing the
2 application, the agent requested an initial premium check in the
amount of $276.23. The record reflects that Mr. Marriott was too
affected by the painkillers he was taking to complete the check.
For that reason, the agent completed the premium check, which was
then signed by Mr. Marriott.1 In return, the agent issued a
“Receipt and Temporary Insurance Agreement” to Mr. Marriott.
Although the agent left a copy of the agreement, the agent did not
leave a copy of Mr. Marriott’s application with Mr. Marriott. The
temporary insurance agreement provided that Mr. Marriott’s premium
was received as “payment for life insurance” in the amount of
$100,000. The agreement further provided that temporary coverage
would start when Mr. Marriott’s medical exam was completed. Mr.
Marriott completed the medical exam on July 26, 1994.
Six days after the exam, Mr. Marriott died suddenly of either
an aneurism or heart disease. Thereafter, his daughters made a
claim under the temporary insurance agreement. On the claim form,
Suzette Marriott indicated that Mr. Marriott was seeing a doctor
for “depression/chronic pain.” Allstate requested Mr. Marriott’s
medical records and began an investigation to determine whether it
would pay benefits under the temporary insurance agreement. Three
months later, Allstate denied liability under the temporary
insurance agreement. Allstate denied liability because it
1 Although the record does not conclusively establish whether the Allstate agent or Mr. Marriott completed the application form, the handwriting and tone of the answers is most consistent with the conclusion that the Allstate agent completed the application for Mr. Marriott, a fact that is clearly relevant with respect to whether Mr. Marriott’s answers were intentionally deceitful.
3 concluded that, contrary to Mr. Marriott’s answers in the
application, he had received treatment for his use of alcohol and
for depression.
PROCEEDINGS IN THE DISTRICT COURT
Mr. Marriott’s beneficiaries, Riner and Marriott, sued
Allstate in Texas state court. Allstate properly removed the
matter to federal court. In federal court, Riner and Marriott
amended their complaint, alleging that Allstate’s refusal to pay
violated certain provisions of the Texas Insurance Code and the
Texas Deceptive Trade Practices Act. Riner and Marriott also
contended that Allstate’s actions constituted a breach of contract
and a breach of Allstate’s duty of good faith and fair dealing.
Allstate answered that Mr. Marriott’s misrepresentations in the
application absolved it of all liability.
Riner and Marriott moved for summary judgment on the issue of
Allstate’s liability, arguing that Allstate could not rely upon any
misrepresentations in the application to deny coverage because
Allstate failed to attach a copy of Mr. Marriott’s application to
the temporary insurance agreement, as required by article 21.35 of
the Texas Insurance Code.2
2 TEX. INS. CODE art. 21.35 (Vernon Supp. 1998) provides:
Except as otherwise provided in this code, every contract or policy of life insurance issued or contracted for in this State shall be accompanied by a written, photographic or printed copy of the application for such insurance policy or contract, as well as a copy of all questions asked and answered given thereto. The provisions of Articles 21.16, 21.17, and 21. 19 of this
4 Allstate responded that it was not required to attach the
application because the temporary insurance agreement was not a
“contract or policy of insurance” within the meaning of article
21.35. Alternatively, Allstate maintained that its delivery of the
application and temporary insurance agreement to Mr. Marriott’s
beneficiaries after the death claim was filed satisfied the
requirements of article 21.35. Allstate did not file its own
motion for summary judgment.
The district court, acting sua sponte and without notice to
the parties, granted summary judgment in favor of Allstate. The
district court held that the temporary insurance agreement was not
a “contract or policy of insurance” within the meaning of article
21.35. Instead, the district court reasoned that the temporary
insurance agreement was merely a promise to provide insurance
relating back to the date of application, if and when Mr. Marriott
was determined to be an acceptable risk. Alternatively, the
district court held that Allstate did not breach its statutory
obligation to attach the application to the temporary insurance
code shall not apply to policies of life insurance in which there is a clause making such policy indisputable after two (2) years or less, provided premiums are duly paid; provided further, that no defense based on misrepresentation made in the application for, or in obtaining or securing, any contract of insurance upon the life of any person being or residing in this State shall be valid or enforceable in any suit brought upon such contract for the said term of two (2) years have been paid to, and received by, the company issuing such contract of its intention to rescind the same on account of misrepresentation so made, unless it shall be shown on the trial that such misrepresentation was material to the risk and intentionally made.
5 agreement because Part 2 of the application, which recorded Mr.
Marriott’s medical examination, was not completed until he was
examined on July 26, 1994.
Riner and Marriott moved for reconsideration of the district
court’s denial of their motion for summary judgment and the
district court’s sua sponte entry of summary judgment in favor of
Allstate. The motion was denied, and Riner and Marriott appealed
both the final judgment and the district court’s denial of their
motion for reconsideration.
DISCUSSION
I.
Allstate Issued an Enforceable Contract for Temporary Insurance
To resolve this appeal, we must first determine whether the
temporary insurance agreement provided to Mr. Marriott was a
“contract of insurance,” as Riner and Marriott claim, or instead a
conditional offer to provide coverage, as Allstate claims and the
district court held.
Texas law governs our interpretation of the temporary
insurance agreement. We review the district court’s interpretation
of Allstate’s temporary insurance agreement de novo. Gladney v.
Paul Revere Life Ins. Co., 895 F.2d 238, 241 (5th Cir. 1990)
(reviewing the district court’s interpretation of Mississippi
insurance law).
Allstate argues that a receipt and temporary insurance
agreement is a novel creature that can never be a “contract or
6 policy of insurance” as contemplated by article 21.35. See TEX.
INS. CODE art. 21.35 (Vernon Supp. 1998) (requiring that the
application be attached to “every contract or policy of
insurance”). We disagree. Texas law recognizes that a receipt and
temporary insurance agreement can create a binding contract to
provide temporary insurance. See, e.g., United Founders Life Ins.
Co. v. Carey, 363 S.W.2d 236, 240-43 (Tex. 1962) (receipt issued
with application may create enforceable contract for temporary
insurance); Life Ins. Co. of the Southwest v. Nims, 512 S.W.2d 712,
714 (Tex. Civ. App.--San Antonio 1974, no writ) (binder and receipt
issued by insurance company upon payment of initial premium held to
be contract of insurance); South Coast Life Ins. Co. v. Robertson,
483 S.W.2d 388, 391 (Tex. Civ. App.--Tyler 1972, writ ref’d n.r.e.)
(“It has been held by the Supreme Court that conditional receipts
such as the one presently before us provide for temporary life
insurance.”). Whether any particular agreement for temporary
insurance is a “contract of insurance” depends upon the language of
the particular agreement, as interpreted using ordinary rules of
contract construction. Carey, 363 S.W.2d at 241 (“the wording of
the particular receipt in controversy controls” whether a receipt
creates an enforceable contract affording temporary coverage).
When there is doubt about whether the agreement provides temporary
coverage, or merely a conditional promise to consider the
application, the construction that affords coverage will be
adopted. See id. at 242-43; see also Blaylock v. American Guar.
Bank Liab. Ins. Co., 632 S.W.2d 719, 721 (Tex. 1982) (setting forth
7 the general rule for determining whether coverage exists). “The
policy of strict construction against the insurer is especially
strong when the court is dealing with exceptions and words of
limitation.”3
The temporary insurance agreement issued to Mr. Marriott
provides that $276.73 has been received “as payment for life
insurance,” subject to certain limitations defined in the
agreement. Under a heading entitled “When Temporary Insurance
Starts,” the agreement provides that insurance will start on the
date of the agreement, provided that (1) payment is accepted, (2)
Part 1 of the application (containing the medical questionnaire) is
completed, and (3) Question 25 of the application does not call for
a medical exam. If, as in Mr. Marriott’s case, the application
requires a medical exam, then the agreement specifies that
insurance will start when the contemplated medical exam is
complete.
Under a heading entitled “When Temporary Insurance Will Stop,”
the agreement provides that temporary insurance will end when the
first of any of the following conditions occurs: (1) Allstate
provides notice that it is no longer considering the application;
(2) Allstate provides notice that further medical exams in addition
to the one requested in Question 25 of the application are
required; (3) Allstate agrees to provide the coverage applied for
in the application; (4) Allstate agrees to provide coverage other
than as applied for in the application; or (5) sixty days passes.
3 Blaylock, 632 S.W.2d at 721.
8 With respect to Allstate’s decision to provide the coverage applied
for, the agreement states that the permanent insurance “will then
be provided by the policy as of its start date and not by this
Agreement.”
Under a heading entitled “Amount of Insurance,” the agreement
provides that the temporary insurance will have the same benefits,
provisions and limitations as the plan applied for, subject to a
limitation of $500,000 “under this Agreement and all other
Agreements issued for pending applications for each person to whom
this receipt applies.”
Under a heading entitled “Conditions Under Which There is No
Coverage,” the agreement provides, in relevant part, “[i]f in the
answers in the application, there is fraud or misrepresentation
material to the home office underwriter’s acceptance of the risk,
then no insurance starts under the Agreement.”
Finally, at the very bottom of the agreement, and below the
signature line, there is an “agent reminder” that states: “If
there is any ‘Yes’ answer to questions 9, 10, 11, 12 or 13, DO NOT
accept money or give this receipt. Submit a trial application.”
For the reasons that follow, we conclude that Allstate is
obligated to pay proceeds to Riner and Marriott under the terms of
the temporary insurance agreement.
9 II.
Temporary Insurance Started When Mr. Marriott Completed His Medical Exam
The district court held that Mr. Marriott did not apply for
“gap” coverage. Instead, the district court found that the
temporary insurance agreement was nothing more than a promise to
provide coverage that related back to the application date if and
when Allstate determined that Mr. Marriott was an acceptable risk.
The district court’s construction is negated by the plain
language of the agreement. The agreement states that insurance
will start when Mr. Marriott’s medical exams are complete. There
is no language in the agreement either implicitly or explicitly
conditioning the start date for temporary insurance upon Mr.
Marriott’s insurability or Allstate’s acceptance of the risk.4 To
4 Allstate cites numerous cases for the proposition that temporary insurance coverage is by its very nature conditioned upon a showing that the applicant was both insurable and an acceptable risk when the application was made. We disagree. All of the cases cited by Allstate involve receipts or temporary agreements with language expressly requiring insurability, acceptability, or both as an enforceable condition precedent to coverage. National Life & Accident Ins. Co. v. Blagg, 438 S.W.2d 905, 907 (Tex. 1969) (insurance effective on date of deposit or medical examination provided that the “Proposed Insured . . . was insurable and acceptable”); Carey, 363 S.W.2d at 238 (“insurance effective on date of this receipt or date of completion of the medical examination . . . if in the opinion of the [insurer] . . . the Proposed Insured is insurable and acceptable for insurance”); Harp v. Valley Forge, 577 S.W.2d 746, 747 (Tex. Civ. App.--San Antonio 1979, writ dism’d) (“[i]f the company determines to its satisfaction that the proposed insured was insurable under the company’s rules and standards, then the insurance shall take effect”); Nims, 512 S.W.2d at 714 (“the insurance applied for is effective from the date of application provided . . . that the applicant be a risk acceptable to the company”); Robertson, 483 S.W.2d at 390 (coverage to take effect on the latest of several dates “provided the following conditions precedent to coverage are met: (1) That on such date each person proposed for insurance is
10 the contrary, the structure of the agreement is such that temporary
insurance does not terminate when Allstate determines not to accept
the risk, unless Allstate provides written notice to the applicant.
Moreover, the temporary insurance does terminate when Allstate
decides to accept the risk by issuing permanent coverage.5
Further, the terms of the agreement provide that the temporary
insurance, which takes effect once the medical exam is completed,
is supplanted by the permanent policy, which takes effect “as of
its start date and not by” the terms of the temporary insurance
agreement. Based upon the plain language of the agreement, we
cannot agree with the district court’s finding that the temporary
insurance agreement was a relation-back policy that did not provide
coverage until Allstate approved the risk. Indeed, the plain and
unambiguous language of the agreement exhibits an intent to provide
temporary or “gap” coverage during the period that Mr. Marriott’s
application was pending.
The agreement provides that “[i]f the answer to Question 25 in
the application is ‘Yes,’ temporary insurance on each person named
in Question 25 will start when all medical exams are completed for
that person.” Allstate keys into the use of the plural form
“exams” to argue that no contract of insurance arose under the
agreement because it could have required additional examinations
after reviewing the initial examination required by Question 25 of
insurable and acceptable for the plan and amount of the insurance applied for”). There is no such language in the subject agreement. 5 Thus, Allstate conditioned only the permanent, rather than the temporary, coverage upon insurability and acceptability.
11 the application. Although facially appealing, Allstate’s argument
fails when viewed in light of other contract provisions.
The provision stating when insurance will start refers to
medical exams contemplated by Question 25 in the application.
Similarly, the agreement provides that insurance will stop “the
date we write to the Owner that a medical exam is required (other
than any exams referred to in Question 25), in which event
insurance will stop with respect only to the person(s) required to
have a medical exam.” Thus, the agreement requires that Allstate
provide written notice that additional medical examinations are
required. Until such notice is provided, the temporary coverage
arising under the agreement continues. For that reason, Allstate’s
argument that it retained an unconditional right to consider asking
for more medical exams, and that no insurance arose until it
signaled its agreement to accept Mr. Marriott’s application, must
fail.
The district court also held that the agreement lacked a
required element of mutuality because Allstate retained the
unilateral right to terminate both the temporary insurance and the
pending application for permanent coverage. We cannot agree. Both
sides offered valuable consideration. Mr. Marriott paid an initial
premium in exchange for Allstate’s promise to provide temporary
coverage when Mr. Marriott completed the medical examination.
While it is true that Allstate retained the right to unilaterally
terminate consideration of Mr. Marriott’s application, the
agreement required that Allstate provide notice that it intended to
12 exercise that option. Texas law does not require that every right
or obligation by one party be met with an identical right or
obligation in the other. Howell v. Murray Mortgage. Co., 890
S.W.2d 78, 87 (Tex. App.--Amarillo 1994, writ denied) (“Generally
there is mutuality in the case of mutual promises by both parties
to the contract which furnish a consideration each for the other,
or where both parties undertake to do something -- even though
every obligation of one party is not met by an equivalent counter
obligation of the other.”). Moreover, Allstate’s right to void
coverage at its option did not render the contract void or
unenforceable when Allstate did not, in fact, exercise that option,
but instead embarked upon performance by considering Mr. Marriott’s
application.
Mr. Marriott applied for binding temporary coverage that was
not conditioned upon Allstate’s acceptance of his application.
Absent some other policy defense, the terms of the policy require
the conclusion that the temporary coverage arose when Mr. Marriott
completed the medical examination on July 26, 1994 as required by
the application.
III.
Temporary Insurance Was Not Terminated
Moreover, none of the six conditions that could have
terminated the temporary coverage occurred. Allstate did not
provide notice one way or the other regarding its decision on Mr.
Marriott’s application for permanent insurance. Allstate did not
notify Mr. Marriott that it was going to require additional medical
13 examinations. Finally, the sixty-day time period during which the
agreement could remain valid did not expire. Thus, none of the
conditions which are defined in the agreement as capable of
terminating coverage occurred. Allstate’s obligation under the
temporary agreement arose on July 26, 1994 and, absent some other
factor, was in effect at the time of Mr. Marriott’s death.
IV.
Allstate’s Attempt to Condition Coverage upon Truthful Application Answers was Ineffective as a Matter of Law
Allstate attempts to avoid the conclusion that it must pay
benefits under the temporary insurance agreement by arguing that no
contract was formed because truthful application answers were a
condition precedent to coverage. Thus, Allstate maintains that Mr.
Marriott’s alleged misrepresentations preceded and avoided the
formation of any contract.
Reading the agreement leaves no doubt that Allstate intended
to condition coverage upon truthful answers in the separate
application. The agreement specifies that “no insurance will start
if the application contains fraud or misrepresentation that is
material to the underwriter’s acceptance of the risk.” The plain
language of the agreement supports Allstate’s position that no
contract was formed. That position is defeated, however, by Texas
statutory and common law limiting the effect that untruthful
answers in a life insurance application can have on coverage.
Under Texas law, the responses given in a life insurance
application are mere representations, rather than warranties that
14 would be capable of making coverage void or voidable.6 Short of
inserting an unambiguous “good health warranty” demonstrating that
the parties intended the contract to rise or fall on the literal
truth of an insured’s general certification of good health,7 Texas
has not allowed an insurer to change that result by contracting to
make truthful application answers a condition precedent to
coverage. See Mayes, 608 S.W.2d at 616; Cartusciello, 661 S.W.2d
at 286-88; see also 48 TEX. JUR. 3D Insurance Contracts and Coverage
§§ 544-45 (1995). Rather, article 21.16 and article 21.35 of the
Texas Insurance Code prescribe the effect that untruthful answers
in an application can have on coverage. Article 21.16 provides
6 Mayes, 608 S.W.2d at 616 (reversing Court of Appeals’ conclusion that truthful application answers were a condition precedent to coverage and holding that application answers are mere representations subject to the elements of a misrepresentation defense); American Nat’l Ins. Co. v. Paul, 927 S.W.2d 239, 243 (Tex. App.--Austin 1996, writ denied) (“Where the language of the policy expressly provides that coverage does not take effect unless the applicant is in good health, the good health provision is enforceable as a condition precedent. . . . However, where the language in the policy states that the answers in the application are true and correct at the time of delivery of the policy, such a requirement is merely a representation.”); Cartusciello v. Allied Life Ins. Co., 661 S.W.2d 285, 286-88 (Tex. App.--Houston [1st Dist.] 1983, no writ) (rejecting insurer’s argument that misrepresentation in the application operated as a condition precedent to coverage and subjecting the insurer’s argument to the ordinary elements of an affirmative defense for misrepresentation). 7 In an insurance contract, a warranty is a statement made by the insured, which is susceptible to no construction other than that the parties mutually intended that the policy should not be binding unless such statement be literally true. Lane v. Travelers Indem. Co., 391 S.W.2d 399, 402 (Tex. 1965). Warranties in insurance applications are strongly disfavored in the law, and even fairly obvious attempts to create warranties in the application process have been rejected by Texas courts. See, e.g., Cartusciello, 661 S.W.2d at 287; Allied Bankers Life Ins. Co. v. De La Cerda, 584 S.W.2d 529, 532 (Tex. App.--Amarillo 1979, writ ref’d n.r.e.).
15 that a provision making coverage void or voidable based upon
misrepresentation in an insurance application is of no effect.
TEX. INS. CODE art. 21.16 (Vernon 1981). An insured’s misrepre-
sentation in an application is, of course, a serious matter. But
the insurer’s remedy is limited to an affirmative policy defense,
which is available only when the representation is material and the
application is attached to the contract or policy of insurance.
Id.; TEX. INS. CODE art. 21.35 (Vernon Supp. 1998).
Allstate does not cite any Texas authority to the contrary.
Instead, Allstate relies primarily upon Gladney v. Paul Revere Life
Ins. Co., 895 S.W.2d 238 (5th Cir. 1990) for the premise that an
insurer may place conditions precedent in a temporary insurance
agreement. Our decision is not in conflict with that modest
premise. We agree that a Texas insurer may impose many different
types of conditions precedent upon both temporary and permanent
coverage. See, e.g., Mayes, 608 S.W.2d at 616 (recognizing the
enforceability of a good health warranty); Blagg, 438 S.W.2d at
907; Carey, 363 S.W.2d at 238; Harp, 577 S.W.2d at 747; Nims, 512
S.W.2d at 714; Robertson, 483 S.W.2d at 390 (all recognizing the
enforceability of a condition precedent requiring insurability,
acceptability, or both).
More importantly, Gladney is a diversity case applying
Mississippi law. The rule limiting the effect of a provision
conditioning life insurance coverage upon truthful application
answers is a creature of Texas law. Regardless of what Mississippi
is willing to tolerate, Texas law forbids our giving effect to a
16 provision making truthful application answers a condition precedent
to temporary life insurance coverage. Thus, the provision
identified by Allstate is insufficient to defeat contract
formation.
V.
Allstate is Precluded from Relying upon Representations in Mr. Marriott’s Application to Avoid Coverage
Allstate may still assert an affirmative defense based upon
Mr. Marriott’s misrepresentations, if any, in the application
process. That defense is qualified, however, by the statutory rule
that statements made in a life insurance application are not
admissible to establish a misrepresentation unless the application
is attached to and made part of the insurance policy. See
Fredonia, 881 S.W.2d 279 (applying TEX. INS. CODE art. 21.35);
National Lloyds Ins. Co. v. McCasland, 566 S.W.2d 565, 566 (Tex.
1978) (failure to comply with article 21.35 “renders evidence of
representations made in applying for insurance inadmissible into
evidence”); Johnson v. Prudential Ins. Co., 519 S.W.2d 111, 114
(Tex. 1975) (“Article 21.35 . . . has been repeatedly applied to
prevent the use of statements of the insured which were not
attached to the policy”).
Allstate maintains that article 21.35 does not apply to
contracts providing temporary insurance. Having already concluded
that the temporary insurance agreement issued in this case was a
“contract of insurance” under Texas law, we have no difficulty
finding that the Texas legislature intended to include contracts
17 affording temporary coverage within the realm of article 21.35.
Nothing in the plain language of article 21.35 excludes an
agreement to provide temporary coverage from the scope of that
article. To the contrary, the article provides that it applies to
“every contract or policy of life insurance.” We are persuaded,
both by the Texas legislature’s direct command to include “every”
contract, and the legislature’s attempt to distinguish between a
“contract” and a “policy,” that there is no principled basis for
excluding contracts providing insurance for a limited period of
time from the scope of article 21.35. For that reason, Allstate
cannot avoid liability under the contract by claiming that the
temporary insurance agreement was outside the scope of article
21.35.
We are also persuaded by the fact that the purpose of the
statute is well served in this context. The purpose of the
requirement embodied in article 21.35 is to provide a life
insurance applicant with the opportunity to review and reconsider
the answers provided in the application during his or her lifetime.
Mayes, 608 S.W.2d at 283. The record establishes that Mr. Marriott
was severely compromised by the painkillers in his system. The
Allstate agent was informed of Mr. Marriott’s condition. Indeed,
the record conclusively establishes that the Allstate agent filled
out Mr. Marriott’s premium check and strongly suggests that the
agent also completed the lengthy and fact-intensive application
form. Surely, leaving Mr. Marriott a copy of the completed
application responses would have afforded him an opportunity to
18 review his responses when he was unaffected by disabling pain
medication. If that opportunity were provided, it is possible that
Mr. Marriott would have corrected any misstatements concerning his
medical condition.
Allstate warns that including temporary insurance agreements
within that group of contracts subject to article 21.35 will render
insurers unable to protect themselves from uninsurable risks. We
disagree. First of all, Allstate could have made insurability or
acceptability a condition precedent to coverage under the temporary
insurance agreement. It did not do so. Moreover, Allstate could
have protected itself from the effect of any misrepresentations by
simply attaching a copy of the Mr. Marriott’s application to the
temporary insurance agreement. Once again, Allstate did not do so.
Our holding is not that Allstate cannot protect itself from
uninsurable risks, but that it failed to take those precautions in
this case.
Allstate contends that it could not have attached the
application because Part 2 (recording the medical examination) was
not completed until July 26, almost one month after the temporary
insurance agreement issued. We disagree. Mr. Marriott’s answers
to the key medical questions could have been left with Mr. Marriott
on the evening he completed the application that was submitted to
Allstate. Creating the application form in multiple parts to
facilitate this procedure does not seem unduly burdensome.
Allstate’s argument is also self-defeating. Allstate could have
provided Mr. Marriott with a copy of the application and temporary
19 insurance agreement at the time of or immediately after the medical
examination was completed. Allstate chose not to pursue this
course of action either. Instead, the record supports the
conclusion that Allstate did not provide either Mr. Marriott or his
beneficiaries with a copy of Mr. Marriott’s application until more
than four months after his initial application, more than three
months after his medical examination and subsequent death, and
almost two months after the death claim was filed with Allstate.
Even then, Allstate apparently ignored several requests for the
document before tendering it to Mr. Marriott’s beneficiaries.
Allstate’s failure to attach the application, or to provide
copies of the application together with the temporary insurance
agreement within a reasonable time frame, means that Allstate
cannot rely upon Mr. Marriott’s representations in the application
to avoid coverage. For that reason, whether Mr. Marriott
misrepresented his medical history, whether Mr. Marriott intended
to deceive Allstate, whether Mr. Marriott’s misrepresentations
would have been material to the risk assumed by Allstate, and other
similar issues argued by the parties are immaterial. Stated
simply, Mr. Marriott’s misrepresentations, if any, in the
application are inadmissible to assist Allstate’s efforts to defeat
coverage.
A grave danger in insurance cases, particularly when we are
exercising our diversity jurisdiction, is that a particular holding
will be read too broadly. Both sides of this dispute have cited
cases to this Court for general propositions that fall apart once
20 the specific language of the agreement in the cited case is
compared with the specific language at issue in this case. Let
there be no confusion. We are not purporting to define the precise
language required to create an insurance contract. Neither do we
establish any new or general rule that temporary insurance
agreements, conditional receipts or binders do or do not create
enforceable insurance contracts under Texas law. Rather, our
conclusion that the temporary insurance agreement issued to Mr.
Marriott was a “contract of insurance” subject to the requirements
of article 21.35 is necessarily dependent upon the facts of this
case. We do nothing more than interpret the agreement between
these parties.
CONCLUSION
The temporary insurance agreement furnished to Mr. Marriott at
the time he applied for life insurance with Allstate was a binding
contract for temporary insurance coverage pending approval of his
application with Allstate. Coverage began when Mr. Marriott
completed the medical examination required by the application and
was not terminated by the occurrence of any condition specified in
the contract. Allstate’s attempt to make truthful application
answers a condition precedent to coverage is inconsistent with
Texas law defining an insurer’s qualified right to avoid coverage
on the basis of an applicant’s untruthful representations in a life
insurance application.
Article 21.35 precludes an insurer from relying upon
21 representations in a life insurance application unless a copy of
the application is attached to and made part of the contract or
policy of insurance. Allstate failed to leave Mr. Marriott with a
copy of his application, either at the time of application or at
the time that coverage became effective. Allstate’s failure to
comply with the relevant statutory provision renders any evidence
that Mr. Marriott made misrepresentations in his application
inadmissible and precludes Allstate’s misrepresentation defense as
a matter of law. Having advanced no other defense to liability,
Allstate is obligated to provide benefits to Mr. Marriott’s
beneficiaries.
For the foregoing reasons, the district court’s entry of
summary judgment in favor of Allstate was improper, and Riner and
Marriott are entitled to summary judgment on the issue of coverage.
Although Riner and Marriott moved for summary judgment on the issue
of Allstate’s “liability,” our holding cannot sweep so broadly.
Riner and Marriott’s claims for violation of the Texas Insurance
Code and the Texas Deceptive Trade Practices Act and for violation
of the common-law duty of good faith and fair dealing all involve
some conduct on the part of the insurer that is in addition to and
independent of the insurer’s obligation to pay proceeds under the
contract of insurance.8 With respect to these claims, the summary
8 For example, Riner and Marriott’s claim under the Texas Deceptive Trade Practices Act alleges that Allstate “knowingly” engaged in a deceptive act or practice. Riner and Marriott’s claim under the Texas Insurance Code alleges that Allstate made misrepresentations of its own and unreasonably refused to pay benefits. Riner and Marriott’s claim for breach of the duty of good faith and fair dealing requires a showing that Allstate
22 judgment record is insufficiently developed to justify a rendition
of summary judgment in favor of Riner and Marriott on the issue of
“liability.” We must therefore remand the case for further
development of the issues material to a determination of Allstate’s
liability on these claims.
Riner and Marriott also pleaded that Allstate’s failure to pay
benefits under the temporary insurance agreement was a breach of
contract. With respect to that claim, our conclusion that Allstate
is obligated to pay Riner and Marriott at least the $100,000
proceeds of the temporary insurance agreement is sufficient to
support our rendition of judgment in favor of Riner and Marriott.
Accordingly, the district court’s grant of summary judgment in
favor of Allstate is REVERSED.
Judgment is RENDERED in favor of appellants Riner and Marriott
on the issue of Allstate’s obligation to provide coverage and
benefits under the temporary insurance agreement and on the issue
of Allstate’s liability to Riner and Marriott for breach of
contract.
The cause is REMANDED for further development of additional
liability issues relating to Riner and Marriott’s remaining claims
for breach of the duty of good faith and fair dealing and for
violations of the temporary insurance agreement and the Texas
Deceptive Trade Practices Act, and for a determination of damages
in addition to the $100,000 face amount of the temporary insurance
unreasonably failed to investigate or settle Riner and Marriott’s claim.
23 agreement.