672 S.W.3d 347
Tex.2023Background
- Sergio Arce applied for a $25,000 life policy after a short interview; he answered "no" to many medical-history questions though some adverse history existed, and he signed authorization for records retrieval.
- ANIC issued the policy (declining accidental-death coverage), Arce died 13 days later, and his mother Bertha (beneficiary) filed a claim; ANIC denied the claim, refunded the premium, and cited a material misrepresentation about gastrointestinal conditions.
- Bertha sued for policy benefits and statutory penalties; ANIC moved for traditional summary judgment asserting rescission under Tex. Ins. Code § 705.051 and arguing the statute removes the common-law requirement to prove intent to deceive.
- The trial court granted ANIC summary judgment rescinding the policy; the court of appeals reversed in part, holding the insurer must plead and prove intent and that ANIC failed to satisfy the § 705.005 notice issue.
- The Texas Supreme Court held § 705.051 sets necessary (but not exclusive) conditions and does not displace the long-standing common-law scienter requirement; it reversed and rendered that § 705.005's 90‑day notice does not apply to an incontestable-life policy when premiums were duly paid, and remanded remaining claims for further proceedings.
Issues
| Issue | Plaintiff's Argument (Arce/Bertha) | Defendant's Argument (ANIC) | Held |
|---|---|---|---|
| Whether Tex. Ins. Code § 705.051 displaces the common‑law requirement that insurers plead and prove intent to deceive before avoiding a policy for misrepresentation | § 705.051 does not conflict with the common law; longstanding precedent requires proof of intent | § 705.051's plain language authorizes rescission when misrepresentation is material and affects risk, regardless of intent | § 705.051 prescribes necessary, not exclusive, conditions; the common‑law scienter requirement survives and insurers must plead/prove intent |
| Whether the § 705.005 90‑day notice requirement applied (i.e., did ANIC forfeit rescission by failing timely notice) | ANIC forfeited the defense by not giving notice within 90 days after discovery | Subchapter C makes Subchapter A (including § 705.005) inapplicable to two‑year incontestable life policies when premiums were duly paid | § 705.005 is inapplicable here as a matter of law because the policy was a two‑year incontestable life policy and ANIC presented unrebutted evidence premiums were duly paid; judgment rendered for ANIC on notice issue |
| Whether ANIC was entitled to summary judgment on breach and related Insurance Code (bad‑faith) claims because no benefits were due as a matter of law | Intent to deceive not established; rescission requires intent so summary judgment improper | Misrepresentation was material, affected risk, and rescission is permitted under § 705.051; summary judgment appropriate | Summary judgment was improper on these claims because ANIC’s motion relied on invalidating the common‑law rule rather than proving intent; factual issues remain about intent and bad‑faith allegations |
| Whether summary judgment should have disposed of class claims | Class claims remained viable; plaintiff added them later | ANIC did not move for summary judgment on class claims | Court of appeals reversed summary judgment on class claims; Supreme Court affirmed remand on matters not resolved as a result of the scienter holding |
Key Cases Cited
- Mayes v. Mass. Mut. Life Ins. Co., 608 S.W.2d 612 (Tex. 1980) (articulating common‑law elements for avoiding a policy, including intent to deceive)
- Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278 (Tex. 1994) (plurality and concurring opinions reaffirming scienter requirement)
- Colorado County v. Staff, 510 S.W.3d 435 (Tex. 2017) (statutory‑interpretation principles; courts apply enacted language de novo)
- Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445 (Tex. 2015) (summary‑judgment standard: movant must show entitlement as a matter of law)
- Mitschke v. Borromeo, 645 S.W.3d 251 (Tex. 2022) (stare decisis considerations; departures from precedent should be rare)
- In re Ford Motor Co., 442 S.W.3d 265 (Tex. 2014) (courts should not rewrite statutes under guise of interpretation)