Old American Insurance Company v. Lincoln Factoring, LLC
02-17-00186-CV
| Tex. App. | Dec 21, 2017Background
- Rebecca Barnes purchased a $10,000 whole-life policy (plus a $10,000 accidental death rider) from Old American in 2011; suicide exclusion expired two years after issuance.
- Barnes died September 28, 2014; the DC death certificate initially listed cause of death as “pending.”
- Beneficiary Frank Howard assigned $4,725 of policy proceeds to Payne Funeral (which assigned to Lincoln Factoring); Lincoln submitted the assignment, a claim form, the death certificate, a funeral bill, and a funeral director affidavit stating cause was "natural or accidental."
- Old American refused to pay the primary $10,000 death benefit until it received a “completed” death certificate showing cause of death, and withheld payment for eight months; it later paid after suit was filed.
- Lincoln sued in justice court, appealed to county court at law, and moved for summary judgment on Insurance Code claims (bad faith, misrepresentation, prompt-payment); the trial court granted Lincoln summary judgment and awarded treble damages, interest, and attorney’s fees.
Issues
| Issue | Plaintiff's Argument (Lincoln) | Defendant's Argument (Old American) | Held |
|---|---|---|---|
| Whether the initial $10,000 death benefit was payable upon proof of death regardless of cause | Policy requires only proof of death for the $10,000 death benefit; suicide exclusion had expired, so payment was immediately due | Insurer needed a completed death certificate (cause) to investigate possible ADB exclusions or other issues before paying | Trial court granted Lincoln: initial death benefit payable on proof of death; insurer’s withholding was improper |
| Bad-faith liability under Insurance Code/common law (delay in payment) | Liability was “reasonably clear” once proof of death was submitted; insurer’s delay was objectively unreasonable and in bad faith | Delay was a reasonable investigation and an industry-standard practice to require completed death certificate | Trial court granted Lincoln: insurer acted in bad faith; damages awarded (including trebling for knowing conduct) |
| Prompt-payment penalties (18% interest and attorney’s fees) | Once insurer was finally adjudged liable, prompt-payment statute penalties apply regardless of insurer’s claimed good-faith dispute | There was a good-faith dispute about policy wording and need for completed death certificate | Trial court awarded 18% interest and attorney’s fees to Lincoln under chapter 542 |
| Standing / assignability of Insurance Code claims (did Howard assign statutory claims?) | Assignment of policy benefits carries related enforcement claims; assignees like Lincoln have statutory standing under sections of the Insurance Code; assignments are not contrary to public policy here | Howard reserved statutory claims; insurer contends such statutory claims were not assigned or are nonassignable on public-policy grounds | Appellee brief: trial court’s judgment stands; appellant failed to preserve capacity/assignment objections in trial court; alternatively Lincoln has statutory standing |
Key Cases Cited
- Universe Life Ins. Co. v. Giles, 950 S.W.2d 48 (Tex. 1997) (adopts objective standard that insurer breaches duty of good faith when liability becomes "reasonably clear")
- Allstate Ins. Co. v. Watson, 876 S.W.2d 145 (Tex. 1994) (limits third-party bad-faith suits to avoid conflicting duties to insured and third parties)
- PPG Indus., Inc. v. JMB/Houston Ctrs. Partners, Ltd., 146 S.W.3d 79 (Tex. 2004) (addresses public-policy limits on assignability of certain statutory claims to discourage commercial trafficking in claims)
- Ceshker v. Bankers Commercial Life Ins. Co., 568 S.W.2d 128 (Tex. 1978) (interprets scope of statutory "person" under earlier Insurance Code provisions)
- Ressler v. Gen. Am. Life Ins. Co., 561 F. Supp. 2d 691 (E.D. Tex. 2007) (distinguishes delay of contested portion of proceeds from bad-faith delay of uncontested portion)
- Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456 (5th Cir. 1997) (insurer’s good-faith defense does not bar prompt-payment penalties when insurer is ultimately adjudged liable)