Background
Sergio Arce applied for a $25,000 life policy from an agent he met at a motorcycle shop. The agent read the questions from a tablet and recorded his answers. The policy was issued a month later, and Arce died in a car accident thirteen days after that, well inside the two-year contestable period. The insurer reviewed his medical records, concluded he had wrongly answered “no” to a question about stomach, intestinal or liver conditions, said it would not have issued the policy, refunded the premium and denied the claim. His mother, the beneficiary, sued.
What the court held
For more than a century, Texas has required an insurer that wants to avoid a policy for a misrepresentation in the application to plead and prove five elements: the representation was made, it was false, the insurer relied on it, the insured intended to deceive, and it was material. The insurer argued that section 705.051 of the Insurance Code, which requires only that the misstatement be of a material fact and affect the risks assumed, displaced the intent requirement. The court disagreed. The statute sets necessary conditions, not exclusive or sufficient ones. The court held that insurers “must plead and prove intent to deceive to avoid contractual liability based on a misrepresentation in an application for life insurance, whether the policy is contestable or not.” Because the insurer’s summary-judgment motion had not argued that intent was conclusively established, the case went back to the trial court. On a separate statutory notice issue, section 705.005, the court ruled for the insurer.
Why it matters
Texas is among the more protective states for beneficiaries facing a contestable-period denial. An inaccurate answer, even a material one, is not enough by itself. Who filled in the application, how the questions were asked and what the insured actually knew all bear on intent. Compare the New York rule in Mutual Benefit Life v. JMR Electronics, where even an innocent material misstatement allowed rescission. See our contestability guide.
Read the opinion
American National Ins. Co. v. Arce, No. 21-0843 (Tex. Apr. 28, 2023) (Supreme Court of Texas, PDF).
Not legal advice. This page summarizes general rules and the specific statutes cited. Your policy's wording, the state whose law applies, and whether the coverage came through an employer can all change the result. See the disclaimer and editorial policy.