On December 3, 2020, in Guzman v. Allstate Assurance Co., Case No. 2:19-CV-187-BR, the Northern District of Texas joined the Southern District of Texas in holding “intent to deceive” is not a required element of a claim for rescission under Texas Insurance Code § 705.051. The Guzman case involved Allstate’s claim for rescission of a $250,000 life insurance policy based on the insured’s misrepresentation of his smoking history in the application.
Since 1980, “intent to deceive” has been an element of the traditional Mayes test for a claim for rescission of an insurance policy under Texas law. However, the Court reasoned, following the 2003 recodification of the Texas Insurance Code, the applicable elements of a claim for rescission of an insurance contract depend on the type of insurance contract and the length of the contract’s existence. For a life insurance policy with a provision making the policy incontestable after two years and which was issued less than two years before the lawsuit was filed, the applicable statutory provision is Section 705.051. The Court then compared the language of Section 705.051, which makes no reference to intent, with the language of Section 705.104, which states that a life insurance policy issued more than two years before the lawsuit was filed may only be rescinded based on a misrepresentation that was “intentionally made.” Thus, the “intent to deceive” element is not required under Section 705.051 in order to avoid rendering the phrase “intentionally made” in Section 705.104 “meaningless or superfluous.”
The Court also held a misrepresentation in an application for life insurance is material if the insurer would only have issued the policy at a higher premium if the true facts had been disclosed. In so holding, the Court rejected the plaintiff’s arguments based on Harrington v. Aetna Casualty & Surety Co., 489 S.W.2d 171 (Tex. App.--Waco 1972), a Texas appellate court case involving a claim for rescission of an automobile liability policy in which the Court of Appeals for the Tenth District held a misrepresentation was not material if it would only have resulted in an increased premium. Instead, the Court relied on Fifth Circuit precedent from 1934 and Texas Supreme Court precedent from 1930 in holding that a misrepresentation is material if it “would have influenced the company… as to the premium to be charged.”
The Guzman decision creates a consensus amongst two Texas federal districts that “intent to deceive” is not a required element of a claim for rescission under Section 705.051, and provides recent precedent that a misrepresentation is material if it would have influenced the insurer as to the premium to be charged. A copy of the opinion is available here.