Insurers hold payouts in general accounts

A Bloomberg story entitled, Fallen Soldiers' Families Denied Cash as Insurers Profit, explores the practice of insurers holding life insurance benefits in their general accounts. Simply put, instead of sending a check to the designated beneficiary for the policy benefit, the insurance company sends the beneficiary a check book.  The beneficiary can then write checks against the funds.

What is the problem with this arrangement?  For starters, the insurance company typically pays well below market interest rates on the funds.  Also, the money is not kept in an FDIC insured account. Instead, the funds are mingled in the general operating accounts of the insurance company:

"This unregulated quasi-banking system operated by insurers has none of the protections of the actual banking system. Lawrence Baxter, a professor at Duke University School of Law in Durham, North Carolina, says the potential exists for a catastrophe."

The benefit to the insurance company is obvious: it operates as an unofficial bank and is able to profit from the spread consisting of the difference it pays in interest against the returns it gains by investing the money.

Texas Insurance Coverage Lawyers

The insurer's duty of good faith and fair dealing

Texas law imposes a general duty of good faith and fair dealing on isurance companies.  In essence, it means that an insurance company has a duty to deal fairly and in good faith with an insured.  The duty is imposed because of the following public policy reasons:

• the unequal bargaining power which would allow unscrupulous insurers to take advantage of their insureds' misfortunes in bargaining for settlement or the resolution of claims;
•  without such a duty, insurers could arbitrarily deny coverage and delay payment of the claim with no more penalty than the interest on the amount owed; and
• an insurance company has the exclusive control over the evaluation, processing and denial of claims.

Unfortunately, the Texas Supreme Court has gradually chipped away at policy holder rights as the insurance industry has gained political power in Austin over the past dozen or so years.  It is important to contact a lawyer if you believe you or your business in Texas are not being dealt with reasonably by an insurance company.

Texas Life Insurance and Coverage Law Firm

Houston federal court rejects insurer's claim denial

Gilberto Espinoza, an employee of Houston-based Defendant Becon Construction Company, died in an automobile accident in Kentucky. His blood alcohol levels showed he was legally intoxicated.  Life Insurance Company of North America denied his widow's claim for acidental death benefits.  The insurance company claimed the death was not an "accident" because it was not “a sudden, unforeseeable event."  In essence, the insurance company contended that because Espinoza “would have been aware of the risks involved in operating his vehicle while under the influence,"  his death was a foreseeable result of his actions and thus not an accident.

In a well-reasoned opinion, the Houston federal district court ruled against the insurance company and its attempt to craft a per se rule that driving while intoxicated is never an accident.  Had the insurance company wanted to enforce such an exlusion, it should have explicitly been stated in the policy.

Texas Accidental Life Insurance Lawyer

Expose: Insurers Dodge Payouts

Bloomberg has a feature story on insurance companies refusing to pay valid claims. According to the article, insurers will find creative reasons to deny claims.  These denials pay off, because beneficiaries often don't consult attorneys or want to fight a legal battle.  The abuses are particularly common when the policy is purchased through an employer.  Those policies are covered by the Employee Retirement Security Act, better known as ERISA. Unfortunately, life insurance claim denials are not uncommon in Texas.

Texas Life Insurance Claim Denial Attorneys

Federal Court rejects effort to rescind policy

In Federated Life Insurance Company v. Jafreh, the life insurance company attempted to rescind a policy over six years after it was issued. The insurance company claimed the insured had misrepresented his health status in the policy application.  Both the District Judge in Houston and the Fifth Circuit Court of Appeals rejected this effort and found the insurance company liable for the benefits along with 18% penalty interest.

Texas Life Insurance Dispute and Denial Law Firm