The Denial Based on a Counselor’s Notes

A man died at the end of December. His wife was the sole primary beneficiary of his $300,000 life insurance policy, and she had been named there from the start. She gave the company everything it asked for, including the death certificate.

Four months later the insurer denied the claim outright. It said her husband had been diagnosed with alcohol abuse before the policy took effect and had not disclosed it on his application. A company representative told her the denial rested on the file notes of a counselor he had once seen. She had never seen those notes and had no way to get them. Seven months after the denial she had been paid nothing.

Michael Young represented the widow.

What decided it

A Texas insurer cannot walk away from a policy because an applicant gave an imperfect answer. To rescind for misrepresentation it has to prove five separate things, and one of them is that the applicant actually intended to deceive it. The Texas Supreme Court reaffirmed that requirement in 2023 in American National Insurance Co. v. Arce. A wrong answer is not enough.

Two facts ended the inquiry. The application asked whether the applicant had been treated or diagnosed by a medical professional. The counselor the company was relying on is not a medical professional, does not write his notes to diagnose medical conditions, and confirmed that when we contacted him.

The second fact was sitting in the insurer’s own files. During the recorded application call, the company’s agent asked the insured about his drinking and he answered honestly, eight to ten beers a week. He had been told the call was being recorded and he answered anyway. That is the opposite of an intent to deceive, and the company had the recording.

The result

The demand letter went to the carrier and its registered agent in November. It set out the five elements, the evidence on each one, and the extra-contractual exposure under the Texas Insurance Code if the denial continued. A representative from the insurance company called and said the denial was being reversed.

The claim was paid in full roughly ten weeks after the letter. The company also paid interest that had accrued since the date of death, bringing the total recovery to more than $328,000 on a $300,000 policy. No lawsuit was filed. The case was handled on a contingency fee.

A denial letter is a position, not a ruling

Insurance companies deny claims over something found in an insured’s medical or counseling history because most beneficiaries do not know how high the standard of proof actually is, and because most beneficiaries never make them meet it. The evidence that defeats these denials is often already inside the insurer’s own file. If a Texas insurer has denied your claim for misrepresentation or a material misstatement, do not treat that letter as the end of the matter.