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by Michael C. Upshaw

As discussed in our recent article, it can be a difficult endeavor for insurers to successfully rescind an insurance policy under Texas law. To rescind a policy based on a misrepresentation in an insurance application, insurers must prove:

1. The making of the misrepresentation;
2. The falsity of the representation;
3. Reliance on the representation by the insurer;
4. The intent to deceive on the par of the insured in making the representation; and
5. The materiality of the representation.

Mayes v. Mass. Mut. Life Ins. Co., 608 S.W.2d 612, 616 (Tex. 1980).

Typically, these are fact issues to be decided by the trier of fact and are not decided at the summary judgment phase of litigation. A recent holding in the Court of Appeals of Texas, Houston (14th Dist.) confirms, however, that a policyholder must put forth some evidence to rebut facts presented by an insurer to avoid summary judgment and that, at times, misrepresentation may be determined as a matter of law.

In Palma v. Allied Tr. Ins. Co., No. 14-23-00063-CV, 2024 WL 3765821, at *1 (Tex. App.—Houston [14th Dist.] Aug. 13, 2024, no pet. h.), Allied Trust Insurance Company sought to rescind the policyholder’s policy after the policyholder submitted a claim. Allied’s investigation of the claim revealed the policyholder had a prior conviction for insurance fraud that he did not disclose in his application for insurance. Allied rescinded the policy and the policyholder filed suit. Allied moved for summary judgment and provided evidence to meet each of the five misrepresentation elements. The policyholder responded that “it is a question of fact whether a misrepresentation for the policy or in the policy itself was material to the risk or contributed to the contingency or event on which the policy became due and payable.” Id. at *1 (citing Tex. Ins. Code § 705.004(c)). But the policyholder did not provide any evidence to rebut the facts presented by Allied. Accordingly, the trial court granted summary judgment in favor of Allied and the policyholder appealed.

The Court of Appeals analyzed the evidence presented at trial, which included: the policy’s “concealment or fraud” provision; the policyholder’s application; the policyholder’s criminal record; and a letter from Allied to the policyholder stating that the policy would have never been issued if Allied knew of the criminal conviction for insurance fraud. The Court then noted that the policyholder did not point to any evidence raising a “genuine issue of material fact.” The Court explained, “[v]arious elements of claims may be a ‘question of fact’ where there is an actual, genuine dispute between the parties about the facts. However, when no genuine issues of material facts exist, a court may properly grant summary judgment because there are no facts to find. Id. at *4.

The takeaway from Palma is that just because an issue is a fact issue, whether it relates to rescission or anything else, there must be a genuine dispute over those facts supported by evidence to avoid summary judgment. During adjustment of the claim, development of those facts is important.

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The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.