Federated Life Insurance Co. v. Yahya Jafreh, et al

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Federated Life Insurance Co. v. Yahya Jafreh, et al

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Case: 09-20859

Document: 00511208156

Page: 1

Date Filed: 08/18/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
N o . 09-20859 S u m m a r y Calendar August 18, 2010 Lyle W. Cayce Clerk

F E D E R A T E D LIFE INSURANCE COMPANY, P la in t iff - Appellant v. Y A H Y A JAMAL JAFREH, also known as John Jafreh, Individually and a s Executor of the Estate of Zakareya Jamal Mufleh Aljaafreh; S H I R L E Y LYNN HOWARD ALJAAFREH, Individually, D e fe n d a n t s - Appellees

A p p e a l from the United States District Court for the Southern District of Texas USDC No. 4:07-CV-3987

B e fo r e HIGGINBOTHAM, WIENER, and SOUTHWICK, Circuit Judges. P E R CURIAM:* A life insurance company filed a declaratory judgment action contesting c o v e r a g e . The court found coverage and awarded statutory penalties and fees p u r s u a n t to a state Prompt Payment Statute. We AFFIRM. FACTS Z a k a r e y a Aljaafreh applied for life insurance with Federated Life I n s u r a n c e Company on January 23, 2001. As part of the application process,

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

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Case: 09-20859

Document: 00511208156

Page: 2

Date Filed: 08/18/2010

No. 09-20859 A lja a fr e h participated in a phone interview during which he provided medical a n d physical health history. He later certified his responses and their accuracy i n writing. After this verification, Federated issued a life insurance policy for $ 7 0 0 ,0 0 0 . In July 2007, Aljaafreh died in the Kingdom of Jordan. The next day, F e d e r a t e d was notified of Aljaafreh's death. In August 2007, Yahya Jamal Jafreh, the sole beneficiary under the policy, s e n t Federated a claim form, death certificate, a copy of Aljaafreh's will, and a " N o t ify in g Death Fact" report prepared in the Kingdom of Jordan. Federated a ls o received two letters with conflicting information about Aljaafreh's death. Federated investigated and learned that Aljaafreh was treated for symptoms r e la t e d to a motor neuron disease and that his death was the result of what is c o m m o n ly known as "Lou Gehrig's disease." O n November 26, 2007, Federated filed a declaratory judgment action in t h e United States District Court for the Southern District of Texas. It claimed t h a t "Zakareya's intentional concealment and/or failure to disclose material facts r e g a r d in g his medical condition and/or treatment history renders the Policy void a b initio or, in the alternative, that Federated has the right to rescind the P o lic y ." Jafreh filed a motion to dismiss or for summary judgment. S h o r t ly after this initial filing, Jafreh filed a "First Original

C o u n te r c la im ." He claimed that Federated breached the policy, violated the T e x a s Unfair Claim Settlement Practice Act, and violated Sections 542.056, 5 4 2 .0 5 8 , and 542.060 of the Texas Insurance Code. He sought payment of the b e n e fits under the policy, statutory interest, attorney's fees, and costs. T h e district court dismissed Jafreh's breach of contract and bad faith c la im s . It held that because Jafreh was not the personal representative or e x e c u t o r of the estate, he did not have capacity to bring those claims. Jafreh was la t e r awarded the $700,000 death benefit under the life insurance policy, 18 p e r c e n t statutory interest from October 26, 2007 until the date judgment was 2

Case: 09-20859

Document: 00511208156

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Date Filed: 08/18/2010

No. 09-20859 e n te r e d , 5 percent per annum in simple interest, .36 percent per annum in post ju d g m e n t interest, attorney's fees in the amount of $17,762.50, and all costs in t h e amount of $2,226.93. This appeal followed. DISCUSSION We review a district court's grant of both a motion to dismiss and a motion fo r summary judgment de novo. St. Paul Mercury Ins. Co. v. Williamson, 224 F .3 d 425, 440 n.8 (5th Cir. 2000). "In the former, the central issue is whether, in the light most favorable to the plaintiff, the complaint states a valid claim for r e lie f . . . . In the latter, we go beyond the pleadings to determine whether there is no genuine issue as to any material fact and that the movant is entitled to ju d g m e n t as a matter of law." Id. (citations omitted). U n d e r Texas law, an insurer who has received all items necessary to in v e s t ig a t e a claim and fails to pay before the end of the time specified in the p a r tic u la r statute or, if none is specified, for sixty days, must pay damages. See T e x . Ins. Code § 542.060(a). Federated did not meet this requirement but argues t h a t Jafreh lost the right to damages once his counterclaim for breach of contract w a s dismissed. He allegedly needed an independent cause of action to support t h e penalties. We examine the statute in order to analyze this argument: (a ) If an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, the insurer is liable to p a y the holder of the policy or the beneficiary making the claim u n d e r the policy, in addition to the amount of the claim, interest on t h e amount of the claim at the rate of 18 percent a year as damages, t o g e t h e r with reasonable attorney's fees. (b) If a suit is filed, the attorney's fees shall be taxed as part of the c o s t s in the case. Tex. Ins. Code § 542.060. A claim means a "first-party claim that . . . is made by a n insured or policyholder under an insurance policy or contract or by a b e n e fic ia r y named in the policy or contract." Id. § 542.051(2)(A).

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Document: 00511208156

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Date Filed: 08/18/2010

No. 09-20859 A c c o r d in g to Federated, "this contingent penalty exists as part and parcel o f a claim for breach of contract and springs from the carrier's ultimate liability u n d e r the policy." Federated failed to raise this argument before the district c o u r t. It is too late to make such an argument for the first time on appeal, a b sen t extraordinary circumstances. Leverette v. Louisville Ladder Co., 183 F.3d 3 3 9 , 342 (5th Cir. 1999). We note, though, that the statutory language seems to r e q u ir e just a "breach" of the statutory obligation, regardless of whether there is a cause of action for breach of the policy. A d d it io n a lly , Federated maintains that it should be allowed to contest the life insurance policy based on fraud and misrepresentation pursuant to Section 7 0 5 .1 0 4 of the Texas Insurance Code. That section allows the insurer to contest a life insurance policy two years after its date of issue provided the insurer s h o w s the misrepresentation was material and intentionally made. Tex. Ins. C o d e § 705.104. This section was not effective until April 1, 2005. It is the law in existence at the time of the issuance of the policy that applies. Lee v.

U n iv e r s a l Life Ins., 420 S.W.2d 222, 226 (Tex. App.--Houston [14th Dist.] 1967). When the present policy was issued on March 27, 2001, the relevant s t a t u t e provided that policies were incontestable after two years except for the n o n -p a y m e n t of premiums. Tex. Ins. Code Ann. art. 3.44. The policy itself also c o n t a in e d a two-year incontestability clause. The life insurance policy was incontestable after two years except for a n o n -p a y m e n t of premiums claim. See id. There is no dispute that the premiums w e r e paid. Federated's argument fails. AFFIRMED.

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