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Mutual of Omaha Life Insurance Co. v. Costello

Court of Appeals of Texas, Fourteenth District, Houston

January 23, 2014

MUTUAL OF OMAHA LIFE INSURANCE COMPANY, Appellant
v.
JOHNNY COSTELLO, Appellee

On Appeal from the 60th District Court, Jefferson County, Texas. Trial Court Cause No. B-173189.

For APPELLANT: Ross Holiday Jones, BEAUMONT, TX; Kent M. Adams, HOUSTON, TX.

For APPELLEE: Stephen A. Taggart, NEDERLAND, TX; David A. Bickham, HOUSTON, TX.

For UNKNOWN: Nicholas J. Lanza, BELLAIRE, TX.

Panel consists of Justices Boyce, Christopher, and Brown.

OPINION

William J. Boyce, Justice.

Page 874

United of Omaha Life Insurance Company appeals from a summary judgment in favor of Johnny Costello on his breach of contract claim seeking benefits under a life insurance policy.[1] We reverse the trial court's order granting summary judgment and remand for proceedings consistent with this opinion.

Background

Fatima Costello applied for life insurance with the help of underwriter Keith Sexton. After she paid the premium, United of Omaha issued a $500,000 life insurance policy to Fatima Costello with an effective date of October 1, 2002. The policy contained an incontestability provision, which stated: " We will not contest the validity of this policy after it has been in force during the lifetime of the Insured for two years from the date of issue."

Fatima Costello died from a heart attack on July 2, 2003. This date fell within the two-year contestability period set forth in the policy. United of Omaha sent a letter to Sexton on July 15, 2003, acknowledging a claim being made on Fatima Costello's insurance policy by her husband Johnny Costello and requesting additional information to evaluate the claim. After investigating and concluding that Fatima Costello had misrepresented her health history in her insurance application, United of Omaha denied the claim and rescinded the policy on November 10, 2003. United of Omaha concluded that Fatima Costello had failed to disclose that she had been taking medication for hypertension and elevated lipids; had multiple abnormal pulmonary tests; and had a history of chronic obstructive pulmonary disease.

Johnny Costello, individually and as Fatima Costello's surviving spouse, sued United of Omaha on September 3, 2004, to recover the policy proceeds. United of Omaha filed a general denial on October 29, 2004 and an amended answer on November 8, 2006. In the amended answer, United of Omaha asserted for the first time that the policy is not enforceable based on affirmative defenses of fraud and misrepresentation.

On April 26, 2010, Costello filed a motion for traditional summary judgment asserting two grounds. First, Costello argued that United of Omaha waived its affirmative defenses to enforcement of the policy by failing to contest the validity of the policy within two years of the date the policy was issued. Specifically, Costello asserted that United of Omaha was required to institute a court proceeding contesting the policy's validity or to file a defense to a pending action no later than October 1, 2004 -- the second anniversary of the policy's ...


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