United States District Court, S.D. Texas, Houston Division
ROSENTHAL, CHIEF UNITED STATES DISTRICT JUDGE.
parties have a dispute about whether Blanca Villareal's
motion for summary judgment is ripe for decision, or whether
Pruco Life Insurance Company and Transamerica Life Insurance
Company should be granted more time for discovery to frame a
response. The court held a hearing at which counsel presented
argument on the dispute. Pruco and Transamerica argue that
the motion is premature because discovery as to policy
acquisition and whether Mr. Eduardo Gonzalez Rosendi, the
policyholder, is dead or alive, is just beginning. The
plaintiff insurance companies have alleged fraud-that Rosendi
misrepresented his net worth in obtaining the policies and
that he and Villareal have misrepresented Rosendi's
status as deceased. Either precludes payment under the
policies. Discovery is slow and cumbersome because the
plaintiffs must go through the Hague Convention to obtain
documents and witnesses in Mexico.
the beneficiary, argues that the discovery is not relevant
because the insurance policies are
“incontestable” under § 1101.006 of the
Texas Insurance Code. That statute provides that “a
life insurance policy must provide that a policy in force for
two years from its date of issue during the lifetime of the
insured is incontestable, except for nonpayment of
premiums.” Tex. Ins. Code § 1101.006. Villareal
cites Cardenas v. United of Omaha Life Ins. Co., 731
F.3d 496, 500 (5th Cir. 2013), a case interpreting §
1101.006's application to policy reinstatements, for the
proposition that “if an insured survives the two-year
‘contestability period' following the issuance of a
policy, then the policy will become incontestable for any
reason except nonpayment of the premiums, ” and that
the “bar to contestability applies even if the insured
intentionally made a material misrepresentation in the policy
application.” Id. at 500 (citing Kan. Life
Ins. Co. v. First Bank of Truscott, 78 S.W.2d 584,
586-87 (Tex. 1935)). Villareal argues that the plaintiff
insurance companies cannot rescind the policy for fraud or
misrepresentation because Rosendi paid the policy premiums
and died in December 2016, more than two years after the
policies were issued in August 2014.
insurance companies respond that a different section of the
Texas Insurance Code applies. Section 705.004, enacted in
2003 and effective in 2005, states:
Misrepresentation in Application for Life
Insurance: A defense based on a misrepresentation in
the application for, or in obtaining, a life insurance policy
on the life of a person in or residing in this state is not
valid or enforceable in a suit brought on the policy on or
after the second anniversary of the date of issuance of the
policy if premiums due on the policy during the two years
have been paid to and received by the insurer, unless:
(1) the insurer has notified the insured of the insurer's
intention to rescind the policy because of the
(2) it is shown at trial that the misrepresentation was:
(A) material to the risk; and
(B) intentionally made
Tex. Ins. Code § 705.104.
statute incorporates the language from § 1101.006, but
adds an “unless” clause that defines the
situations in which the incontestability rule does not apply.
The Fifth Circuit has held that § 705.104, enacted after
§ 1101.006, “allows the insurer to contest a life
insurance policy two years after its date of issue provided
the insurer shows the misrepresentation was material and
intentionally made. . . . This section was not effective
until April 1, 2005.” Federated Life Ins. Co. v.
Jafreh, 392 Fed.Appx. 280, 283 (5th Cir. 2010).
“It is the law in existence at the time of issuance of
the policy that applies.” Id.
705.104 is a later-enacted statutory amendment to the
incontestability rule in § 1101.006. As the Fifth
Circuit has held, § 705.104 allows an insurer to contest
a policy more than two years after issuance on a showing of a
material, intentional misrepresentation. Jafreh, 392
Fed.Appx. at 283; see also Mass. Mut. Ins. Co. v.
Mitchell, 859 F.Supp.2d 865 (S.D. Tex. 2012).
policies here were issued on August 26, 2014, long after
§ 705.104 took effect in 2005. Section 1101.006 does not
bar the insurance companies' claims because they have
alleged that Rosendi made material intentional
misrepresentations in applying for the policy and, with the
beneficiary, in seeking benefits. These claims are expressly
allowed under § 705.104. The insurance companies seek
additional time for discovery-which is complicated and
time-consuming because the relevant information is in
Mexico-before a summary judgment ruling on their claims.
Because the discovery period does not close until January
2019, a ruling on Villareal's summary judgment motion at