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

Case: 09-20859 Document: 00511208156 Page: 1 Date Filed: 08/18/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 18, 2010
No. 09-20859
Summary Calendar Lyle W. Cayce
Clerk
FEDERATED LIFE INSURANCE COMPANY,
Plaintiff - Appellant
v.
YAHYA JAMAL JAFREH, also known as John Jafreh, Individually and
as Executor of the Estate of Zakareya Jamal Mufleh Aljaafreh;
SHIRLEY LYNN HOWARD ALJAAFREH, Individually,
Defendants - Appellees
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:07-CV-3987
Before HIGGINBOTHAM, WIENER, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
A life insurance company filed a declaratory judgment action contesting
coverage. The court found coverage and awarded statutory penalties and fees
pursuant to a state Prompt Payment Statute. We AFFIRM.
FACTS
Zakareya Aljaafreh applied for life insurance with Federated Life
Insurance 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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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No. 09-20859
Aljaafreh participated in a phone interview during which he provided medical
and physical health history. He later certified his responses and their accuracy
in writing. After this verification, Federated issued a life insurance policy for
$700,000. In July 2007, Aljaafreh died in the Kingdom of Jordan. The next day,
Federated was notified of Aljaafreh’s death.
In August 2007, Yahya Jamal Jafreh, the sole beneficiary under the policy,
sent Federated a claim form, death certificate, a copy of Aljaafreh’s will, and a
“Notifying Death Fact” report prepared in the Kingdom of Jordan. Federated
also received two letters with conflicting information about Aljaafreh’s death.
Federated investigated and learned that Aljaafreh was treated for symptoms
related to a motor neuron disease and that his death was the result of what is
commonly known as “Lou Gehrig’s disease.”
On November 26, 2007, Federated filed a declaratory judgment action in
the United States District Court for the Southern District of Texas. It claimed
that “Zakareya’s intentional concealment and/or failure to disclose material facts
regarding his medical condition and/or treatment history renders the Policy void
ab initio or, in the alternative, that Federated has the right to rescind the
Policy.” Jafreh filed a motion to dismiss or for summary judgment.
Shortly after this initial filing, Jafreh filed a “First Original
Counterclaim.” He claimed that Federated breached the policy, violated the
Texas Unfair Claim Settlement Practice Act, and violated Sections 542.056,
542.058, and 542.060 of the Texas Insurance Code. He sought payment of the
benefits under the policy, statutory interest, attorney’s fees, and costs.
The district court dismissed Jafreh’s breach of contract and bad faith
claims. It held that because Jafreh was not the personal representative or
executor of the estate, he did not have capacity to bring those claims. Jafreh was
later awarded the $700,000 death benefit under the life insurance policy, 18
percent statutory interest from October 26, 2007 until the date judgment was
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entered, 5 percent per annum in simple interest, .36 percent per annum in post
judgment interest, attorney’s fees in the amount of $17,762.50, and all costs in
the 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
for summary judgment de novo. St. Paul Mercury Ins. Co. v. Williamson, 224
F.3d 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
relief . . . . 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
judgment as a matter of law.” Id. (citations omitted).
Under Texas law, an insurer who has received all items necessary to
investigate a claim and fails to pay before the end of the time specified in the
particular statute or, if none is specified, for sixty days, must pay damages. See
Tex. Ins. Code § 542.060(a). Federated did not meet this requirement but argues
that Jafreh lost the right to damages once his counterclaim for breach of contract
was dismissed. He allegedly needed an independent cause of action to support
the 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
pay the holder of the policy or the beneficiary making the claim
under the policy, in addition to the amount of the claim, interest on
the amount of the claim at the rate of 18 percent a year as damages,
together with reasonable attorney’s fees.
(b) If a suit is filed, the attorney’s fees shall be taxed as part of the
costs in the case.
Tex. Ins. Code § 542.060. A claim means a “first-party claim that . . . is made by
an insured or policyholder under an insurance policy or contract or by a
beneficiary named in the policy or contract.” Id. § 542.051(2)(A).
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According to Federated, “this contingent penalty exists as part and parcel
of a claim for breach of contract and springs from the carrier’s ultimate liability
under the policy.” Federated failed to raise this argument before the district
court. It is too late to make such an argument for the first time on appeal,
absent extraordinary circumstances. Leverette v. Louisville Ladder Co., 183 F.3d
339, 342 (5th Cir. 1999). We note, though, that the statutory language seems to
require just a “breach” of the statutory obligation, regardless of whether there
is a cause of action for breach of the policy.
Additionally, Federated maintains that it should be allowed to contest the
life insurance policy based on fraud and misrepresentation pursuant to Section
705.104 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
shows the misrepresentation was material and intentionally made. Tex. Ins.
Code § 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.
Universal 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
statute provided that policies were incontestable after two years except for the
non-payment of premiums. Tex. Ins. Code Ann. art. 3.44. The policy itself also
contained a two-year incontestability clause.
The life insurance policy was incontestable after two years except for a
non-payment of premiums claim. See id. There is no dispute that the premiums
were paid. Federated’s argument fails.
AFFIRMED.
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