Texas Insurance Code Chapter 541

1. Isabel, a resident of Houston, receives a 10-year term life insurance policy from Humble Life & Health on which she is the owner and insured. Stamped on the front of the policy in big red letters is a statement "Approved by the Texas Department of Insurance." Believing that the policy must be OK, Isabel does not notice that the policy has no surrender value. When, after paying premiums for 8 years, Isabel tries to surrender the policy to Humble Life & Health in exchange for its cash surrender value, Isabel is told she is out of luck. Does Isabel have any rights with respect to Humble. Assume that it is true that TDI did not object to the sale of the policy. May anyone object to Humble's conduct?

2. James purchases a whole life insurance policy from Responsible Life Insurance Company of Texas. It has no surrender value until after its second policy anniversary. The premiums for the policy are $2,000 per year. Agatha, an insurance agent, approaches James and says she can get him a 10-year term life insurance policy with the same death benefit for only $1,000. Jim likes the savings and does not pay his second year's premium. The policy lapses. James is then killed in an automobile accident on his way to meet with Agatha and apply for the term policy. Has Agatha done anything wrong for which she is (a) liable to James or (b) liable to anyone else?

3. Common Benefit Life & Health is an insurer doing business in Texas. It sells what are known as participating policies. Under the terms of the policy, the insurer charges about 20% more in premiums than it expects to need. At the end of the year, Common Benefit assesses its financial situation and if it is as planned, issues a dividend to its policy owners in proportion to the fraction of the cash surrender value on policies held by policyholders. The dividend may be received either as cash or as what is known as "fully paid up life insurance," i.e. a small life insurance policy for which no further premium is due. Does Common Benefit's method of "overcharging" and then paying a dividend violate Texas law? Can you think of any reason why insurance regulators would worry about dividends? Why aren't they a great thing? Does it affect your thinking if the Affordable Care Act in fact forces insurers to pay what amount to dividends if they overcharge using something called the Medical Loss Ratio?

4. Common Benefit also gives new policyholders a free bathroom scale (valued at $20) in the hopes that they will be inspired to keep their weight low. Has it done anything unlawful under Texas law?

5. Mary, while intoxicated and without the glasses her drivers license requires, accidentally rams her Chevrolet Suburban into Anne's Honda while the latter is lawfully parked.  Mary's automobile liability insurer, Hardball Property & Casualty, refuses to pay Anne anything saying that discovery might show that the driving license restriction was issued by mistake and that the blood alcohol test that Mary failed was flawed. Anne sues Mary. Hardball defends. As Anne does not have the cash to fix her Honda, she is forced to take many Ubers at considerable expense and misses several key business meetings, resulting in her loss of a promotion. Ultimately, after initial discovery in fact fails to support any of Hardball's defenses, Anne prevails on summary judgment and receives the $8,000 in takes to (a) repair her car and (b) pay for the Ubers. Anne now wishes to sue Hardball for an unreasonable failure to settle and pay the claim; the defenses offer by Hardball were fanciful, Anne maintains. What liability to Anne does Hardball have under section 541?

6. Henry purchases long term care insurance from Allstates Life & Health.  When Henry starts having difficulty dressing himself due to injuries suffered in an automobile accident, and is unable to easily attend work as a result, Allstates refuses to pay but does not offer an explanation for its refusal. When pressed by Henry's wife Henrietta, Allstates says that probably the guy who hit Henry is liable. As a result of not receiving the LTC benefit and being fired from his job for failure to show up, Henry and Henrietta can't pay their mortgage and are foreclosed upon. They now live in a trailer outside Port Arthur, Texas. As it turns out, if only Allstates had bothered mentioning it, their refusal to pay was warranted under their contract: Henry needed to suffer from three different forms of disability in order to collect benefits, not just an inability to dress himself. What rights does Henry have against Allstates under section 541? When we get to section 542 ask if that gives him any other rights.

7. Arsenio, artist who specializes in oil painting, purchases a homeowner's policy from Belicose Insurance Company. Two days after the policy incepts, Arsenio's home burns down following an intense thunderstorm. When Arsenio files a claim, Belicose denies it saying that the proximity of purchase to accident is symptomatic of arson. When Arsenio submits a report from a fire marsnall indicating that lightening struck the roof, Belicose still refuses to pay on grounds that the fire may have been accelerated as a result of improper storage of flammables such as paint thinner.  Arsenio sues Belicose for a violation of Chapter 541. May he do so? Is there any more information that would be helpful?

8. Humble Life & Health sells a term life insurance policy. It advertises the policy on the Web with the following statement. "This policy is guaranteed renewable without additional medical underwriting. Once you medically qualify for a Humble policy, we are with you all the way. Even if you get sick, you get to keep your insurance with us for as long as you live." All of this is true. What Humble did not advertise, however, is that, because the only people likely to stick with these policies are those who are sick and can not reenter the term life market, rates for renewals are higher than rates for new policies. On the other hand, Humble is really no different from most other life insurers in this way.  Rebecca purchases a term life policy from Humble and pays $1,000 for the first year of coverage. She is surprised and disheartened to find when she renews her policy the following year that the premium has increased to $1,500. As a result Rebecca, who is healthy, finds insurance from a competitor at a rate of $1,100 per year. Does Rebecca or anyone have a cause of action against Humble?

9. Suppose the Texas Department of Insurance believes Humble's advertisements are an unfair and deceptive trade practice. It wants Humble to stop. What may TDI do? What happens if TDI gets a cease and desist order against Humble but Humble keeps running the same ads? 

10. The Texas Windstorm Insurance Association sells Tony a windstorm policy on his $1.5 million Galveston beach home. When a major hurricane strikes Galveston and damages Tony's home, TWIA is overwhelmed with claims and, as a result, does not investigate Tony's claim for 3 months. It says it can't affirm or deny coverage because it doesn't know the extent of the damage or whether Tony's home might in fact have been damaged by rising waters from storm surge, which TWIA does not cover. As a result of the delay, Tony says he is unable to make a payment on his country club membership and thus loses out on possible business opportunities. Ultimately, TWIA pays Tony's claim for $1.1 million, an amount that Tony believes is proper. What rights does Tony have against TWIA?

11. State Ranch Insurance Company sells Ilene a homeowner's policy for her Corpus Christi home. When a thunderstorm's straight line winds knock down her chimney, Ilene seeks coverage. Her insurance agent, Audrey, says there is no coverage because State Ranch only pays for damage in cases of a named storm (like a tropical storm or hurricane). This is not true, although Audrey, who had recently suffered a concussion, thought that it was. As a result, Ilene does not press a claim and pays for chimney repair out of her own pocket, which causes her to be late on various credit cards and suffer interest payments of $500 and a 50 point drop in her credit rating. When, after talking with a friend, she learns that Audrey was mistaken, Ilene immediately files an action in small claims court under Chapter 541 of the Insurance Code. Upon receiving the complaint, State Ranch moves to abate the case. Two weeks later, State Ranch apologizes for Audrey's mistake and says it will pay Ilene for the cost of her chimney repair plus $500. Ilene refuses the offer and proceeds with the lawsuit. What is the maximum Ilene can recover?

12. Broad Insurance Company sells liability insurance to Gullible Stringed Instruments, a small music shop. Gullible asks Broad's agent if it covers a lot of stuff. Broad's agent says, "Absolutely. We cover you even for punitive damages caused by malice. Other insurers don't do that. But we pick our insured's carefully and once we pick one, we back them all the way." In fact this was not true, the policy does not explicitly cover punitive damages and implication of such coverage for malicious actions by an individual is unlawful under Texas law (with some complications). But Gullible's owner knew he had a temper and thought this broad coverage from Broad made the policy particularly attractive.  Gullible's owner gets angry at a customer, Colin, who had damaged a rented cello and deliberately spreads oil on the floor where the customer was walking. In the resulting slip and fall lawsuit, Colin seeks punitive damages. Broad says it doesn't cover them: insuring against punitive damages on these sort of facts would be illegal. Does Broad have any liability under Chapter 541, directly or indirectly?