Affirmed and Memorandum Opinion filed March 27, 2014.




                                      In The

                     Fourteenth Court of Appeals

                               NO. 14-12-01115-CV


  GIOVANNY VASQUEZ, SUBSTITUTE TRUSTEE OF THE BEATRICE
         RAMON 2007 IRREVOCABLE TRUST, Appellant
                                         V.

                RELIASTAR LIFE INSURANCE CO., Appellee


                    On Appeal from the 334th District Court
                            Harris County, Texas
                      Trial Court Cause No. 2009-38805


                  MEMORANDUM OPINION

      Giovanny Vasquez, Substitute Trustee of the Beatrice Ramon 2007
Irrevocable Trust (“the Trust”) contends the evidence is legally insufficient to
support the jury’s finding that certain material misrepresentations affected the risk
assumed by ReliaStar Life Insurance Co. We affirm
                                 I. BACKGROUND

      In March 2008, Russell Mackert and Beatrice Ramon submitted an
application with ReliaStar for insurance on the life of Ramon, seeking an initial
term of ten years for an amount of $2.5 million. The application named the Trust
as the proposed beneficiary and owner of the policy and Mackert as trustee. The
asserted purpose of the Trust was “Estate Conservation.” Mackert and Ramon also
represented in the application that Ramon’s total net worth was $2.4 million, her
annual interest and other income was $150,000, and she had never declared
bankruptcy.    Mackert and Ramon signed the application, verifying that the
information provided was true and correct to the best of their knowledge and
acknowledging that ReliaStar may seek to rescind coverage due to material
misrepresentations.

      Shortly thereafter, ReliaStar issued a policy insuring the life of Ramon for
$2.5 million and naming the Trust as the owner of the policy (“the Policy”). The
Policy had an initial term of ten years, during which time the annual premium was
$26,125. After the initial ten-year period, the annual premium greatly increased.
The Policy also contained a contestability provision, allowing ReliaStar to “contest
the validity of this Policy based on material misrepresentations made in the initial
application for two years from the Issue Date, during which time the Insured was
living.”

      Ramon died in November 2008.           In January 2009, Mackert notified
ReliaStar about Ramon’s death. ReliaStar advised Mackert that, because Ramon’s
death occurred within the two-year contestability period, ReliaStar would conduct
an investigation to determine whether information provided in the application was
correct. Additionally, at some point, Mackert resigned as trustee of the Trust and



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appointed Giovanny Vasquez as substitute trustee. Vasquez purchased the Trust
for $500,000 as an investment on behalf of investors he represented.

      In June 2009, the Trust filed suit against ReliaStar. While suit was pending,
ReliaStar continued its contestability investigation.       ReliaStar determined that
neither Ramon nor Mackert made any misrepresentation regarding Ramon’s health
or medical history. However, ReliaStar discovered that Ramon misrepresented her
financial information because she had previously declared bankruptcy, had no
assets, and did not receive any income except social security payments. Moreover,
Ramon and Mackert misrepresented the purpose for the life insurance, stating it
was for “Estate Conservation” when the actual purpose was to procure “Stranger
Owned Life Insurance.” Based on these misrepresentations, ReliaStar rescinded
the Policy and returned the premium paid by the Trust.

      In April 2012, the trial court conducted a jury trial on the Trust’s suit. As
discussed below, the jury charge contained a single question asking whether the
insurance application contained material misrepresentations that affected the risk
assumed by ReliaStar. The jury answered in the affirmative, and the trial court
rendered a take nothing judgment against the Trust.

                             II. LEGAL SUFFICIENCY

      In a single issue, the Trust contends the evidence is legally insufficient to
support   the   jury’s   finding   that       the   application   contained   material
misrepresentations that affected the risk assumed by ReliaStar.

A. Standard of Review

      When examining a legal-sufficiency challenge, we review the evidence in
the light most favorable to the challenged finding and indulge every reasonable
inference that would support it. City of Keller v. Wilson, 168 S.W.3d 802, 822

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(Tex. 2005). The fact finder is the sole judge of witness credibility and the weight
to give their testimony. Id. at 819. We credit favorable evidence if a reasonable
fact finder could and disregard contrary evidence unless a reasonable fact finder
could not. Id. at 827. The evidence is legally sufficient if it would enable a
reasonable and fair-minded person to reach the verdict under review. Id. When a
party challenges legal sufficiency relative to an adverse finding on which he did
not bear the burden of proof, we apply the “no evidence” standard and may sustain
the challenge only when the record discloses one of the following situations: (a) a
complete absence of evidence of a vital fact; (b) the court is barred by rules of law
or evidence from giving weight to the only evidence offered to prove a vital fact;
(c) the evidence offered to prove a vital fact is no more than a mere scintilla; (d)
the evidence establishes conclusively the opposite of the vital fact.        Foley v.
Capital One Bank, N.A., 383 S.W.3d 644, 646–47 (Tex. App.—Houston [14th
Dist.] 2012, no pet.) (citing City of Keller, 168 S.W.3d at 810).

B. Analysis

      The sole question presented to the jury in the charge is as follows:

                                QUESTION NO. 1
      Did the Policy application contain misrepresentations that were:
      (1) of a material fact
      and that
      (2) affected the risk assumed?
      ...
      A misrepresentation of fact is “material” if it induced [ReliaStar] to
      issue the Policy.
      Answer “Yes” or “No”:
      Answer: Yes



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        This question tracks the language of section 705.051 of the Insurance Code:

        A misrepresentation in an application for a life, accident, or health
        insurance policy does not defeat recovery under the policy unless the
        misrepresentation:
        (1) is of a material fact; and
        (2) affects the risks assumed.
Tex. Ins. Code Ann. § 705.051 (West 2009).

        The Trust does not challenge the jury’s finding that Ramon’s financial
misrepresentations were material. Instead, the Trust argues there is no evidence
that Ramon’s misrepresentations “affected the risk assumed.” Specifically, the
Trust argues Ramon’s false statements regarding her worth, income, bankruptcy
history, and the purpose of the Trust did not affect the risk of Ramon dying
because none of these statements had any bearing on her health or death.1

        ReliaStar responds that nothing in the plain language of section 705.051
requires that a misrepresentation involve the insured’s health or life expectancy in
order for the misrepresentation to affect the risks assumed by the insurer. See SJ
Med. Center, L.L.C. v. Estahbanati, 418 S.W.3d 867, 873 (Tex. App.—Houston
[14th Dist.] 2013, no pet.) (“If the meaning of the statutory language is
unambiguous, we adopt the interpretation supported by the plain meaning of the
provision’s words.”).          We agree.         Had the Legislature intended to limit the
meaning of the “affects the risks assumed” prong in section 705.051, it would have
utilized similar language as it used in subsection 705.004(b)(2), which permits the
insurer to void a policy pursuant to a misrepresentation provision if, among other
results, the insurance applicant’s misrepresentation “contributed to the contingency
        1
           The Trust spends several pages of its brief explaining why section 705.051 is purportedly
different than its predecessor statute relative to the materiality and affects-the-risk prongs. Because the
evidence is sufficient to support findings that Ramon’s misrepresentations were both material and
affected the risk, we need not delve into the Trust’s statutory comparison.

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or event on which the policy became due and payable.” Compare Tex. Ins. Code
Ann. § 705.051, with id. § 705.004(b)(2) (West 2009).

       Undoubtedly, as the caselaw cited by the Trust provides, the risk assumed by
a life-insurance insurer is the risk that the insured will die during the insurance
term. See American-Amicable Life Ins. Co. v. Lawson, 409 S.W.2d 462, 467 (Tex.
Civ. App.—San Antonio 1966) (“The risk assumed in conventional life insurance
is death of the insured from any cause.”), rev’d on other grounds, 419 S.W.2d 823
(1967); Mutual Life Ins. Co. v. Simpson, 88 Tex. 333, 339, 31 S.W. 501,
503 (1895) (Hume, Special C.J., dissenting) (“The purpose of a life insurance
company is to secure risks on sound lives. It is interested in knowing that the
applicant for insurance is not affected with infirmities that will hasten the event
against which it insures.”).2 However, this is a risk to the insurer only because it
triggers the insurer’s obligation to pay benefits. Hence, the risk assumed by
ReliaStar was that it would have to pay $2.5 million if Ramon died. The amount
of money contingently owed by the insurer is undeniably part of the risk of
providing coverage.

       ReliaStar’s underwriters testified that all information provided by an
insurance applicant is considered when determining whether to provide coverage
and how much coverage to provide. The underwriters further emphasized that
ReliaStar determines “the amount of insurance that would be acceptable” based on
the purpose for the insurance, such as whether the insurance is for estate
preservation. ReliaStar does not want to provide more life insurance than what the
insured and her beneficiary actually need. If ReliaStar issues a high-paying policy
       2
           The Trust also cites Southern Surety Co. v. Solomon, in which the Austin Court of Appeals
determined the evidence supported the jury’s finding that the insurance applicant’s representations
regarding his weekly salary were not material to the risk assumed by the insurer. 4 S.W.2d 599, 603
(Tex. Civ. App.—Austin 1928, no writ). However, unlike in Solomon, the jury in the present case found
that the applicant’s misrepresentations were material and affected the risk assumed by the insurer.

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to a person with poor finances, there is an increased risk that the person will not be
able to afford the premiums.        Additionally, the underwriters explained that
ReliaStar does not want to provide “Stranger Owned Life Insurance” policies
because the person who is the beneficiary of the policy has no interest in the
continued life of the insured and is hoping the insured will die within the policy
term. According to the underwriters, had Ramon been truthful about her financial
standing, ReliaStar would not have issued her a $2.5 million policy and probably
would not have provided any insurance because she did not need coverage.

      In addition to the underwriters’ testimony, ReliaStar’s financial-
underwriting guidelines were admitted into evidence. These guidelines include the
following statements demonstrating the importance of financial information in a
life-insurance application:

       “Resolving cases of questionable insurable interest and identifying cases
        of apparent overselling are often difficult. By keeping in mind the
        affordability of the premium in relation to the applicant’s financial
        position, the underwriter should question and even discourage business,
        if it indicates a potential early lapse or windfall profit to the beneficiary.”
       “[Certain financial considerations] become even more important as the
        amount of insurance increases because of the additional liability assumed
        by the company.”
       “One of the underlying principles of financial underwriting is that the
        beneficiaries of the policy, regardless of who they are, should not benefit
        financially on the death of the insured more than they would have, had
        the insured lived.”
       “The bulk of the insurance policies written by the Industry are below
        $1,000,000. . . . The number of large multi-million dollar cases is more
        limited. As a result, the effect of a few early claims for multi-million
        dollar cases may impact the company’s block of business significantly.
        Careful evaluation of the financial aspects of multi-million dollar cases
        is, therefore, critical in the process of underwriting large line risks.”



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       “Financial underwriting is accomplished with a strategy that allows the
        approval of cases to ultimately meet the company’s profit and marketing
        objectives and the rejection of cases that will not.”
       “Individuals who remain in good health and find the premiums
        burdensome may lapse their policies before the company can recoup
        expenses.”

      In sum, Ramon’s financial misrepresentations affected the amount of
coverage provided, and therefore the risk assumed, by ReliaStar. Clearly, Ramon
and Mackert understood the correlation between financial information and the
obtainable amount of life-insurance coverage because they misrepresented
Ramon’s financial information on the insurance application. We hold that the
evidence is legally sufficient to support the jury’s affect-the-risk finding and
overrule the Trust’s sole issue.

      We affirm the trial court’s judgment.




                                      /s/       John Donovan
                                                Justice



Panel consists of Justices Christopher, Donovan, and Brown.




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