Rescission of Life Insurance Policy Fails
Post 5039
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USAA Life Insurance Company’s moved the USDC Dismiss Plaintiff’s Third Amended Complaint and Motion to Strike.
In Ronda G. Williams v. USAA Life Insurance Company, No. 1:24-cv-00301-BLW, United States District Court, D. Idaho (April 1, 2025) the USDC eliminated the bad faith cause of action and allowed the breach of contract case.
BACKGROUND
Ronda Williams alleged her husband, Burton Williams, applied for a 20-year term life insurance policy for $750,000.00 from USAA on December 1, 2021. Shortly thereafter, USAA issued a life insurance policy with an effective date of February 15, 2022. As a part of his application, Mr. Williams signed an agreement that he would “.. .notify USAA Life Insurance Company if, after signing the statement but before the delivery of the policy, I seek medical consultation for any reason…”
Mrs. Williams alleged that Mr. Williams received a neurological exam in January 2022 after feeling lightheaded and dizzy at the gym. The exam was benign, he was treated for dehydration and sent home. He then followed up with his primary care physician on February 2, 2022, who did not have any concerns about his medical condition but scheduled an MRI for February 17, 2022. On February 18, 2022, Mr. Williams received the results of the MRI, which indicated he had a brain tumor.
About a year later, in June 2023, Mr. Williams died.
Mrs. Williams, as the beneficiary, notified USAA of his death and made a claim on his insurance policy. On December 26, 2023, USAA sent Mrs. Williams a letter stating that it was rescinding the insurance policy from the date of inception based upon material misrepresentations made in Mr. Williams’ application. Mrs. Williams sued. Mrs. Williams filed her Third Amended Complaint alleging a single claim for breach of contract and insurance bad faith. USAA again moved to dismiss the operative complaint for failure to state a claim.
ANALYSIS
Breach of Contract Claim.
Mrs. Williams alleged USAA breached its contract when it failed to pay her the amount due under the life insurance policy. USAA argued that Mrs. Williams cannot show any breach of contract because it rescinded the life insurance policy within the two-year statutory contestability period.
The rescission fell within the two-year contestability period.
Even considering USAA’s affirmative defense, it does not require dismissal of Mrs. Williams’ complaint at this stage of the litigation. To rescind the policy, USAA would first need to prove Mr. Williams made an incorrect statement on his application. Then the company would have to prove it would not have issued the policy had it known the “true facts.”
USAA contends Mr. Williams’ responses to several questions on his application were incorrect. Mr. Williams answered “no” to each of these questions. While these responses may have been rendered inaccurate in light of his hospital visit and follow up visit with his primary care provider, these inaccuracies do not necessarily mean rescission is appropriate.
To rescind, USAA must show it would not have issued the policy had the statements been accurate. There is nothing on the face of the Third Amended Complaint or in the material incorporated by reference that permits the Court to conclude on a motion to dismiss that the misrepresentations were material.
An insurer may establish materiality as a matter of law by presenting documentation concerning its underwriting practices. Absent similarly conclusive facts in the Third Amended Complaint or incorporated by reference, the Court cannot conclude the misrepresentations, as a matter of law, were material. Accordingly, USAA’s motion to dismiss the breach of contract claim is denied.
Insurance Bad Faith Claim.
To demonstrate bad faith under Idaho law, a plaintiff must show:
1. the insurer intentionally and unreasonably denied or withheld payment;
2. the claim was not fairly debatable;
3. the denial or failure to pay was not the result of a good faith mistake; and
4. the resulting harm is not fully compensable by contract damages.
An insurer does not act in bad faith by challenging the validity of a “fairly debatable” claim, or when delay results from honest mistakes.
Mrs. Williams did not adequately allege an insurance bad faith claim. The denial of an insurance claim and a claimant’s disagreement with the decision does not automatically equate to bad faith. Accordingly, the Court dismissed Mrs. Williams’s bad faith claim.
The Court will dismiss the bad faith insurance claim without leave to amend.
ZALMA OPINION
Rescission is an equitable remedy that requires, rather than a money judgment, fairness. If an insurance contract is acquired by a material misrepresentation or the concealment of a material fact, the court will order the contract rescinded and both parties would be placed in the same position they were in before the contract was issued. USAA failed to include in its motion to dismiss evidence that established that the misrepresentations were material. The court dismissed the bad faith cause of action because the issue was fairly debatable and at trial USAA may bring the underwriters to prove materiality and if they don’t they will pay Mrs. Williams.
(c) 2025 Barry Zalma & ClaimSchool, Inc.
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Happy Law Day
ZIFL – Volume 30, Issue 9 – May 1, 2026
Read the full article at https://www.linkedin.com/pulse/zalmas-insurance-fraud-letter-may-1-2026-barry-zalma-esq-cfe-2tywc, see the video at at and at https://zalma.com/blog plus more than 5300 posts.
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
ZIFL – Volume 30, Issue 9 – May 1, 2026
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year and is written by Barry Zalma.
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Read the full article at https://www.linkedin.com/pulse/efficient-proximate-cause-doctrine-saves-claim-barry-zalma-esq-cfe-yndlc, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.
In American Abalone Farms, LLC v. Star Insurance Company et al., H052643, California Court of Appeals, Sixth District (April 27, 2026) the Court of Appeals dealt with an insurance coverage issue that required application of the efficient proximate cause doctrine.
FACTS
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In United Services Automobile Association and State Farm Mutual Automobile Insurance Company v. Anthony Wenzell, 2026 CO 25 (Colo. Apr. 27, 2026) Anthony Wenzell was rear-ended in a car accident. He had a significant prior 2014 accident that required back surgery.
Wenzell claimed underinsured-motorist (UIM) benefits under three policies: (1) the tortfeasor’s liability policy, (2) his own primary UIM policy with State Farm, and (3) an excess UIM policy issued by USAA (under his brother’s policy, which contained an “other insurance” clause making USAA’s coverage excess over any collectible insurance).
After receiving the claims, both USAA and State Farm repeatedly requested that Wenzell execute comprehensive medical-release authorizations so they could obtain his full medical records and ...
It is Fraud to Make the Same Claim Twice
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Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
What Must be Done after Notice of a Claim is Received by the Insurer
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