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Jury Awards $114M in United of Omaha Rescission Case

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What You Need to Know

  • A woman died less than two years after she bought life insurance.
  • The case involves how courts, and juries, apply contestability period rules, which limit when insurers can challenge policy applications.
  • United of Omaha says it will file an appeal.

A state court jury in Harrison County, Texas, awarded $113.85 million to the plaintiff Friday in a case involving a dispute over payment of life insurance death benefits.

The plaintiff, Johnny Costello, has been trying to collect death benefits under a $500,000 life insurance policy that United of Omaha Life Insurance Company issued to his late wife, Fatima Costello.

United of Omaha is a subsidiary of Mutual of Omaha.

Daly & Black, the law firm that led Johnny Costello’s legal team, said in an announcement of the verdict that the jury award sends a message to insurance companies on behalf of all wronged policyholders. “In fact, the jury here was only one vote short of a $1 billion punitive damages award,” the firm said.

United of Omaha said in a statement that it will appeal the verdict.

“The vast majority of the jury’s damage award was in the form of bad faith damages, despite no evidence of any wrongdoing by United of Omaha to support such damages,” the company said in the statement. “United of Omaha believes its actions were proper and fully compliant with Texas law, and that the decision will be reversed by the Texas Court of Appeals.”

The Claim Dispute

Fatima Costello had a United of Omaha life policy that was issued Oct. 1, 2002, according to a state appeals court opinion that was issued in connection with the case in February 2014 and is available behind a paywall.

She died from a heart attack July 2, 2003.

United of Omaha sent a letter seeking information about Fatima Costello’s death July 15, 2003.  The company then denied the claim and rescinded the policy in a letter sent to Johnny Costello Nov. 10, 2003.

Costello sued Sept. 3, 2004, contending that he should get the death benefits.

United of Omaha responded in October 2004 with a general denial of the allegations. In 2006, the company said it believed that it should not have to pay because Fatima Costello had misrepresented the state of her health, according to the appellate court opinion.

United of Omaha said Costello had failed to tell it that she had received more than one abnormal lung health test and and had failed to disclose that she had a history of chronic obstructive pulmonary disease, or COPD.

Costello argued that the two-year contestability period, or limit on when insurers can challenge policies, should apply, because United of Omaha had not brought up allegations of misrepresentation until 2006.

A trial court ruled that United of Omaha had brought up the issue of misrepresentation too late and could not use that as an affirmative defense. The trial court granted summary judgment on Johnny Costello’s breach of contract claim.

A Texas state appeals court found, in 2014, that United of Omaha could bring up the issue of misrepresentation. The appeals court overturned the trial court’s ruling and sent the case back to the trial court level for further consideration.

Johnny Costello brought in lawyers at Daly & Black to serve as his lead counsel. His legal team secured a jury trial that began last week.

(Image: Shutterstock)