Standing to Sue
Misrepresentation-Life

Funeral Service Provider Lacks Standing to Sue Insurer who Funds Service Contracts.
Stewart Family Funeral Homes Ltd. v. Funeral Directors' Life Ins. Co.
No. 05-116 (E.D. Tex. January 23, 2006)

    The U.S. District Court for the Eastern District of Texas granted a motion to dismiss to a life insurer who was sued by a funeral service provider who alleged the insurer misrepresented that pre-need funeral services contracts funded by the insurer's policies were freely transferable among providers. The provider lacked standing to sue because it was neither a party nor a third-party beneficiary to the funeral services contracts.

    Stewart Family Funeral Homes Ltd. brought a class action suit against Funeral Director's Life Insurance Co. (FDLIC), alleging that FDLIC misrepresented that its pre-need funeral service contracts were freely transferable to service providers other than the provider that originally contracted to provide the services.

    Under the FDLIC funeral services contracts, funeral services are funded under FDLIC life insurance contracts. FDLIC pays the principal on the life insurance contracts to the service provider, and designated "growth" or interest to the funeral home that sold the contract. Stewart contends that this requires the service provider to accept less than full payment for services or to refuse services, harming its reputation.

    The district court noted that Stewart was neither a party nor a third-party beneficiary to the FDLIC funeral service contracts. As a result, Stewart lacks standing to contest the contracts. Moreover, although FDLIC previously made representations that the funeral services were freely transferable, FDLIC discontinued such representation prior to the initiation of Stewart's suit.

    While numerous FDLIC contracts containing alleged past misrepresentation remain in effect, Stewart cannot show that harm to Stewart from such misrepresentations would be redressed by an injunction and Stewart's misrepresentation claim is therefore moot. Accordingly, the district court granted FDLIC's motion to dismiss.

Stafford Texas Insurance Law & Litigation Alert
March 15, 2006