Insurance lawyers need to know some of the more obscure areas of the Texas Insurance Code. A United States 5th Circuit of Appeals case dealt with the “Anti-Technically” Statute recently. The case is styled W.W. Rowland Trucking Company, Inc. v. Max America Insurance Company. Here is the relevant information.
Rowland transported a load of video game consoles valued at $354,000 from Marshall, Texas, to its Dallas, Texas terminal. Thieves stole the tractor/trailer loaded with the consoles while it was located at the Dallas terminal. At the time of the theft, Rowland had an insurance policy with Max America, also known as Alterra. The Policy’s section entitled “Coverage” provides for “Legal Liability Coverage,” which covers Rowland’s [L]egal liability for loss to covered property: a. while under [Rowland’s] care, custody, and control; [and] b. that [Rowland] become[s] legally obligated to pay as a common or contract carrier under a bill of lading, contract of carriage, or shipping receipt that is issued by [Rowland] or that is issued on [Rowland’s] behalf.
Under the “Property Covered” section, the Policy provides coverage for “Property in Vehicles,” defined as “direct physical loss caused by a covered peril to property of others described on the ‘schedule of coverages’ while in due course of ‘transit’ including loading and unloading.” The Policy also provides that all eight of Rowland’s terminals must be “100% fenced, gated, locked and lighted 24 hours per day, 7 days per week,” or else the “[c]overage is null and void.” The Policy had a limit of $300,000, and included a $2,500 deductible.
Following the theft, Rowland filed a claim with Alterra. Alterra investigated the loss and determined that the thieves entered and left the property by cutting a hole in the fencing along the eastern perimeter of the Dallas terminal. However, Alterra ultimately denied the claim because it discovered that there were gaps in the fence along the southern and western perimeters in violation of the Policy’s fencing provision. Rowland subsequently filed this lawsuit in state court alleging negligence, breach of contract, and violations of the Texas Insurance Code and the Texas Deceptive Trade Practices-Consumer Protection Act.
Alterra argues that the district court erred in applying Texas Insurance Code § 862.054, also known as the Anti-Technicality Statute, to Rowland’s insurance claim because, according to Alterra, the statute applies only to property insurance coverage and not to liability insurance coverage. The Anti- Technicality Statute provides:
Unless the breach or violation contributed to cause the destruction of the property, a breach or violation by the insured of a warranty, condition, or provision of a fire insurance policy or contract of insurance on personal property, or of an application for the policy or contract: (1) does not render the policy or contract void; and (2) is not a defense to a suit for loss.
The district court applied the Anti-Technicality Statute to Rowland’s insurance claim, explaining that the statute uses the phrase “personal property” in contrast to “real property,” and the stolen property at issue was “clearly” not real property, so the statute applied. The district court also found that Rowland, as a common carrier, acted as a bailee for the cargo owner, so Rowland maintained all of the rights and responsibilities of a legal owner. Such rights include “the right to recover the full value of bailed goods as though it was the owner.” Additionally, in response to Alterra’s claim that the statute did not apply to liability policies, the district court commented that none of the legal sources on which Alterra relied expressly supported its position. The district court interpreted the statute to mean that “recovery depends on the loss suffered–as opposed to the type of insurance chosen.” Since Alterra had not shown that the pre-existing gaps in the fence aided in the theft, under the statute, the Policy was still valid and Alterra’s failure to pay Rowland for the claim amounted to a breach of contract. On appeal, Alterra argued that the insurance contract with Rowland is a liability policy and, as such, the Anti-Technicality Statute does not apply. Rowland counters that the Policy is a property policy. Texas law distinguishes between property insurance and liability insurance. “A policy of property insurance is a personal contract for indemnity for the insurable interest possessed by the insured at the time of the issuance of the policy, and also at the time of the loss.” “Coverage in a property policy is commonly provided by reference to causation, such as ‘loss caused by . . .’ certain enumerated forces. It is precisely these physical forces that bring about the loss.” Liability insurance provides coverage based on “traditional tort concepts of fault, proximate cause, and duty.”
Policies that reference the insured’s “legal liability” are not by default liability insurance contracts. In Texas, “[p]olicy provisions covering property contained in specific places and ‘for which the insured is liable,’ have been held to insure against loss of the property and not to indemnify insured against his legal responsibility in tort or by contract to the owners of the property.” This is because an insured bailee may sue for losses and account to the owner. In fact, absent limiting language in an insurance policy, “Texas law presumes that a bailee has insured both its interest and the bailor’s interest when the bailee takes an insurance policy on the bailed goods.” Policies that insure against the theft of property belonging to a third party while under the control of the insured have previously been considered property policies under Texas law.
As a bailee, Rowland had an insured interest in the stolen video game consoles. Thus, the relevant portions of Rowland’s Policy covering those consoles amount to property insurance, not liability insurance. Therefore, this court held that the district court properly applied the Anti-Technicality Statute.
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