Insureds in Grand Prairie, Fort Worth, Hurst, Euless, Bedford, Grapevine, Saginaw, Rhome, Lake Worth, Burleson, and other places in Texas have very little knowledge of the remedies available to them when their insurance company refuses to defend them in a law suit. One of those remedies might surprise them.
This surprise can be found in a case styled, Luxury Living, Inc. v. Mid-Continent Casualty Company. This is a 2003, case heard by a Federal Court in the Southern District of Texas. Here are some of the facts:
Luxury Living, Inc., a home builder. was sued by a homeowner alleging defects in construction that resulted in physical injury to the home. Mid-Continent refused to defend Luxury Living on the ground that the claim asserted by the third-party homeowner was not covered by the insured’s commercial liability policy. The insured, Luxury Living, filed this action seeking declaratory judgment that the insurer, Mid-Continent, has a duty to defend the insured and for damages, including reimbursement of the insured’s defense costs to date, 18% statutory penalty on those costs for wrongful denial of the claim, and attorney fees to date. The insurer responded that because the homeowner’s claims were not covered by the policy, the duty to defend was not triggered. Additionally, the insurer asserted policy exclusions that preclude coverage for damages arising out of installation of the Exterior Insulation Finish System (“EIFS”). Finally, the insurer argued that statutory penalties do not apply to third-party claims. Both sides moved for summary judgment.
In it’s holding, the district court granted the insured’s motion for summary judgment, held that the insured was entitled to reimbursement of its defense costs and attorney fees incurred to date, and awarded the 18% penalty on all defense costs. Applying the “eight corners” rule, the court found that the commercial general liability insurer had a duty to defend a homeowner for claims arising from negligent work which constituted an “occurrence” under the policy, absent an exclusion. The court also found that the EIFS allegations did not implicate the “damage to property” and “damage to work” exclusions in the policy and, therefore, the duty to defend applied. Finally, the court rejected the insurer’s argument that statutory penalties provided for late payment of claims under Texas Insurance Code, Section 542.060 do not apply in this instance as involving a third-party claim. The court noted that although the statute does not define “first party,” a claim is defined as “a first party claim made by an insured or a policyholder under an insurance policy … that must be paid by the insurer directly to the insured or beneficiary.” Thus, the court found that an insured’s claim for reimbursement of defense costs from its liability insurer constitutes a “first party” claim and held that the statutory penalty applied to attorney fees as part of the defense costs incurred to date.
This case might also be confusing. It’s value is in understanding a way that the insurance laws of the State of Texas can go a long ways to helping an insured in Texas when the insurance company refuses to assist in a claim. This case is a little more nuanced in the way an attorney can help an insured get what they bargained for in the insurance contract, plus a penalty on the insurer for playing games instead of stepping up and doing what they should have done in the first place. Hopefully, an experienced Insurance Law Attorney is aware of this case and how it can help clients who find themselves in this or a similar situation.
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