Texas insurance lawyers will sometimes find themselves in a situation where there was no insurance on a piece of property. When this happens, the next question is why isn’t there insurance. Then, who is responsible for getting the coverage. This was the issue in a 1976, Texas Supreme Court opinion styled, Colonial Savings Association v. Taylor. Here is what happened.
This controversy arose because a house owned by, Mr. Taylor, which was destroyed by fire, was not insured. Mr. Taylor sued Colonial, contending that Colonial had gratuitously assumed responsibility for insuring the house and had negligently failed to do so. Trial was to a jury, which returned a verdict with answers favorable to Mr. Taylor, but the trial court entered judgment Non obstante veredicto for Colonial.
The property involved is located at 846 East 26th Street in Houston. There are two houses at this address, an older house near the street and a newer house behind it. Taylor purchased the property in 1967 from Mr. and Mrs. James E. Reynolds, taking title subject to a prior outstanding lien held by Colonial. In consideration for the conveyance Taylor made four over-due payments to Colonial on the Reynolds note which the property secured. Pursuant to the conveyance, Colonial transferred the mortgage loan to Taylor’s name, and he was made all subsequent payments thereon.
Under the deed of trust held by Colonial, Mr. and Mrs. Reynolds, as grantors, agreed to keep the property insured against fire in an amount sufficient to protect Colonial’s security interest, and that, if grantors failed to obtain such insurance, Colonial could purchase insurance and add its cost to the monthly mortgage payments.
Taylor testified that, when he purchased the property, Mr. Reynolds told him that Colonial had purchased fire insurance and was charging for the premiums along with the mortgage payments. On July 23, 1968, Taylor received the following letter from Colonial:
Mr. Waymon Joel Taylor, Sr.
1232 Richelieu Street Houston, Texas Re: Loan 800–0068 Property 846 E. 26th St.
Sunset Heights Dear Mr. Taylor:
The insurance coverage on the above captioned expired today and we have bound $8,700.00 coverage with our agent on this property.
Please let us know if you now live on this property. If you do reside at this address you may with to have this coverage written as a home owners instead of a straight fire policy.
Let us know in order that we may have the agent write this coverage.
Taylor further testified that after receiving this letter, he informed a representative of Colonial by telephone that he did not reside on the property; he asked the representative about liability coverage for the property, and was referred to the agent who had obtained the fire insurance for Colonial, Mr. C. M. Burton. Taylor talked to Burton about liability insurance but did not purchase any. A few days later Taylor received by mail a memorandum of the fire insurance policy, issued by United States Fidelity and Guaranty Company through its agent Mr. Burton. The policy was effective from July 23, 1968, to July 23, 1971. It provided $8,700.00 in coverage (the amount outstanding on the Reynolds note) and described the property insured as a one-story composition asbestos siding building at 846 East 26th Street in Houston. It is undisputed that this policy covered only the older, larger house on the property, and not the smaller house on the back of the lot. Taylor testified that when he received this policy he only glanced at it to see that it referred to the 26th Street property, and filed it away without examining it further. There was no further correspondence on the subject of insurance until January 7, 1971, when the smaller, uninsured house was substantially damaged by fire. Only after the fire, according to his testimony, did Taylor learn that the house was not covered by the insurance policy which Colonial had obtained.
Taylor sued Colonial, alleging that it was negligent through its agents in failing to purchase a policy of insurance covering the damaged property, and that Colonial’s negligence was a proximate cause of his loss. Colonial contended that it had no duty to provide insurance coverage for Taylor, and that Taylor did not reasonably rely on their letter of July 23, 1968, in failing to obtain his own insurance coverage. Trial was to a jury, which found in answer to special issues that:
(1) Colonial ‘undertook to provide fire insurance coverage on Mr. Taylor’s premises’;
(2) Colonial or its representatives ‘were aware that there were two structures on the premises’;
(3) Colonial or its representatives ‘failed to relay this information to the C. M. Burton Insurance Agency’;
(4) ‘The failure to relay this information to the C. M. Burton Insurance Agency was negligence’; and (5) This ‘negligence was a proximate cause of Mr. Taylor not being able to recover for the fire loss to his property.’
The jury failed to find that Taylor ‘failed to make that examination of his policy of insurance as would have been made by a person of ordinary prudence in the exercise of ordinary care would have made under the same or similar circumstances.’
The jury also failed to find that Taylor was negligent in failing to obtain insurance on the damaged house. The jury found that the reasonable cost of repairs to the house was $5,594.20.
Colonial first contends that Taylor’s claim is ‘barred by his ratification of the contents of his insurance policy, through inaction, while having the policy in his possession for approximately two and a half years.’
Some Texas cases hold that “One who holds a policy of insurance for several years, or even months, without ascertaining that it was not the policy he ordered, must be deemed to have accepted it in the form in which it was actually issued.”
It has been held by some courts that an insured has a legal duty to read his insurance policy, and that if he accepts the policy without objection, he cannot later seek its reformation on the ground that the prior agreement of the parties provided for a different coverage.
An insured who accepts a policy without dissent, is presumed to know its contents, but the presumption may be overcome by proof that ‘he did not know its contents when it was accepted, as by showing that when he received it he put it away without examination, or that he relied upon the knowledge of the insurer and supposed he had correctly drawn it.’
This Court ruled that although Colonial was not an insurance agent or insurer issuing a policy to Taylor for consideration, Colonial did voluntarily undertake to provide insurance coverage for Taylor’s property, and in this undertaking Colonial’s duty was similar to that of an insurance agent. Taylor’s testimony that he put the policy memorandum away without reading it destroyed the presumption that he was aware of its provisions, and because he did not read the policy he could not ‘ratify’ its contents.
Taylor’s theory of recovery is based, not upon the deed of trust, but upon Colonial’s letter of July 23 in which it stated that ‘we have bound $8,700.00 coverage with our agent on this property.’ Taylor contends that Colonial gratuitously undertook a duty, as shown by this letter, to provide coverage for all of his property at 846 East 26th Street, including the house which was damaged by fire. Taylor’s theory of recovery, as revealed by the issues submitted to the jury, was based on the rule that one who voluntarily undertakes an affirmative course of action for the benefit of another has a duty to exercise reasonable care that the other’s person or property will not be injured thereby.
One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other’s person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if (a) his failure to exercise such care increases the risk of such harm, or (b) the harm is suffered because of the other’s reliance upon the undertaking.
The jury found that Colonial Had undertaken to provide fire insurance coverage for both houses, and the letter of July 23 is support for that finding. It necessarily follows that Colonial, having undertaken to obtain coverage, had a duty to exercise reasonable care to perform this undertaking.
This Court held, therefore, that Colonial cannot be liable for Taylor’s loss unless Taylor forbore from obtaining his own insurance in reliance upon Colonial’s undertaking to obtain it for him.
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