People who buy insurance in Grand Prairie, Arlington, Fort Worth, Mansfield, Hurst, Euless, Bedford, Grapevine, Mesquite, Richardson, and other places in the DFW metroplex area need to make sure the named insured on an insurance policy is the person or business who needs to be covered by the policy.
A 1991, case decided by the Houston 14th, Court of Appeals, serves as an example of making sure the correct person or entity is named on the insurance policy. The style of the case is, St. Paul Lloyd’s Insurance Company v. Fong Chun Huang, Individually and as Trustee for Teppan Yaki Management. Here is some background information to know on the case.
St Paul’s denied coverage under its insurance policy claiming Fong Chun Huang was responsible for the burning of the Happy Buddha Restaurant. Fong sued St. Paul’s for failure to pay on the policy and for breach of the duty of good faith and fair dealing. The trial court awarded damages to Fong for the cash value under the insurance policy. The trial court further reformed the insurance policy to change the named insured from Fong Chun Huang, individually, to Teppan Yaki Management, Inc., which was the apparent true owner of the restaurant.
On this appeal, the appeals court reversed the trial court on its decision to reform the names on the insurance policy. Fong’s argument was that the wrong name on the insurance policy was the result of mutual mistake and thus was reformable.
St. Paul argued that when Fong applied for insurance on the Happy Buddha restaurant, he represented to St. Paul’s that he was the owner of the restaurant. The policy was issued in Fong’s name, doing business as the Happy Buddha restaurant. Teppan Yaki Management, however, owned the Happy Buddha. Fong is a thirty percent shareholder in Teppan Yaki Management. The jury found a mutual mistake and the trial court reformed the insurance policy to reflect Teppan Yaki Management as the insured.
In discussing this case this court stated the law as it relates to this issue. Citing the Texas Supreme Court, “The underlying objective of reformation is to correct a mutual mistake made in preparing a written instrument, so that the instrument truly reflects the original agreement of the parties. Reformation requires two elements: (1) an original agreement and (2) a mutual mistake, made after the original agreement, in reducing the original agreement to writing.”
In making this ruling the court stated it could “find no evidence of a mutual mistake.” The record supports a finding of a unilateral mistake on Fong’s part. The application submitted to St. Paul’s, and the insurance policy, listed the insured as “Fong Chun Huang, an individual, dba The Happy Buddha. Fong admits he made a mistake in not telling the insurance agent that Teppan Yaki Management owned the Happy Buddha. There was no evidence that Fong and the agent intended to name Teppan Yaki Management as the insured. Therefore, there can be no mutual mistake and the reformation of the insurance policy is against the law.
As further information, because reformation is improper, Fong can only recover his insurable interest: thirty percent of the loss. The court went on to say, “A fire insurance policy is a personal contract between the insurer and the insured named on the policy, and a stranger to the policy may not ordinarily maintain a suit on it.” It was undisputed that Fong owned only thirty percent of the stock in Teppan Yaki Management. Thus Fong is limited to recovery of only thirty percent of the loss.
The value in this case is understanding that only the person or entity or intended beneficiary named on an insurance policy is entitled to recover proceeds from that policy in the event of a loss. For those who act in various capacities, such as individually, as a trustee, a business, or corporation or whatever, need to make sure the insurance policy reflects the correct person or business to be insured.
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