Articles Posted in Claims Denial

Here’s something a lot of insurance attorneys may not realize.

An oral contract to insure is valid and enforceable.  This is confirmed in the 1949, Texas Supreme Court opinion styled, Pacific Fire Insurance Company v. Donald.  The oral agreement “is presumed to be made in contemplation of a policy containing the terms and conditions in customary use, and impliedly to adopt the same, and it is on this ground that such agreements are sustained as complete and binding contracts.”

Donald brought this suit against four insurance companies, one of which is Pacific to recover for the loss of 5500 bales of hay which were destroyed by fire while stored in a building.  Donald based his action on an alleged oral contract between himself and Henry Moore, agent of Pacific. Donald prevailed at trial and this appeal followed.

Insurance lawyers want to pursue the best theories of recovery when a client has a claim wrongfully denied.  Some people just want to file a complaint with the Texas Department of Insurance.  But, there are better ways to improve the situation.

Recovery based on theories of misrepresentation were discussed in the last posting.

Another way of recovery is based on “non-disclosures.”  Closely related to misrepresentation is the theory that the insurance company, agent, or insured failed to disclose information.  For example, if an exclusion is not adequately disclosed, the insurance company may be liable for breach of contract by relying on the exclusion to deny a claim.  Failing to adequately disclose limitations or exception to coverage may also make the insurance company or agent liable for unfair insurance practices or deceptive trade practices.

Here is a 2003 case from the Amarillo Court of Appeals that deals with a situation where the spouse is innocent but an insured on the policy is committing fraud.  The case is styled, McEwin v. Allstate Texas Lloyds.

Here are the facts.

The husband and wife were both named insureds on their homeowners policy.  The husband set the house on fire but the wife was unaware of the arson and was not involved.  The proof of loss form did not inquire into whether the insureds were involved and did not reference the origin of the fire.  An examination under oath was taken from both insureds who both denied knowledge or involvement in the loss.  The husband was subsequently convicted of the arson and the couple divorced.  The insurer denied the claim presented by the wife who had received all interest in the insurance proceeds in the divorce and the wife filed suit.  The insurer argued that denial was proper based on the concealment or fraud provision of the policy, which stated in part that “this policy is void as to you or any other insured, if you or any other insured … intentionally concealed or misrepresented any material fact or circumstance, made false statements or committed fraud relating to this insurance ….”  The trial court found this provision to be unambiguous and held that the husband’s fraudulent misrepresentations, concealment and fraud voided the policy as to all insureds, thereby precluding the wife’s recovery for the fire loss.  The wife claimed she was an innocent spouse and that all policy benefits would be her separate property pursuant to the divorce decree.  She further asserted that Texas Insurance Code, Section 705.003 required that the insurer prove it waived or lost a valid policy defense based on misrepresentation in order to void the policy.  The trial court disagreed and granted the insurer’s motion for summary judgment.  This appeal followed.

As all insurance attorneys should know, intent to deceive is a requirement that has to be proved for an insurance company to deny a claim based on a misrepresentation.  Even when faced with irrefutable evidence of a misrepresentation, intent to deceive still has to be proved.  Due to the inherent difficulty in assessing the subjective mental state of an insured, insurance companies have a difficult time establishing this element of the misrepresentation defense.  Insurance companies try to take the position that the intent can be proved as a matter of law and rely on two Texas Supreme Court decisions – Odom v Insurance Company of the State of Pennsylvania and Mayes v Massachusetts Life Ins. Co.

Mayes is a declaratory judgment action brought by the insurer based on misrepresentations in the application.  The jury in this case concluded that the intent to deceive was not intended.  The insurer argued that intent was established as a matter of law because the jury found that the misrepresentations were material to the risk and relied upon by the insurer.  The Court agreed with the jury that the misrepresentation was inadvertent.

In Odom, the court made the following statement:

How long does an insurance company have to discover and assert the defense of misrepresentation?  This is discussed in a 2008, Amarillo Court of Appeals opinion styled, Myers v. Mega Life and Health Insurance Company.

Myers filed suit based upon an insurance contract issued by Mega Life.  In addition to a declaratory judgment action, Myers sought damages for breach of contract and violations of the Texas Insurance Code.  Mega Life asserted the policy was rescinded due to misrepresentation in the insurance application.

Myers asserted that Texas Insurance Code, Section 705.005 prevents Mega Life from asserting the misrepresentation defense.  This section reads:

An article ran in February 2017, that explains why people need experienced insurance lawyers to help with their insurance claims.  The article is titled, State Can’t Help With Most Unpaid Insurance Claims.

The Texas Department of Insurance claims it can help resolve complaints against insurance companies and boasts of helping Texas consumers get millions of dollars in unpaid claims every year.  However, a KXAN Investigation finds that only happens in certain situations and most of the time the state has no power to do anything at all, leaving you—the consumer—without much recourse.

In the spring of 2013, a storm swept through pummeling hail down on Carol Fredenburg’s house.  A roofing contractor told her the roof needed replacing but when she filed a claim with State Farm, they told her the damage only affected part of her roof and they would not pay for the entire roof to be replaced.  They estimated her repairs at $7,600, with a $2,841 deductible.

To sue an insurance company, a person must have “standing.”

Texas is not a direct action state.  In other words, when Fred and Ted collide in their cars, the resulting lawsuit is styled Fred vs Ted, and their respective liability insurers are not named parties.  Fred can’t sue Ted’s insurer; he has to sue Ted.  Because of the lack of privity between a liability insurer and a third-party claimant, an insurer had no duty to a third party to settle a claim brought against its insured until the insured’s liability has been established.  This was made clear by the Texas Supreme Court in 1997, in a case styled, Farmers Texas County Mutual Insurance Co. v. Griffin.  Indeed, until the liability of the insured is judicially established, a third-party plaintiff does not have standing to bring a direct action against the insurer to recover for the liability of the insured.  For further guidance there is more case law.

This rule of law is so well ingrained in the jurisprudence of the State that it is embodied within the Texas Rules of Civil Procedure.  Rule 51(b) regarding the Joinder of Claims and Remedies provides:

Rock Springs, Texas insurance lawyers would want to know about this Houston Division, Southern District case.  The opinion was issued in January 2017, and is styled, JYC Enterprise Inc. v. Allied Property and Casualty Insurance, et al.

In this case JYC sued Allied, its adjuster (Heller), and Bay Area Fire & Safety, Inc., after a fire destroyed property belonging to JYC.  The suit was filed in state court and removed to federal court by the Defendants.  The Defendants are alleging the suit against Bay Area is a fraudulent and only brought in order to defeat diversity because Bay Area is a Texas corporation.

JYC asserted claims against Allied and Heller as to the sufficiency of the payment under the policy for Business Income losses and as to disputes about the policy’s coverage.  JYC asserted a claim against Bay Area for negligence in its inspection of the fire suppression system.  Allied responded, contending that because the claim against Bay Area was fraudulently misjoined, the Bay Area claim should be severed and remanded.