Articles Posted in Interpreting An Insurance Policy

Whenever an insured is sued, the insured must provide notice to the insurance company.  Here is a case where the insured did not do so.  The 2020, opinion is from the 14th Court of Appeals and is styled, Krystle D. Lewis, Individually and as Next Friend of Eliseo Lewis and Chrishelle Wortham v. ACCC Insurance Company.

After obtaining a default judgment against another driver for her injuries, Lewis sued the other drivers insurance company, ACCC.  The trial court granted summary judgment in favor of ACCC on the fround that the insurer was prejudiced as a matter of law by the insured’s failure to notify ACCC of the lawsuit and request a defense.  Lewis maintains that ACCC was  not prejudiced as a matter of law because she, as a third-party beneficiary of the policy, gave ACCC actual notice of the lawsuit, notice of the pending motion for summary judgment, and notice of the hearing on unliquidated damages.  This Court affirmed the trial court and explained why.

Like many liability policies, ACCC’s policy requires the person covered by the policy to promptly send the insurer “copies of any notices or legal papers received in connection with [an] accident or loss” and cooperate with the insurer “in the investigation, settlement or defense or any claim or suit.”  The policy states that ACCC may deny coverage if ACCC can show that the covered person’s failure to comply with those terms materially prejudiced the insurer.

To answer the question above, let’s first look at third parties.  In the 1994, Texas Supreme Court opinion styled, Allstate Insurance Company v. Watson, the Court declined to let a third party tort claimant sue the tortfeasor’s liability insurer.  The Court held that the third party could not sue as a “person” under the statute.  This conclusion was in part based on the court’s construction of the statute, and in part based on the Court’s concern that creating a duty owed by the insurer to the injured third party would conflict with the duties owed by the insurer to the insured.

In 1995, the Texas Legislature codified the holding in Watson.  The unfair settlement practices prohibition, in Texas Insurance Code, Section 541.060(b),  now specifically states that it “does not provide a cause of action to a third party asserting one or more claims against an insured covered under a liability insurance policy.”

What about persons who rely on representations made by the insurance company?

An intended beneficiary of an insurance policy may sue under the Texas Insurance Code for any resulting harm.  This is made clear in the 1996, 5th Circuit Court of Appeals opinion styled, Palma v. Verex Assurance , Inc.  After reviewing Texas cases and other Fifth Circuit cases, the court concluded that “if the Texas Supreme Court were presented with the question before us it would hold that standing under Article 21.21 is satisfied by not only those who can establish privity of contract or reliance on a representation of the insurer, but also by those who can establish that they were an intended third party beneficiary of the insurance contract.”  The court set out the standards under Texas law for third-party beneficiary status this way:

1) the claimant was not privy to the written agreement between the insured and insurer;

2) the contract was made at least in part for the claimant’s benefit; and

Lawyers who handle insurance claims need to know how insurance and other related laws are interpreted by the Courts.

The Texas Supreme Court made clear in its 1995 opinion styled, State Farm Life Insurance Co. v. Beaston, that the Insurance Code sections the Texas Deceptive Trade Practices Act (DTPA) were adopted together in 1973 as part of a package to reform legislation, are interrelated, and incorporate each other.

The Insurance Code provisions are to be be liberally construed and applied to promote the underlying purposes to define and prohibit unfair and deceptive insurance practices, according to the 1988, Texas Supreme Court opinion styled, Vail v. Texas Farm Bureau Mutual Insurance Co.  This is also made clear in Insurance Code, Section 541.008.

Most property insurance policies contain appraisal clauses.  These clauses define a process for appraising the value of the damaged property, if the parties cannot agree.  Common provisions call for each party to choose an appraiser.  Those appraisers then choose a neutral third appraiser, called the umpire.  If the parties or their appraisers cannot agree on an umpire, either party may petition a court to appoint one.  Once the appraisers and umpire are chosen, they value the loss.  If all do not agree on the value, the decision of any two will control.  A 1938, Waco Court of Appeals opinion describes the process saying the intent is to give the insurer and insured a simple, speedy, and fair means of deciding disputed value.  This opinion is styled, Fire Association of Philadelphia v. Ballard.

The San Antonio Court of Appeals in a 1994 opinion styled, Providence Lloyds Insurance Company v. Crystal City, says that when the two appraisers do not agree, the umpire does not simply choose between them.  It is the duty of the umpire to ascertain and determine, in the exercise of his own judgment and as the result of his own investigation, the values of the disputed items.

The 14th Court of Appeals tells us in a 1974 opinion styled, Standard Fire Insurance Co. v. Smith, that either party may seek specific enforcement of the appraisal clause, and the court will abate any pending lawsuit and compel the parties to submit to the appraisal process.  In 1979, the same court said in, Standard Fire Insurance Co. v. Fraiman, that in addition, an insured may recover consequential damages sustained as a result of the insurer’s failure to comply with the appraisal clause.

The San Antonio Court of Appeals issued an opinion in a case wherein the facts were similar to what happens all across the State of Texas in auto cases.  The opinion is styled, Infinity County Mutual Insurance Company v. Michael Tatsch.

This is a summary judgment opinion wherein the sole issue was whether the trial court erred in concluding the insurance policy exclusion for damage to a vehicle resulting from or caused by mechanical breakdown or failure did not apply to Tatsch’s claim.

The background facts should be read but in the essence is that Tatsch had a truck with a diesel engine that broke down immediately after he had refueled.  There was some evidence of the break down being the result of water in the fuel and some evidence of a few other possible fuel issues.

Here is a case that is seen frequently.  It will be interesting to see if this is what all Federal Courts faced with this situation decide.  This opinion is from the Northern District of Texas, Dallas Division, and is styled, Sharon Wihlenmaier v. Allstate Indemnity Company.

Plaintiff filed her Original Petition in State District Court against Allstate alleging that Allstate improperly denied her uninsured/underinsured motorist benefits (UIM) arising out of a vehicle accident.  The Original Petition states that Plaintiff seeks monetary relief over $200,000.00 but not more than $1,000,000.00.  Allstate’s policy limits for UIM benefits in the policy at issue are $30,000.00.  Allstate timely removed the case from the State Court to this Federal Court and Plaintiff filed her Motion to Remand.

Stating the law, the Court said that pursuant to 28 U.S.C., Section 1441(a), it has jurisdiction over the matter if the amount in controversy exceeds $75,000.00 and the parties are diverse.  Here, Allstate is a citizen of another state, so diversity exists.  The next issue to decide is whether the amount in controversy exceeds $75,000.00.

Interpreting an insurance policy is sometimes difficult at best.  Different people will read the same words in an insurance policy and believe the words say different things.  What is important to an insurance lawyer is how the Courts read and interpret insurance policies.  The Northern District of Texas, San Angelo Division, issued an opinion in May of 2020 that deals with this topic.  The case is styled, National Liability & Fire Insurance Company v. John Young d/b/a Rio Restaurant Group, et al.

This case is a declaratory judgement action filed by National.  National filed a motion for summary judgment which was denied.

In this case, National is being asked by Young to defend a lawsuit.  National asserts it does not have a duty to defend or indemnify.  Under Texas law, the “eight corners rule” governs whether an insurer has a duty to defend or indemnify in an underlying lawsuit.

Insurance Lawyers who who handle claims made through Renters Insurance policies should know there is a new kind of renters insurance coming into the marker.  Traditional Renters Insurance covers break-ins, thefts, floods, and various other types of claims to the personal property of a renter.  The new kind of renters policy is coverage for the rent.

The National Law Review published an article in May 2020, that is titled, “Rent Guarantee Insurance — A Solution For Landlors?”.  The article tells how the Chinese virus pandemic is having a profound impact on both insurance companies and their insureds with a multitude of claims having already been made and denied.  Parties that have been especially hard hit financially by the pandemic are the owners of retail shopping complexes that have multiple tenants, many of which have had to close because they are “non-essential” businesses under government emergency orders.  This has resulted in a loss of rental income to these owners as landlords.  While these landlords may have business interruption insurance as part of the commercial property, the pandemic is proving that whether business interruption insurance provides coverage is uncertain.  This uncertainty may ultimately only be resolved by court rulings made in connection with litigation proceedings.  Accordingly, given the fact that events such as the Chinese virus pandemic may occur again, commercial landlords may wish to consider rent guarantee insurance for protection.

Leases often provide that if the leased premises are damaged by a fire or other casualty event, the tenant’s obligation to pay rent will abate during the period that the leased premises are repaired and restored.  In this situation, a landlord desires to have a source of funds to replace the rent payments that it does not receive from a tenant during the period the rent abates.  Rent loss insurance can be a means to cover the risk associated with the lost rent.  As with business interruption insurance, however, there typically must be physical damage, e.g., fire to the landlord’s property.  Further, rent loss insurance may exclude coverage for loss of rent due to certain types of damages.  For example, some rent loss insurance policies do not cover water damage that creates mold because of a water leak that the landlord failed to repair.  Of particular significance is the fact that that rent loss insurance pays the fair market rental value of the leased premises, which may be less than the amount of rent the tenant is obligated to pay under the lease.