Insurance Is A Contract

Fort Worth insurance lawyers will tell you that insurance policies are contracts. As such the rules regarding insurance policies are the same rules governing contracts. This was confirmed in the 1994, Texas Supreme Court case, Hernandez v. Gulf Group Lloyds.
A person seeking to recover on an insurance policy must prove the policy was in force at the time of the loss. Arguments by an insurance company that the policy had lapsed is a common reason given for it’s refusal to pay a claim.
Also, when someone sues under a policy of insurance it is important to bear in mind that the person has to prove the existence of the insurance policy. An experienced insurance attorney is always going to ask for a certified copy of the insurance policy at issue at the beginning of a lawsuit.
To prove the breach of an insurance policy / contract, the insured has to prove up:
1) the existence of the insurance contract being sued upon,
2) the insured’s compliance with the terms of the contract (this includes any requested Examinations Under Oath); and
3) that the insurance company broke the insurance contract or failed to live up to the terms of the insurance contract.
These three elements were set out in the Dallas Court of Appeals case, St. Paul Insurance Company v. Rakkar.
In Rakkar, the first and second elements of Rakkar were satisfied by uncontroverted testimony that the house was insured at the time of the fire, that the insured had paid his premiums, that the insurer had refused to pay, and that the amount that would have been paid was the policy limits. The insurance company denied the claim, contending that the insured intentionally caused the fire. When the jury rejected this defense, that established the third element which was the insurance company breach of the insurance contract.
An insurance policy is a written contract. Regarding oral contracts related to insurance, they are enforceable also. In the 1949, Texas Supreme Court case, Pacific Fire Insurance Company v. Donald, the court ruled that the insurance agent agreed to insure Donald’s hay. The agent’s usual practice was to send a bill the next month, or even the month after that. The hay burned before any bill was sent to Donald. The court found sufficient evidence of an oral contract based on the agent’s agreement to provide insurance. It did not matter that rates were not agreed to, because the rates were set by law. The change in the insured location also did not matter, because that would only effect the rate, not whether there was coverage.
As said at the beginning, insurance policies are contracts. Anytime you see the word “policy,” it is appropriate to insert the word “contract” in it’s place. As a contract, the policy is subject to the rules of construction and interpretation the same as those of any other contract.
Another rule of contracts that is very important in the insurance context is this: A contract is interpreted against the drafter of the contract. The law presumes that the entity that drafted the contract knew what they meant and thus the burden is on the them to make that meaning clear to the other party. As a result, courts have the responsibility of finding in favor of coverage when an ambiguity exists in a contract. Of course, this is one very big reason for having an experienced Insurance Law Attorney involved anytime an insurance company denies a claim.