Insurable Interest

Insured’s in Weatherford, Mineral Wells, Aledo, Azle, Hudson Oaks, Springtown, Willow Park, Brock, Millsap, Peaster, and other places in Parker County might wonder, what does “insurable interest” mean. Here is a case that talks about it.
The opinion in this case was issued in 2000, by the Corpus Christi Court of Appeals. The style of the case is, Colonial County Mutual Insurance Company v. Hector Valdez. Here is some background.
Colonial County Mutual Insurance Company (Colonial) appealed a judgment against them by Valdez, wherein Valdez was awarded damages. This court affirmed the judgment with some reformation. Early on, Colonial had filed a declaratory judgment action asking the court to rule there was no coverage in the case due to Valdez not having an “insurable interest.” Factually here is what happened.
Hector Valdez bought a 1992 Plymouth Acclaim in November 1994, and arranged insurance for the car with Colonial through Diego Luna Insurance Agency. An employee of the insurance agency told Hector that the car was insured “against theft, against accidents, against medical expenses, everything concerning the insurance.” A few months after obtaining this insurance, Hector sold the car to his son, Rene Valdez, for $7,000. Rene obtained a loan form Mercantile Bank in order to make the purchase. Hector called the Diego agency and told them Mercantile Bank would be calling them to make “changes” and “arrangements” on the insurance. Diego Luna testified that an employee of Mercantile Bank did call, and asked to verify insurance on the car for “a Mr. Valdez.” The bank was told that “Mr. Valdez” had insurance. Hector continued to pay insurance premiums on the car while Rene owned it. It is undisputed that Hector never told Colonial or Diego that he had sold the car to Rene. It is also undisputed that Hector was never informed, orally or in writing, that he could only insure the car if he owned it.
In November 1995, Hector’s policy was automatically renewed. On January 14, 1996, the car was stolen. Hector reported the theft and Colonial proceeded to investigate. During this investigation, Colonial discovered that Rene was the owner of the car. On March 19, 1996, Colonial sent Hector a letter informing him that “the handling of this claim is being conducted under a “Reservation of Rights” because Colonial was investigating whether Hector had an “insurable interest” in the car. On April 5, 1996, Colonial filed the declaratory judgment action for a determination of the insurable interest.
This court ruled that the Texas Insurance Code, Section 541.061, prohibits the making of any misrepresentations relating to an insurance policy by:
Failing to state a material fact that is necessary to make other statements not misleading, considering the circumstances under which the statements are made; or Making any statement in such a manner as to mislead a reasonably prudent person to a false conclusion of a material fact; or Failing to disclose the full terms of the policy.
The court held that Colonial’s failure to disclose to Valdez the fact that his car would not be insured if he transferred the title to his son is actionable under these sections.
Colonial made statements in the policy itself that indicated that the vehicle was covered. Nothing in the policy indicated that the vehicle would not be covered because of the transfer. Also, while Valdez did not know for certain whether the insurance company had been advised of the transfer to his son, he instructed the bank to contact the insurance company to verify coverage on the car at the time of the transfer. He was reasonable in assuming that the bank’s representative advised the insurance company of the transfer, that being the fundamental reason that the bank was verifying coverage. Under the circumstances, Colonial’s actions violated the insurance code sections above.
In explaining the ruling this court said that first, Colonial failed to state the material fact that transfer of title would void the insurance coverage. Statement of that material fact was necessary to make not misleading the terms in the policy showing the coverage to be effective. Thus liability under the Insurance Code is appropriate. Colonial’s failure to state, either orally or in writing, that transfer of title would void the coverage would have misled a reasonably prudent person to the false conclusion that the car was covered after the transfer. The fact that the policy itself indicated that the vehicle was still covered, and the fact that the insurance company apparently verified to the bank that the car was covered after the transfer makes this argument even more compelling. This gives rise to liability. Also, it is a violation to fail to disclose the full terms of the policy. Colonial’s conduct violated the plain meaning of this provision. Thus the court held that the evidence in the case was legally sufficient to support findings of insurance code violations based on Colonial’s failure to disclose information.
It appears that the wording in the insurance policy went a long way to helping Valdez prevail in this case. Plus he simply had a lot of other facts on his side. Often when the issue of insurability is contested by the insurance company the insurance company is going to have wording in the policy or facts in their favor. One thing that is certain. These types of cases necessitate the involvement of an experienced Insurance Law Attorney.