Dallas Fort Worth Insurance Lawyer Blog

Insured people in Weatherford, Fort Worth, Grand Prairie, Mineral Wells, Springtown, Azle, Aledo, and other places in Tarrant and Parker Counties might understand a little more about misrepresentation after reading about the case here.
The case is styled, Tellez v. Encompass Insurance Company of America.
This opinion was issued by the United States Federal District Court, Eastern District, in 2004. Here are some of the facts.
On December 25, 2000, an ice storm damaged Scott and Johnece Tellezs' home. On December 28, 2000, they filed a claim for damage to a chain link fence, boat, and vehicle due to damage from fallen trees. Additionally, the Tellezs filed a claim for food spoilage and water damage due to leakage from a water pipe. At the time of the loss, the Tellezs' home was insured by Encompass under a policy period of July 16, 2000 to July 16, 2001. Encompass paid these initial claims.
On June 17, 2002, the Tellezs filed a new claim alleging that they had discovered mold damage to their home due to the December 2000 ice storm. Encompass initially denied the claim based on the Tellezs late notice and the mold and surface water exclusions in the policy. Encompass also disputed whether the mold was caused by the 2000 ice storm. Subsequent to Encompass' denial of the claim, the Tellezs brought suit alleging violations of the Texas Insurance Code and the Texas Deceptive Trade Practices Act. In an amended complaint, the Tellezs alleged six other counts of violations under the Texas Insurance Code. Encompass filed a motion for summary judgment and the court granted the motion.
The court held that the Tellezs misrepresentation causes of action failed because they were unable to identify any action that would constitute misrepresentation. Their contention was that Encompass's misrepresentation was hiring a second expert after Encompass' first expert agreed with the Tellezs' that damming had caused the mold damage. Encompass pointed out that the Tellezs were unable to identify any misrepresentation and their only complaint was that the claim was not paid. The court granted summary judgment on the misrepresentation claims holding that mere nonperformance of a contract is not actionable under the Texas Deceptive Trade Practices Act. Further, misrepresentation of the terms of a contract itself does not create a claim under the DTPA. In order to have a claim under the DTPA, the misrepresentation must be material.
The court granted the remainder of Encompass' motion for summary judgment on the basis that the Tellezs did not make their claim for mold damage until more than a year and a half had elapsed since the storm. The policy issued by Encompass required prompt notice. Tellezs contended that the claim was prompt because the mold damage did not manifest until then and thus it would have been impossible to file a claim before this date. Encompass countered this argument by noting that even if this allegation were true, then the claim arose after the period of coverage had expired thus warranting summary judgment under either of the Tellezs theories.
The court held that the injury occurs at the time of manifestation. The court looked to the Fifth Circuit's opinion in American Home Assurance Company v. Unitramp Ltd., a 1998 case, in which the Fifth Circuit held that the time of occurrence is when the damage occurs, not when a wrongful act is committed. The court noted that while the Texas Supreme Court has never ruled on this issue there were two Texas Courts of Appeals cases holding the same as American Home and that the Fifth Circuit has specifically relied on one of those cases.
As a result of the holding that the injury occurs at the time of manifestation, the court held that the Tellezs injury manifested outside of the policy period and granted Encompass' motion for summary judgment. The court also held that the failure of the breach of contract claims necessitated the same ruling on the other extra-contractual claims brought by the Tellezs.

When someone in Grand Prairie, Weatherford, Fort Worth, or anywhere else in the north Texas area suffers an insured loss, how long do they have to report the claim to their insurance company? The answer is a lawyers answer: It Depends.
The Fifth Circuit Court of Appeals dealt with this issue in an opinion it issued in 2005. The style of the case is Ridglea Estate Condominium Association v. Lexington Insurance Company. Here are some of the facts.
In July 2001, after receiving notice from a roofing inspector that its building in Fort Worth, Texas has suffered hail damage, Ridglea filed an insurance claim with its carrier Chubb Custom Insurance. Upon its inspection, however, Chubb informed Ridglea that the damage was not caused by the more recent storm but rather by a storm that occurred on May 5, 1995. Ridglea did so and filed the claim with the 1995 carrier, Lexington Insurance Company. Lexington's inspection revealed that the damage did not exceed the deductible and that there was not sufficient evidence that the damage occurred in 1995 and denied the claim. After about a year's worth of negotiations involving Ridglea and all its insurers, Ridglea made a final demand. Lexington again denied the claim and brought a declaratory judgment action seeking a ruling that it was not liable for the damage. Both parties moved for summary judgment and the trial court granted summary judgment in favor of Lexington holding that Ridglea had failed to comply with the notice requirements contained in the policy. Ridglea appealed to the U.S. Court of Appeals for the Fifth Circuit.
The Fifth Circuit affirmed the trial court's finding that a delay of six years before filing a claim was unreasonable, but reversed and remanded the case for a determination of whether Lexington was prejudiced by Ridglea's delay. The Court noted that Ridglea's own expert testified that the damage caused by the 1995 hail storm was severe enough that it required replacing the roof and that the damage would have been evident then. Further, Ridglea's expert also testified that the 1995 storm broke windows, chipped shutters, and even damaged automobiles in the area of Ridglea's property. As a result, the Fifth Circuit held that the damage was sufficient evidence in May 1995 that Ridglea's delay in notifying its carrier was not reasonable.
The court rejected Ridglea's argument that the policy's notice requirements violated public policy. Ridglea attempted to argue that because of Section 16.071 of the Texas Civil Practice & Remedies Code that prohibits any contractual requirement requiring less than 90 days. The Court rejected this argument. The Court further distinguished between notice of a claim and notice of an occurrence that may or may not result in liability. The Court also rejected Ridglea's argument that the policy provision was ambiguous and should be construed against Lexington noting that Texas courts have always interpreted prompt notice within a reasonable period of time.
The Court did, however, accept Ridglea's argument that even if its notice was unreasonable, Texas law required Lexington to show prejudice in order to raise the notice defense. This is in accordance with a Texas Department of Insurance Order No. 23080 requiring an additional endorsement that states that the notice requirement will not bar coverage unless the insurer is prejudiced by the delay. Further, the Texas Supreme Court has held that an insured's violation of the settlement without notice provisions do not bar recovery unless the insurer can show prejudice. As a result, the court remanded the case to the trial court to determine whether Ridglea had raised issues of fact on whether Lexington was prejudiced so as to preclude the granting of a summary judgment motion.

If you are in Grand Prairie, Arlington, Fort Worth, Roanoke, Keller, Colleyville, Saginaw, or some other place in Tarrant County or Texas and find yourself in some financial trouble, it may be that you find yourself letting your homeowners insurance lapse. If that happens the mortgage lender on your home will buy what is called a force-placed insurance policy and charge you with the premium. There are a bunch of problems when this happens. Two of these problems are real important to you.
First, is that force-placed insurance is very expensive and you are responsible for paying it.
Second, is that a force-place policy covers the mortgage holder not you. In other words, none of your personal property or the contents of the house is covered in the event of a fire loss. Further, if you are sued by someone, the insurance does not cover you. If you get burglarized, you are not covered.
The New York Times published an article on January 21, 2011. The author is Gretchen Morgenson. The title of the article is "Hazard Insurance With Its Own Perils."
Here is some of what the article tell us.
One of the richest and most secretive sources of profit in the mortgage business is coming under scrutiny.
Investigators into this industry are looking into these force-placed insurance policies.
Benjamin Lawsky, the superintendent of the New York State Department of Financial Services, is investigating institutions that underwrite and sell force-placed insurance. Last fall, his office began sending subpoenas to insurance agents and brokers. Requests for information also went out to insurance companies that write such policies.
Recently, new subpoenas went out to loan servicers that imposed force-placed insurance on borrowers, as well as to insurers affiliated with those services.
Subpoena receivers included Morgan Stanley Mortgage Capital Holdings and CitiMortgage. Affiliates that received requests for information include BancOne Insurance and Alpine Indemnity.
Force-placed insurance appears to be the dirty little secret of the mortgage industry. It is a silent killer harming both consumers and investors while enriching the banks and their affiliates.
A spokesman for Citigroup said, "CitiMortgage does not sell homeowner's insurance to consumers. If a homeowner does not provide an insurance policy, CitiMortgage secures a policy to protect the interest of the investor. Whenever the homeowner submits proof they have obtained insurance on their own, the lender placed insurance is cancelled."
Force-placed insurance has exploded during the foreclosure crisis. Whereas it use to generate $1 billion a year, it is now a $6 billion a year business. Much of this growth is on the backs of homeowners.
When homeowners run into financial trouble, they often let their hazard insurance lapse. Because lenders require homeowners to be insured against damage or total loss policies are then forced on the borrowers and added to their monthly mortgage payments.
For those selling force-placed insurance, it is a great game. The policies typically cost at least three times as much as ordinary property insurance. Some borrowers have been charged as much as ten times the prevailing rate.
And as stated in the beginning, force-placed policies do not protect homeowners from loss. Only lenders are covered.
Some borrowers have complained of being forced to buy high-priced insurance even when it is unnecessary. Back in 2007, a borrower with a mortgage serviced by Countrywide Financial described how the lender automatically signed her up for flood insurance even though she had proved that such insurance was unnecessary. Not being able to meet the extra payments, she fell behind on her mortgage. Countrywide then began foreclosure proceedings.
All in all, force-placed insurance represents a major profit center for mortgage servicers and the companies that write the policies. In many cases the mortgage service company and the insurer are affiliated. This sets up the potential for conflicts of interest among mortgage service companies that are suppose to represent investors owning mortgage loans bundled into securities.
A more consumer friendly way to deal with insurance lapses would be for service companies to advance money to the borrower's existing carrier to keep the policy current. Then, the service company could bill the borrower for coverage.
There are other gimmicks and / or games that go on with these force-placed policies. The bottom line is - know that these are not worth while for the borrower.

No one in Grand Prairie, Weatherford, Fort Worth, Dallas, or anywhere else in the North Texas area would want to be in a situation where their spouse deliberately sets the house on fire. This is something that might happen in a divorce setting or maybe it is just the result of a really bad fight. So what happens as it relates to insurance?
A San Antonio Court of Appeals opinion issued in 1996, sheds some light on this question. Here is some background. The style of the case is Sanders v. Commonwealth Lloyd's Insurance Company.
Jan and Dan Saunders' house was completely burned down by a fire. The insurance company investigated the claim and concluded that Dan was responsible for setting the fire. Dan was convicted of a felony of conspiring to burn down the house which was later reversed and he was acquitted. In the meantime, the insurance company, Commonwealth Lloyd's, denied the claim.
The innocent spouse, Jan Sanders, filed suit for breach of contract and bad faith against Commonwealth. In the trial of a breach of contract claim brought by Jan, the jury found that Dan was responsible for the arson fire that destroyed the house. Although Commonwealth treated Jan as an innocent spouse, it refused to pay any part of the claim because the house was community property. At the time of the claim denial, current law supported Commonwealth's decision not to pay Jan any proceeds under the insurance policy. Later in 1993, when case law changed, Commonwealth agreed to pay Jan one-half of the available insurance proceeds, plus interest.
In the lawsuit where Jan sued for bad faith, Commonwealth filed a Motion for Summary Judgment which the trial court granted. Jan appealed.
In this case, this appeals court upheld the decision of the trial court rendering summary judgment for Commonwealth. In its holding, this court said that an insurance company that can prove that it possessed a reasonable basis for denying or delaying a claim for payment even if that basis is eventually determined to be erroneous enjoys immunity from statutory bad faith under the Texas Deceptive Trade Practices Act and under the Texas Insurance Code. In this case, Commonwealth had a reasonable basis to deny Jan's claim as a matter of law. At the time of the claim, there was a United States Fifth Circuit case applying Texas law directly on point specifically holding that an innocent spouse could not recover insurance proceeds for her interest in the community property of the house destroyed by a fire that was intentionally set by or at the direction of the culpable spouse. Therefore, the insurance company, Commonwealth, possessed a reasonable basis for denying payment.
There are a couple of things relevant about this case.
One, is that the law changed while this case was pending. The law had been that if the fire was intentionally set by one of the insureds, then neither could recover under the policy of insurance. That law changed. The change allowed an innocent spouse to recover her portion of the proceeds. An example of how this would work is like this; if the house and contents are owned fifty / fifty by the husband and wife, then the innocent spouse would be entitled to the proceeds covering half the property.
Second, is that when the insurance company has a reasonable basis for denying or delaying payment of a claim, then they cannot be successfully sued for acting in bad faith in violation of the DTPA or the Insurance Code.
Last, is that an experienced Insurance Law Attorney needs to be consulted in these matters.