Does My Texas Insurance Company Have To Defend Me If I Get Sued?

An Appeals Court in San Antonio, Texas, has recently handed down a decison that discusses the above question. The case is, Lancer Insurance Company v. Oscar Perez, et al, and was decided on November 4, 2009.

The Lancer case involved members of a high school band going on an overnight field trip. The driver of a bus transporting the band was infected with active turberculosis. This disease was discovered by the passengers and subsequent tests proved positive for some of the band members. The bus driver and bus company were sued for negligently exposing the band members to the disease.

Upon being sued, the bus company made a written demand to Lancer to defend the lawsuit pursuant to the business automobile insurance policy Lancer had issued covering the bus. Lancer refused to defend and the case went to trial wherein the passengers were awarded $5.25 million in total damages.

After the judgement, the passengers then tried to recover monies against the bus company and as the result of legal actions Lancer was sued for its failure to defend the original lawsuit. Lancer argued that the type of damages in the lawsuit filed against the bus company were not the type of damages for which Lancer would be required to pay.

In the Courts analysis of the case the Court drew a distinction between Lancers’ duty to defend the lawsuit and its duty to pay damages. In citing the Texas Supreme Court decision in, Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., the court stated, “We begin by noting that it is well established that an insurer’s duty to indemnify is a “distinct and separate” duty from the duty to defend”.

A lot of people are familiar with what is called the “four corners rule”. This rule deals with contract law wherein, the agreement between the parties is what can be deciphered by reading within the “four corners” of the contract between the parties and that looking at outside papers or statements is not permitted except in specific circumstances.

In insurance law, there is a principle called the “eight-corners rule”. This principle is illustrated in a recent Texas Supreme Court case titled, Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co. decided also in 2009. Pine Oak says, “Whether a duty to defend exists is determined under the “eight-corners rule,” by examining the claims alleged within the four corners of the plaintiff’s petition and the coverage provided in the insurance policy.”

What the preceding paragraph means is that if the four corners of the lawsuit do not allege facts within the four corners of the insurance policy, the insurance company is not legally required to defend the lawsuit. So, it is important that the words of the lawsuit are articulated in such a way as to invoke coverage from the policy.

Even if the insurance company has a duty to defend, the party seeking indemnification for any judgement taken, still has to establish a duty to indemnify. These two issues were in play in Lancer.

Lancer is an interesting read for the person who wants to understand a little bit about how these types of cases are decided. More important though is seeing the value of getting an experienced Insurance Law Attorney involved. An experienced Insurance Law Attorney will have an understanding of these issues that have to be dealt with when making a claim for benefits from an insurance company and when sueing a company that has insurance.