Insurance Policy Interpretation And Lawyers

Residents of Weatherford, Mineral Wells, Springtown, Aledo, Azle, Hudson Oaks, Willow Park, Millsap, Cool, Brock, and other places in Parker County need to know about this case regarding auto policies.
This case is an “Official Order” of the Commissioner of Insurance of the State of Texas. The style of the case is Texas Department of Insurance vs. Old American Mutual Fire Insurance Company. This opinion was issued on January 3, 2012.
The Texas Department of Insurance (TDI) alleged that Old American engaged in unfair claim settlement practices or unfair and deceptive acts when it rescinded private passenger automobile policies after third parties had been injured. TDI sought restitution for third parties and a monetary penalty for each of the 450 policies that Old American rescinded. Old American asserted that the misrepresentations included failing to list all members of a household who would be driving the insured vehicle and procuring insurance on a vehicle the applicant did not own or use.
The Commissioner of Insurance, after review and due consideration of the Administrative Law Judge’s (ALJ) proposal for decision, finding of fact, and conclusions of law, adopted the decision of the ALJ including the revised finding of fact and conclusions of law stated in this writing. This was done pursuant to the Texas Government Code, Section 2201.058(e).
Here are the finding of fact from the hearing:
1. TDI filed a notice of hearing alleging the above against Old American.
2. Each side were represented by attorneys.
3. Old American is a county mutual insurer governed by Texas Insurance Code, Chapter 912. The company writes nonstandard auto policies through 24 managing general agents (MGAs).
4. The MGAs market Old American’s insurance products, draft rates, take applications, conduct underwriting, and manage claims.
5. At any given time, Old American has between 575,000 and 625,000 private passenger automobile policies in force.
6. Old American’s MGAs follow underwriting guidelines that have been filed with TDI.
7. Accurate underwriting information is essential to an insurer.
8. Old American’s MGAs rescinded 450 private passenger auto policies after the listed vehicles were involved in accidents with third parties.
9. Old American’s MGAs rescinded the policies based on misrepresentations in the applications for insurance that were material to the risk.
10. There was no evidence that Old American’s MGAs knew or should have known of the material misrepresentations.
11. Old American would not have issued the policies if the true facts had been known when the MGAs issued the policies.
Here are the relevant conclusions of law:
1. The Texas Motor Vehicle Safety Responsibility Act, Texas Transportation Code, Section 601.001 et. seq., states in Section 601.073(c):
The liability of the insurance company for the insurance required by this chapter becomes absolute at the time bodily injury, death, or damage covered by the policy occurs. The policy may not be canceled as to this liability by an agreement between the insurance company and the insured that is entered into after the occurrence of the injury or damage. A statement made by or behalf of the insured or a violation of the policy does not void the the policy.
2. Complete abolition of all auto policy defenses would have far-reaching effects. It would transform the insurer’s obligation from that of an indemnitor to that of a surety and deprive it of the right to have the opportunity to contest the fact and extent of its liability.
3. An insurer may avoid liability under a policy if it issued the policy in reliance on a false representation that was material to the risk.
4. The Act does not abrogate an insurer’s defenses based on a material misrepresentation.
5. Code Section 705.004 provides:
(a) An insurance policy provision that states that false statements made in the application for the policy or in the policy make the policy void or voidable: (1) has no effect; and (2) is not a defense in a suit brought on the policy.
(b) Subsection (a) does not apply if it is shown at trial that the matter misrepresented: (1) was material to the risk; and (2) contributed to the contingency or event on which the policy became due and payable.
(c) It is a question of fact whether a misrepresentation made in the application for the policy or in the policy itself was material to the risk or contributed to the contingency or event on which the policy became due and payable.
6. One who procures an insurance policy by his or her intentional fraud cannot invoke the benefits of Code Section 705.004. It would be wholly unreasonable to suppose that the legislature intended to enable anyone to reap the fruits of fraud.
In the Amended Conclusions of Law the Commissioner ruled that the above ruling did not prevent individual cases from being heard (instead of the 450 together as above) for the reason that some individual cases may have been rescissions by Old American that were improper.
This ruling is yet another example why an experienced Insurance Law Attorney needs to be involved in any case where a policy claim for benefits is denied.