What Is An “Accidental Loss”

Weatherford attorneys and those in Springtown, Aledo, Azle, Mineral Wells, Millsap, Brock, Willow Park, Hudson Oaks, and even out in Grafford need to be sure what an “accidental loss” is under an insurance policy.
The Austin Court of Appeals dealt specifically with this issue in a 1997 opinion. The style of the case is, State Farm Mutual Automobile Insurance Company v. Joel Kelly. The issue in this case is whether or not a car that was confiscated by authorities that had previously been stolen is a “accidental loss” under the policy at issue.
Here is some background:
In October 1993, in response to a newspaper advertisement, Mr. Kelly paid $17,000 to Darrell Edmond Rogers, a/k/a Donald Davis, to purchase a vehicle that Rogers claimed to be a 1991 Nissan 300ZX. Mr. Kelly received a certificate of title to a 1991 Nissan 300ZX. On the same day, Mr. Kelly called and asked State Farm to replace the 1990 Mazda on his personal auto insurance policy with the 1991 Nissan. Less than a month later a Department of Public Safety officer visited Mr. Kelly at his place of business and confiscated the 1991 Nissan, informing him that the car was a stolen vehicle. The “VIN” plates of a reconditioned 1991 Nissan 300ZX had been placed on a 1993 model which had been stolen from a Houston car dealership. Mr. Kelly immediately called State Farm, canceled coverage on the 1991 Nissan and reinstated coverage on the 1990 Mazda.
On February 11, 1994, a Travis County Justice of the Peace ordered the confiscated 1993 Nissan returned to its rightful owner. Mr. Kelly filed a claim with State Farm under the policy provision, “Coverage for Damage to Your Auto,” for the $17,000 he paid for the stolen vehicle. State Farm denied the claim. Mr. Kelly subsequently sued State Farm for the loss. The trial court rendered final judgment in favor of Mr. Kelly and ordered State Farm to reimburse him for the amount paid for the car, plus interest and attorneys’ fees. The court made several conclusions of law, including the following: (1) Mr. Kelly’s auto insurance policy with State Farm is not ambiguous; (2) Mr. Kelly was a bona fide purchaser of a stolen car; (3) seizure of the car by the police was an accidental loss to Mr. Kelly; (4) the policy did not exclude this type of accidental loss from coverage; and (5) the policy covers all accidental losses not specifically excluded. State Farm then filed this appeal.
In discussing this case, the court pointed out that under Mr. Kelly’s insurance policy, State Farm agrees to “pay for direct and accidental loss” to the insured’s “covered auto.” To be covered, therefore, Mr. Kelly’s Nissan must have been a “covered auto” and its repossession must have been an “accidental loss” not specifically excluded by the policy.
So, the issue for the court to decide:
Whether confiscation of a stolen car from a bona fide purchaser is an accidental loss!
The Texas Supreme Court has recognized that a loss or injury is accidental when it is “not the natural and probable consequence of the means which produce it.” In other words, accidental loss is one that does not ordinarily follow and cannot be reasonably anticipated from the producing act. An accidental loss is one the actor did not intend to produce.
This court analyzed what courts in other states have ruled in matters like this one. They also analyzed the cases in Texas dealing with this issue. They ultimately ruled:
“…. An accidental loss occurs when it is not the natural and probable consequence of the act which produces it, or does not ordinarily follow and cannot be reasonably anticipated from the act. …, the confiscation of the Nissan purchased by Mr. Kelly was not the natural and probable consequence of his unsuspecting and innocent purchase of an automobile. Although his act of purchasing the car was intentional, the loss resulting from that act was unexpected, unanticipated, and unintentional. In light of Texas law governing accidental loss and the more persuasive decisions from jurisdictions finding repossession to be accidental, we hold that the confiscation of a stolen vehicle purchased in good faith by an unsuspecting buyer is an accidental loss subject to comprehensive coverage.
State Farm argued that holding it liable for loss due to confiscation effectively converts its comprehensive policy into title insurance. But where State Farm has not excluded loss due to defective title from its comprehensive coverage, and under Texas law actual ownership is not required for coverage, one purchasing comprehensive insurance may reasonably expect to obtain coverage for such a loss. The very purpose of accidental insurance is to “provide indemnity against fortuitous, unexpected or undesigned injury.” As a general rule, an insurer guarantees coverage for losses not specifically excluded by the policy. State Farm could have, and may in the future, specifically exclude loss from defective title. Indeed, in the policy at issue State Farm had excluded eleven other categories of risks, including loss due to seizure of the covered vehicle by law officers where the insured is convicted under the Texas Controlled Substances Act. State Farm can easily exclude loss due to repossession by an unknown rightful owner, or charge an additional premium for this protection.
The Court issued it’s opinion upholding the trial court saying, “We decline to write in an exclusion where the policy has none. On this record, the confiscation of the Nissan purchased by Mr. Kelly was an accidental loss under the terms of his policy.”
This case is a valuable read for Insurance Law Attorneys to see how the courts look at and interpret policies and apply that interpretation to the facts before them.