Misrepresentation Of Insurance Policy

A Fort Worth insurance lawyer needs to know when there was a misrepresentation of an insurance policy. A 1994, Corpus Christi Court of Appeals is worth reading on this topic. The style of the case is Celestino v. Mid-American Indemnity Insurance Company. Here is some of the information from that case.
Celestino is the assignee of Sabastian. The instant dispute involves Sebastian’s insurance policy, which Donald Donaho of the Donaho Insurance Agency (Donaho) purchased from Mid-American through underwriters Richard McNeil and Pro., Inc. With the full participation and cooperation of Sebastian, the Celestinos sued Mid-American.
As chief executive officer of Sebastian, Tommy Funk determines what insurance the company requires and obtains the necessary coverage. Funk maintained a primary policy for both workers’ compensation insurance and employer’s liability insurance as well as an umbrella policy for excess employer’s liability coverage. A later change in policies resulted in coverage with Mid-American.
When Donaho received the policy, Mr. Donaho personally checked the declaration page to confirm that the parties were correctly named and that the coverage generally corresponded to the broker’s description. The declaration page specified that the umbrella policy conferred one million dollars in excess employer’s liability coverage. Without reading further, Donaho forwarded the policy to Mr. Funk, who also reviewed only the declarations before locking away the policy in Sebastian’s files.
Arturo Celestino was killed in the course of his employment with Sebastian. Before filing the instant suit the Celestinos initially sued Sebastian for exemplary damages alleging gross negligence, their only extrastatutory recourse under the Workers’ Compensation Law. Believing the primary and umbrella insurance covered their liability up to two million dollars, Sebastian attempted to settle the Celestinos’ first suit for $1,950,000. Houston General Insurance promptly tendered the million-dollar limit of the primary policy. Referring Sebastian to the umbrella policy’s exclusion of exemplary damages, however, Mid-American denied coverage. Mid-American replied:
Mid American’s insurance policy … expressly excludes punitive or exemplary damages. Consequently, there is no reason for you to demand that Mid American settle the claim pursuant to plaintiff’s settlement demand because our policy does not cover punitive or exemplary damages, which are the only damages alleged against the insured or even that can be alleged.
Focussing on the italicized language in the letter, Sebastian saw the kernel of the suit now before us. If the policy excludes coverage for “the only damages … that can be alleged” against them, Sebastian asked, what had they received in exchange for their premium payments?
The umbrella policy promises one million dollars in employer’s liability coverage above the one million dollars in underlying insurance. Specifically, the employer’s liability section of the policy purports to cover this layer of Sebastian’s liability for personal injuries sustained by Sebastian employees in the course of their employment. But the policy exclusions omit application to any potential obligation under workers’ compensation laws and any claim for punitive or exemplary damages. Moreover, the Celestinos suggest that the policy required underlying coverage for workers’ compensation, with its concomitant exclusion of common-law remedies.
The Celestinos argue that the two exclusions, combined with the requirement of underlying workers’ compensation insurance, absolutely preclude all employer’s liability coverage. They consider this preclusion repugnant to the general provision for coverage on the declaration page. This court agreed saying Mid-American has not identified even one remote contingency that the employer’s liability insurance would cover. If Mid-American expected the court to condone the practice of accepting insurance premiums from Texans and then providing insurance that covers nothing under Texas law, they will be disappointed.
An exclusion within an insurance policy operates to remove from the coverage some risk that otherwise would have been insured. An unambiguous exclusion, even an exception that materially limits the scope of a more general provision, must be given effect unless it wholly repugnes that general provision.
This opinion went on to discuss breach of contract, unconscionability, fraud, violations of the Texas Insurance Code and violations of the Texas Deceptive Trade Practices Act, and theories of law related to negligence.