Articles Posted in Claims Denial

For insurance lawyers this post points out an area where frequent mistakes are made.  This has to do with the pleading standards in Federal Court and necessity of pleading proper facts to support a claim in Federal Court.

A 2020, opinion from the Northern District of Texas, Fort Worth Division, illustrates this problem.  The opinion is styled, Benjamin Lester, Et Al. v. Unitrin Safeguard Insurance Company.

Lester was insured by Unitrin at a time when Lester suffered a hail damage loss to his property.  A claim for benefits was made and Unitrin denied the claim based on its assertion that the damage to Lester’s roof is simple wear and tear.

Insurance lawyers who have cases that could potentially end up in Federal Court need to know and understand Federal pleading standards.  This is illustrated in a 2020, opinion from the Eastern District, Sherman Division.  The case is styled, Angelina’s Restaurant v. Allied Insurance Company of America and Mary Keefer.

Angelina’s suffered wind and hail damage and eventually made a claim against their insurance company, Allied.  Allied assigned adjuster Keefer to handle the claim.  An impasse resulted from the claim and Angelina’s filed suit in State Court against Allied and Keefer for their handling of the claim.  Allied and Keefer had the case removed to Federal Court alleging Keefer had been improperly joined to defeat diversity jurisdiction.  Angelina’s filed a Motion to Remand.

A party seeking removal based on improper joinder bears a heavy burden of proving that the joinder of the in-state party was improper.  The removing party must prove that there is absolutely no possibility that the plaintiff will be able to establish a cause of action against the in-state defendant in state court, or that there has been outright fraud in the plaintiff’s pleading of jurisdictional facts.  In deciding whether a party was improperly joined, we resolve all contested factual issues and ambiguities of state law in favor of the plaintiff.  Any doubt about the propriety of removal must be resolved in favor of remand.

Insurance lawyers will often get a call from a potential new client and this potential new client describes a pretty good case against the insurance company.  But as the discussion progresses the attorney learns the event the potential new client is describing or relating to the attorney happened many years ago.  The problem is that there are statutes of limitations that apply to almost every wrong a person or business commits.

According to the Texas Civil Practices & Remedies Code, Section 16.051, the statute of limitations in insurance breach of contract lawsuits is four years, the same as other breach of contract suits.  Even worse than that, insurance companies have begun to use endorsements intended to reduce the period in which an insured may bring suit against the insurance company.  Some companies for example, have begun using a “Suit Against Us Endorsement,” which provides that “an action against us must be made within two years and one day after the cause of action accrues.”  Sometimes the period is for three years.  Insureds should be aware of these contractual limitations periods.

The reason for the two years and one day is that the laws of Texas do not allow a breach of contract claim to be less than two years.  This law is found in the Texas Civil Practices & Remedies Code, Section 16.070.  It clearly says that regarding contractual limitations periods, any period of time shorter than two years is made void.  This includes stipulations, contracts, or agreements.  When the period is made shorter than the two years and thus void, the normal four year limitations period will apply instead.  This has been made clear in the 1984, 14th Court of Appeals opinion styled, Duster v. Aetna Insurance Company.

So, who has the burden of proof in an insurance case, the insurance company or the insured.  Like most issues in the law, it depends.

According to the 1994, San Antonio Court of Appeals opinion styled, Telepak v. United Service Automobile Association, the insured has the initial burden to prove damages are covered by the policy.  According to the 1943, Texas Supreme Court opinion styled, Trevino v. American National Insurance Company, the insured may make a prima facie case by showing that the policy was in force when the loss occurred.

On the flip side, a 2003, opinion by the Fort Worth Court of Appeals styled, Venture Encoding Service, Inc. v. Atlantic Mutual Insurance Company, the insurance company bears the burden of proving the applicability of an exclusion that permits it to deny coverage.

Here is another one of those cases where an insured sues the insurance company and the adjuster in State Court for various violations of the Texas Insurance Code.  The insurance company a adjuster then remove the case to Federal Court alleging that the adjuster has not been properly sued.

This case is from the Eastern District of Texas, Sherman Division, and is styled, Angelina’s Restaurant v. Allied Insurance Company Of America And Mary Keefer.

Angelina’s property sustained wind and hail damage.  Allied insured the property and Keefer was assigned to adjust the claim.  Angelina eventually sued Allied and Keefer for various violations of the Texas Insurance Code.  The case was filed in State Court and then removed to Federal Court by the Defendants.  Angelina then filed a motion to remand, which is the subject of this opinion.

The law is as clear as it can be in the State of Texas.  An insured has a duty to cooperate with his insurance company regarding the investigation of a claim.

The next question is – Are there exceptions to this duty?  Here is my response.

The insurance contract may impose conditions on the insured.  For example, most policies require that the insured give notice of the claim and cooperate with the insurance company.  Policies may require that the insured file a formal proof of loss, if the insurer requests one.  The Texas Supreme Court in a 1994 opinion said that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from any obligation to perform.  The opinion is styled, Hernandez v. Gulf Group Lloyds.  It is necessary that the breach be “material.”  The Court explained it this way:

Insurance policies are contracts.  A violation of an insurance policy is a usually going to be a breach of the contract.  A lot of insurance law, simply put, is contract law.

So what about the relationship of breach of contract to other theories of liability?

The 1996, Texas Supreme Court opinion, Liberty National Fire Insurance Co. v. Akin, says that “Insurance coverage claims and bad faith claims are by their nature independent.  But, in most circumstances, an insured may not prevail on a bad faith claim without first showing that the insurer breached the contract.”

Here is a complicated case regarding policy cancellation.  The case is from the Eastern District of Texas, Sherman Division, and is styled, Scottsdale Insurance Company v. All Citizens Transportation, LLC, et al v. Burns & Wilcox of Texas, Inc. et al.

The procedural history is complicated and the opinion needs to be read to have a full understanding of the facts.  The lawsuit is over the issue of whether an auto insurance policy had been properly cancelled when the finance company had not been properly notified of the policy cancellation.

This is a summary judgment case that was decided in favor of the insurer.  A policy cancellation notice had been sent to the insured but not to the finance company as required by Texas law.  The question before the Court, therefore, is whether an insurance company may cancel a policy despite a premium finance company’s failure to meet notice-of-cancellation requirements imposed by Texas law.  The answer is yes.

In the majority of cases it is best for a cases wherein an individual or small company litigates the case in State Court rather than Federal Court.  As a result, knowing how to keep a case in Federal Court is important.  Here is a 2020 opinion from the Eastern District of Texas, Sherman Division, wherein the Federal Court was not willing to allow the case to be in State Court.  The opinion is styled, Helayas Logistics LLC v. Jacob Christian Stineman, Streamline Insurance, Inc., Luis Alberto Roman, and Great Lakes Insurance SE.

Helayas sued the Defendants in State Court and the Defendants timely removed the case to Federal Court based on diversity jurisdiction and Helayas timely filed a motion to Remand back to the State Court.  The Defendants assertion was that there were not proper causes of action asserted against the three non-diverse defendants, Stineman, Streamline, and Roman.

The Court is to conduct a Rule 12(b)(6) type analysis to determine whether there are sufficient detailed causes of action against the non-diverse defendants.  Where the well-plead facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged, but has not shown, that the pleader is entitled to relief.  Although the pleading standard Rule 8 announces does not require detailed factual allegations, it demands more than labels and conclusions.

Prior to filing a lawsuit, if the lawsuit is filed making claims for violations of the Texas Deceptive Trade Practices Act, or the Texas Insurance Code, Chapters 541 or 542A, it is required that at least a 61 day pre-suit notice be given if the claimant wishes to recover all that is legally allowed under those laws.

A 2020 case from the Western District of Texas, San Antonio Division, makes this clear.  The opinion is styled, PMG International, LTD. v. Travelers Indemnity Company of America.

This lawsuit results from an insurance dispute between PMG and Travelers related to storm damage to one of PMG’s properties insured by Travelers.  PMG sued Travelers alleging breach of contract and various violations of the Texas Insurance Code after the claim was denied.

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