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Without an insurable interest, an insurance contract is a gambling contract, and gambling contracts cannot legally be enforced.  For example, David cannot insure Paul’s house in which David has no insurable interest, betting (gambling) the house will suffer a loss.  If David could win this bet, he would receive a return far in excess of the premium he otherwise would pay, but would face no risk other than the cost of the premium.

Insurance provides well recognized opportunities for profit to an insured who deliberately causes an insured event to occur.  For example, after purchasing property insurance on Paul’s house, David might deliberately start a fire to collect the insurance.  The insurable interest requirement therefore reduces intentional losses created by one party having a disproportionate financial interest in causing a loss.  The temptation to cause loss will be reduced when an insurable interest exists.  For example, although Paul might destroy the property of an unrelated person like David for his own financial gain, he will be less willing to set fire to his own house, because of the inevitable loss of his own possessions.

The principle of indemnity means a person should not profit from an insured loss.  Most property and casualty insurance contracts are contracts of indemnity.  In contrast to a valued contract, which provides for the payment of some pre-established dollar amount, a contract of indemnity provides for payment of the sum directly related to the amount lost, subject to the limitations of the policy.  The insurer therefore indemnifies the insured for pecuniary loss to that property or activity in which the insured has a personal interest.  This is discussed in the 1963, Texas Supreme Court opinion styled, Smith v. Eagle Star Insurance Co.

Does my potential new client have an insurable interest?  That is a question insurance lawyers have to answer first when talking to someone who believes they are owed money on an insurance claim.

As stated by the Dallas Court of Appeals in 1993, in the opinion styled, Jones v. Texas Pacific Indemnity Co., “A party must have an insurable interest in the insured property to recover under an insurance policy.”  It is  not necessary that the party own the property to have an insurable interest.  An insurable interest is an exposure to financial loss possessed by a person giving rise to a legal interest that the insured possesses a right to protect.  An insured who owns a house or auto therefore has an insurable interest in the house or auto because the insured would be hurt financially if the house or auto were damaged or destroyed.  This is also discussed by the Texas Supreme Court in the 1963, opinion styled, Smith v. Eagle Star Insurance Co.  An insurable interest does not constitute an entitlement to insurance because the insurer is permitted to underwrite and price the risk sought to be insured.  Even if an insurance policy is issued, it cannot be enforced by a party who has no insurable interest — even if that party is a named insured.  This was discussed in the 1972, Amarillo Court of Appeals opinion styled, North River Insurance Co. v. Fisher.

An insurable interest is necessary for the following reasons:

Weatherford insurance lawyers need to recognize “first party” policies when they see them.  Here are some examples:

  1.  The standard Texas Auto Policy covers accidental loss or damage to the covered auto.  If an insured is involved in a single car accident resulting in property damage to the insured vehicle, the insured possessing this type of coverage may submit a claim directly to their insurer and receive compensation for the damage to their vehicle in accordance with the terms of the Texas Auto Policy.
  2.  Health insurance refers to coverage for medical and hospital expenses and may be issued on an individual or group basis.  An insured who requires health care due to an illness or injury may submit a claim directly to their own insurer for the reasonable and necessary costs of the health care received.  If the insured has paid for their health care, the insurer will reimburse the insured.  It is also common practice for the health care provider to take an assignment of the insured’s interest in insurance benefits enabling the insurer to pay the care provider directly.

A question typically asked of Fort Worth Insurance Lawyers is, – What is the difference between a third party claim and a first party claim.

A “first party” claim is usually a policy that  typically involves insurance that provides policy benefits directly to the insured or beneficiary in the event of a loss.  The Texas Insurance Code, section 541.051(2) defines “first party claim” as a claim “by an insured or a policyholder under an insurance policy or contract or a beneficiary named in the policy or contract that must be paid by the insurance company directly to the insured or beneficiary.  These types of policies generally include health insurance, life insurance, disability insurance, workers’ compensation insurance, auto property insurance, homeowner’s property insurance, and commercial property insurance.  These examples are found in the 1997, Texas Supreme Court opinion styled, Universe Life Insurance Company v. Giles, wherein the court is describing differences between first party and third party insurance.

In contrast, “third party coverage” is generally considered to include forms of liability insurance.  This type of insurance is designed to insure against a loss to third parties caused by the insured or another covered person for whom the covered person may be legally responsible.  These types of policies include commercial general liability, auto liability, homeowner’s liability, professional liability, and directors and officers liability policies.  This is also discussed in the Giles opinion wherein the court is describing differences between first party and third party insurance.

Insurance transactions tend to resemble one another, so disputes arising from them tend to resemble one another.  There are only so many ways that an insurance company and an insured can get crossways.  Most cases present recurring problems that can be grouped into several categories.  Insurance law is even more precedent driven than other areas, as courts try to construe similar policy language consistently.  It is not surprising that cases start to look alike.

The key is find good authorities that match your facts, or to emphasize the facts that match good authorities.

Of course, the starting point is the contract itself.  The initial inquiry almost always begins with the language of the contract to determine what is covered and what is not.  Other tort and statutory theories may logically depend on the existence of coverage, or may exist independent of coverage.  The interplay between recovery for breach of contract and recovery under other theories is discussed in numerous areas in this blog.  Beyond suit for breach of contract, most insurance cases can be grouped into these categories – misrepresentations – non-disclosures – unfair settlement practices  – and other misconduct.

Here is some very basic information that every insurance lawyer should be aware of.  It is also information that every insurance consumer should know.

To understand the different ways disputes can arise, it is helpful to consider the sequence of events that is likely to occur involving an insurance issue.  At its very simplest, the insurance transaction can be divided into the initial sale of the policy, and subsequent handling of claims.  These can be broken down further to include:

(1)  The sale of the policy:  Initially, the consumer and insurance company  or insurance company’s agent must communicate to establish a contractual relationship.  Disputes may arise over what was asked for by the applicant, what was represented by the insurance company or agent, or the timeliness of the insurance company or agent in providing coverage.  Issues may also arise about the truthfulness of the applicant or agent in disclosing information requested by the insurer;

The New York Times published a story in July 2017, about forced insurance on autos.  The title of the story is Wells Fargo Forced Unwanted Auto Insurance On Borrowers.

More than 800,000 people who took out car loans from Wells Fargo were charged for auto insurance they did not need, and some of them are still paying for it, according to an internal report prepared for the bank’s executives.

The expense of the unneeded insurance, which covered collision damage, pushed roughly 274,000 Wells Fargo customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions, according to the 60-page report, which was obtained by The New York Times.  Among the Wells Fargo customers hurt by the practice were military service members on active duty.

For people having events that can be large, such as wedding, big, family re-unions, company parties, and other types of celebrations, looking to purchase insurance for those events can be a smart thing to do.  The Claims Journal published an article about events insurance that is good to read.  The article is titled, Disastrous Fyre Festival Sheds Light On Events Insurance.

Already facing numerous lawsuits, Fyre Festival organizer Billy McFarland was arrested on federal charges last week.  The government alleged he defrauded investors who bought into Fyre Media Inc., the company behind the music festival that collapsed so spectacularly in the Bahamas a few months back.

But the fiasco’s graduation to prosecution is almost beside the point as far as the festival industry is concerned.  Events constructed to attract free-spending youth tend to include some who drink too much or take drugs and consequently do all the risky things that come with both.  Organizers already had it tough when it came to getting insurance.  Then Fyre Festival came apart, replete with tent cities, stranded teens, broken promises, and a global media spotlight covering it all.

Most insurance lawyers will want to depose an insurance company representative not long after a lawsuit is filed.  This situation arose in recent a Corpus Christi Court of Appeals case.  The opinion is styled, In Re Safeco Insurance Company Of America.  There is a glaring problem with this opinion.  It does not discuss the underlying reasons for wanting to take the deposition of the insurance company corporate representative.  There is no discussion of the merits or lack thereof in the underlying case.  What is does illustrate is the power of the courts to allow the deposition even when the insurance company does not want the deposition to be allowed.  It also discusses the elements that are looked at in reaching a determination.

By petition for writ of mandamus, Safeco seeks to vacate the trial court’s order granting a motion to compel the deposition of its corporate representative.  This Court requested and received a response to the petition from the real party in interest, Marvin Bryant.  The writ was denied.

Mandamus is an extraordinary remedy.  Mandamus relief is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal.  The relator bears the burden of proving both of these requirements.

The need to get an insurance lawyer is illustrated in a recent opinion from the Southern District, Houston Division.  The opinion is styled, Trudy Sawyer v. Geico General  Insurance Company.

On December 28, 2015, Sawyer filed a complaint and an application to proceed in forma pauperis in this case, which was granted. On October 26, 2016, the court ordered the parties to submit a Joint Discovery/Case Management Plan.  Nevertheless, the parties filed independent discovery plans.  In its discovery plan, Geico stated its intention to take Sawyer’s deposition between December, 2016, and May, 2017.
Geico did make arrangements to take Plaintiff’s deposition on January 18, 2017.  Sawyer was given proper notice of the deposition, but she did not appear, and belatedly informed Defendant that she would not attend, because she was “the victim” in the action, and so she should not have to endure “such depressive measures.”  Geico then rescheduled Sawyer’s deposition for February, 2, 2017.   Again, she was properly notified of the deposition, but she again failed to appear, claiming that she could not, because she had been the “victim of robbery,” the night before.