Articles Posted in Interpreting An Insurance Policy

When an insurance attorney gets a new client on an insurance related claim, one of the first things he wants, is a copy of the policy to read.  And when he reads the policy, he wants to know what the exclusions are that are in the policy.

The basic form and broad form business policy contains exclusions.  In fact, the many pages of an insurance policy are, when read, pages explaining what is excluded or limitations on what will be paid.  Sample exclusions on the broad form are:

  1.  Ordinance or law — When a building is not in compliance or conformity with local building codes or laws and must be rebuilt or replaced, local laws require that the new structure conform to current requirements.  Because ordinance or law exposures are not anticipated by basic premium rates, the cause of loss forms contain an ordinance or law exclusion, which excludes any part of a loss resulting from the enforcement of any ordinance or law regulating the construction or repair of property.  This is discussed in the 1962, Texas Supreme Court opinion styled, Employers Mutual Casualty Co. of Des Moines v. Nelson.

Lawyers who handle commercial insurance claims can tell you that the most common type of commercial property insurance is the Building & Personal Property Coverage Form.

The Building & Personal Property (BPP) coverage form is the most commonly used policy to insure commercial buildings and contents.  Covered perils for the BPP are listed in separate cause-of-loss forms.

The BPP generally covers:

What is the difference between replacement cost and actual cash value.  Knows the difference can mean many thousands of dollars on a claim.

Pursuant to the 1998, Austin Court of Appeals opinion styled, Great Texas County Mutual Insurance Co. v. Lewis, “replacement cost” is when the insurer pays the insured the “amount necessary to repair or replace” the damaged property with another “of like kind and quality.”  The insurer is agreeing to restore the property to a condition substantially the same as that existing before the damage was sustained.

In Great Texas, the court said that replacement cost is a measure of loss that does not allow for depreciation.  As an example, the Great Texas case involved damage to a car engine.  The insurer calculated the cost of repair to be $3,608.27.  From this amount the insurer subtracted a deductible of $527.00 and $2,031.72 for betterment or depreciation, leaving $1,049.55, which the insurer offered the insured to discharge its obligation under the property damage section of the policy.  The court stated that, because the car was a functioning or operating automobile before the damage, the insurer was required to pay an amount necessary for the repair or replacement of an automobile of that character.  If the insurer were allowed to to discharge its obligation by paying the insured $1,049.55, the insured would not have a sum sufficient to restore his engine and automobile to a functioning or operating state.  Therefore, the insurer was required to pay the cost of a remanufactured engine without deducting for betterment or depreciation.

An “insurable interest” exists when the insured derives a pecuniary benefit or advantage by the preservation and continued existence of the property or would sustain a pecuniary loss from its destruction, according to the 1993, Dallas Court of Appeals opinion, Jones v. Texas Pacific Indemnity Co.

In the 1986, Tyler Court of Appeals opinion, Thompson v. Trinity Universal Insurance Co., the sole owner of a corporation that was a holding company for business interests who suffered a pecuniary loss from the destruction of a building owned by the corporation has an insurable interest in the building.

In the 1985, San Antonio Court of Appeals opinion, St. Paul Fire & Marine Insurance Co. v. Daughtry, the owner of a house offered the house to a house mover, as long as he could remove it by December 31, 1982.  The owner also gave the insured a letter permitting him to move it after January 1, 1983, if the mover failed to exercise his option.  Before the mover’s option expired, the insured applied for a “builder’s risk” policy on the house, and the insured’s agent issued a binder on the policy.  A fire destroyed the house on December 21, 1982.  The court held that the insured did not have an insurable interest in the property, as he suffered no pecuniary loss as a result of the destruction of the property.

Commercial property insurance includes all forms of insurance covering property loss exposures of both business and non-profit organizations.  The most common commercial property coverages are provided under standard forms developed by Insurance Services Office, Inc. (ISO) or the American Association of Insurance Services (AAIS).  In many instances, an organization’s property is provided through “package policy.”  A package policy ordinarily provides different types of coverage (e.g., property insurance and liability insurance).  A monoline policy, in contrast, provides only one distinct type of coverage.  The most common form of commercial property insurance is the Commercial Package Policy printed by ISO since 1986.  Commercial property insurance can consist of:

  1.  Building and contents insurance which provides coverage on insured building and the property contained in the buildings.
  2.  Machinery insurance covers steam boilers, pressure vessels, and various types of machinery such as air conditioning equipment, air compressors, turbines and all types of production machines.

Dallas and Fort Worth area insurance lawyers need to read this November, 2017, opinion from the San Antonio Court of Appeals.  It is styled, Farmers Texas County Mutual Insurance Company v. Zuniga.

Zuniga was walking to school and struck by a car driven by Christopher Medina.  Zuniga sued Medina for negligence and gross negligence.  A jury awarded Zuniga $93,244.91 in actual damages and $75,000.00 in punitive damages.  Farmers insured Medina and paid the actual damages but then filed a declaratory judgment action seeking a declaration that the policy did not cover punitive damages.

Zuniga filed a motion for summary judgment on the punitive damages issue.  Farmers prevailed in this case.

An insurance contract will impose conditions on the insured person or entity.  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.  When one party to a contract commits a material breach of that contract, the other party is discharged or excused from any obligations to perform.  In the 1994, Texas Supreme Court opinion, Hernandez v. Gulf Group Lloyds, the court said that the breach be “material.”  The court explained stating:

In determining the materiality of a breach, courts will consider, among other things, the extent to which the non-breaching party will be deprived of the benefit that it could have reasonably anticipated from full performance … The less the non-breaching party is deprived of the expected benefit, the less material the breach ….

The other factors courts consider in determining the materiality of a breach are: (1) the extent to which the injured party can be adequately compensated for the part of that breach of which he will be deprived; (2) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (3) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (4) the extent to whic the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Lawyers handling car wreck cases would be especially interested in this 2017 opinion from the Texas Supreme Court.  It is styled, Farmers Texas County Mutual Insurance Company v. Jennifer L. Zuniga et al.

This is an appeal from the granting of a summary judgment in favor of Zuniga wherein Farmers had asked the court to rule that there is no coverage under the policy at issue for punitive damages.  This Court reversed that summary judgment.

Determining whether exemplary damages for gross negligence are insurable requires a two-step analysis.  First, the Court decides whether the plain language of the policy covers exemplary damages sought in the underlying suit against the insured.  Second, if the Court concludes that the policy provides coverage, it determines whether the public policy of Texas allows or prohibits coverage in the circumstances of the underlying suit.

The San Antonio Division, Western District, issued an opinion dealing with rebuild costs under a homeowners policy that insurance attorneys need to read.  It is styled, Kirk McClelland and Tamre McClelland v. Chubb Lloyd’s Insurance Company of Texas, and Robert Lynn Pritchard.

This is a dispute over coverage and the conduct of Chubb in its payments totaling $145,290.72 to the McClellands.  The McClellands assert they are entitled to greater amounts and sued Chubb and its adjuster for breach of contract and various violations of the Texas Insurance Code and the Texas Deceptive Trade Practices Act.  The Court granted summary judgment in favor of Chubb and the McClellands seek to alter that judgment.  The course refused to alter the judgment.

The background facts are summarized as follows.  The McClellands garage apartment was destroyed by fire.  Chubb insured the property under a “Texas Standard Homeowners Endorsement” as well as a “Texas Platinum Homeowner’s Endorsement.”  Their extended policy limits allowed for “reconstruction cost even if this amount exceeds the limit of liability for your dwelling or other structures as shown on the declarations page.”  The Platinum Endorsement defined “reconstruction cost”: