Articles Posted in Interpreting An Insurance Policy

Interpreting an insurance policy is sometimes difficult at best.  Different people will read the same words in an insurance policy and believe the words say different things.  What is important to an insurance lawyer is how the Courts read and interpret insurance policies.  The Northern District of Texas, San Angelo Division, issued an opinion in May of 2020 that deals with this topic.  The case is styled, National Liability & Fire Insurance Company v. John Young d/b/a Rio Restaurant Group, et al.

This case is a declaratory judgement action filed by National.  National filed a motion for summary judgment which was denied.

In this case, National is being asked by Young to defend a lawsuit.  National asserts it does not have a duty to defend or indemnify.  Under Texas law, the “eight corners rule” governs whether an insurer has a duty to defend or indemnify in an underlying lawsuit.

Insurance Lawyers who who handle claims made through Renters Insurance policies should know there is a new kind of renters insurance coming into the marker.  Traditional Renters Insurance covers break-ins, thefts, floods, and various other types of claims to the personal property of a renter.  The new kind of renters policy is coverage for the rent.

The National Law Review published an article in May 2020, that is titled, “Rent Guarantee Insurance — A Solution For Landlors?”.  The article tells how the Chinese virus pandemic is having a profound impact on both insurance companies and their insureds with a multitude of claims having already been made and denied.  Parties that have been especially hard hit financially by the pandemic are the owners of retail shopping complexes that have multiple tenants, many of which have had to close because they are “non-essential” businesses under government emergency orders.  This has resulted in a loss of rental income to these owners as landlords.  While these landlords may have business interruption insurance as part of the commercial property, the pandemic is proving that whether business interruption insurance provides coverage is uncertain.  This uncertainty may ultimately only be resolved by court rulings made in connection with litigation proceedings.  Accordingly, given the fact that events such as the Chinese virus pandemic may occur again, commercial landlords may wish to consider rent guarantee insurance for protection.

Leases often provide that if the leased premises are damaged by a fire or other casualty event, the tenant’s obligation to pay rent will abate during the period that the leased premises are repaired and restored.  In this situation, a landlord desires to have a source of funds to replace the rent payments that it does not receive from a tenant during the period the rent abates.  Rent loss insurance can be a means to cover the risk associated with the lost rent.  As with business interruption insurance, however, there typically must be physical damage, e.g., fire to the landlord’s property.  Further, rent loss insurance may exclude coverage for loss of rent due to certain types of damages.  For example, some rent loss insurance policies do not cover water damage that creates mold because of a water leak that the landlord failed to repair.  Of particular significance is the fact that that rent loss insurance pays the fair market rental value of the leased premises, which may be less than the amount of rent the tenant is obligated to pay under the lease.

Here is a 2020, case from the Eastern District of Texas, Sherman Division, that has an interesting twist.  The case is styled, Jennifer Hamorsky v. Allstate Vehicle and Property Insurance Company and Charmell King.

In this case, Jennifer sustained hail and wind damage to her home as the result of a storm in April of 2018, and timely filed a claim.  She made a claim with her home insurer, Allstate.  Allstate investigated the claim and paid Jennifer $31,614.47 to cover the damage.  Jennifer believes she should receive $51,043.27.

On January 9, 2019, Jennifer filed suit against Allstate.  A Scheduling Order was entered and after the substantial completion of the litigation process, the case was mediated on the Court was notified on September 10, 2019, that the mediation resulted in an impasse.  After said impasse, Allstate filed a motion for summary judgment on October 8, 2019, and on October 11, 2019, Jennifer invoked the appraisal clause in the insurance contract.  Allstate opposed the appraisal resulting in Jennifer filing a Motion to Compel Appraisal and Abate Pending Completion of Appraisal.

Here is an opinion from the Texas Supreme Court that was issued in April 2020.  This opinion deals with how an appraisal clause is handled when the appraisal clause is unilateral.  The style of the case is Steven Biasatti and Paul Gross D/B/A TopDog Properties v. GuideOne National Insurance Company.

The issue in this case is whether an insurer’s payment of an appraisal award, the award of which was obtained under a unilateral appraisal clause, bars an insured’s claim under the Texas Prompt Payment of Claims Act (TPPCA).

In June 2013, TopDog who was insured by GuideOne, sustained wind and hail damage to its property.  After a first inspection, GuideOne determined the damage fell below the $5,000 deductible and refused to pay.  A second inspection resulted in the same outcome.  TopDog sought to invoke the policy appraisal process and GuideOne refused based on the appraisal clause only allowing GuideOne to invoke the appraisal.

How much should a person be compensated when their vehicle is declared a total loss?   A better question is – what are the elements that make up the total amount to be compensated?

This issue is discussed in a 2020 opinion from the United States Fifth Circuit.  The opinion is styled, Jessica Singleton and Tony Cooper v. Elephant Insurance Company.

When an insured automobile is so damaged that it would cost more to repair than to replace, it is usually deemed a total loss.  The insurance company then reimburses the policyholder for the value of the vehicle, with the expectation that the policyholder will probably use this money to purchase a replacement.  Of course, purchasing and registering the replacement vehicle requires the payment of taxes and fees to the state.

For Insurance Lawyers, Covid-19 has become a hot topic.  Hardly a day goes by that a client is not asking questions regarding their insurance policy and whether or not the policy covers losses stained due to Covid-19.  The National Law Review published an article recently that needs to be read by lawyers handling these Business Interruption cases.

The article tells us that the legal media have been inundated with articles by lawyers who represent policyholders and insurance companies discussing business interruption claims arising from the COVID-19 pandemic.  Some of this discussion has carried over into the mainstream media, including a recent Wall Street Journal article titled, “Restaurants v. Insurers Shapes Up As Main Event In D.C. Lobbying Fight.”  Much of the discussion focuses on two issues.  The First, property insurance policies require “direct physical loss or damage” to property (either to the insured property, or non-insured property within a certain distance of the insured property for a coverage called “civil authority”).  A virus has never been found to cause damage to property.  Second, most, but not all, of these policies have a virus exclusion.  We are not writing here about those issues.  Plenty of barrels of ink has been already spilled on those issues.  But I haven’t seen any authors write about another exclusion that seems likely to apply to these claims if policyholders can somehow convince a court that there was “direct physical loss or damage” to property: it is the the ordinance or law exclusion.

The ordinance or law exclusion typically provides that the insurer “will not pay for loss or damage caused directly or indirectly by . . . the enforcement of or compliance with any ordinance or law . . . regulating the . . . use . . . of any property . . . .”  That seems to be precisely what many of the governmental orders being issued do.  For restaurants, for example, government orders typically regulate the use of the business premises by limiting operations to takeout and delivery, prohibiting dine-in service.  At some point it is expected that dine-in service will be allowed, but limited to tables spaced six feet or more apart, as has begun occurring in some other countries.  With respect to other businesses, governmental orders may limit their operations to curbside delivery of items purchased by phone or online, or require or urge them to have employees work from home except for certain limited operations that can only be conducted in the office.

When it comes to interpreting an insurance policy, the Courts are suppose to read the relevant portions of a policy and see how the policy language tracks with whatever the facts are in a claim.  Many claims are denied due to the insurance company believing the policy says something or is interpreted in such a way as to allow the insurance company to deny the claim.

When an insurance company interprets the policy language in such a way as to allow the insurer to deny the claim and the insured interprets the language in such a way as to believe coverage exists, a lawsuit is going to result.  Insurance companies want these policy interpretations to be litigated in Federal Court because, most of the time, Federal Courts are much stricter in their interpretation than most State or County Courts.

The normal way to get a ruling in these policy interpretation cases is for the insurer or either party to file a motion for summary judgment.  In this motion the party asks the Court to rule as a matter of law what the policy is saying and how that is relevant to the facts of the claim.  This was an issue in a 2020 opinion from the Southern District of Texas, Galveston Division, styled, Louise Odom Hayes v. Blue Cross And Blue Shield Of Texas, Inc. And Health Care Service Corporation.

Insurance lawyers will always ask for a copy of the policy when an insured complains that their claim for benefits has been denied and the reason for denial is based on the language in the policy.  In Texas, insurance companies are required to explain to a policy holder the reason for denial of benefits.  Whether or not the reason for denial is proper is usually based on the language in the policy as applied to the facts of the particular case.

A 2020, opinion from the Southern District of Texas, Galveston Division, provides some insight as to how the Courts interpret policies.  The case is styled, Louise Odom Hayes v. Blue Cross and Blue Shield of Texas, Inc. and Health Care Service Corporation.

Hayes sued Blue Cross for breach of the health insurance policy Hayes had purchased from Blue Cross wherein Blue Cross refused to pay for additional benefits Hayes claims she should have received.  Blue Cross filed a motion for summary judgment based on its contention that its determination of benefits was consistent with its contractual obligations to Hayes.

Insurance lawyers know that a party must have an insurable interest in the insured property to recover under an insurance policy.  This is made clear in the 1993, Dallas Court of Appeals opinion styled, Jones v. Texas Pac. Indem. Co.  It is not necessary that the party owns 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 was discussed in the 1963, Texas Supreme Court opinion styled, Smith v. Eagle Star Ins. 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 Ins. Co. v. Fisher.

Understanding how insurance policies are interpreted by the courts is one of the more important aims of an insurance law attorney.

Here is some more information to be kept in mind.

An insurance policy is a contract, generally governed by the same rules of construction as all other contracts. This is told to us by the Texas Supreme Court in the 2010, opinion styled, Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London. When construing a contract, our primary concern is to ascertain the intentions of the parties as expressed in the document according to the Texas Supreme Court 2014, opinion styled, Amedisys, Inc. v. Kingwood Home Health Care, LLC.  In the Gilbert opinion the court stated that, we begin our analysis with the language of the contract because it is the best representation of what the parties mutually intended.  Unless the policy dictates otherwise, we give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage.  We strive to give effect to all of the words and provisions so that none is rendered meaningless.  In quoting from a 1938, opinion, the court said, “No one phrase, sentence, or section [of a contract] should be isolated from its setting and considered apart from the other provisions.”

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