Articles Posted in Interpreting An Insurance Policy

Life Insurance claims attorneys need to understand the important distinction between statements by the insured that are considered to be representations and those considered to be conditions precedent.  If the insured’s statement is considered a representation, a false statement alone will not let the insurer avoid coverage.  Each of the elements required by the 1980, Texas Supreme Court opinion styled, Mayes v. Massachusetts Mutual Life Insurance Co., must be shown.  In contrast, if the insured’s statement is considered a condition precedent, then falsity alone will allow the insurer to avoid coverage.

It may seem confusing but this representation versus warranty issue is well developed under Texas law.  If the statements are considered representations, then to avoid liability under the policy the insurance company must plead and prove: 1) the making of the representation, 2) the falsity of the representation, 3) reliance thereon by the insurance company, 4) the intent to deceive by the insured in making the same, and 5) the materiality of the representation.  This is discussed in the 2003, Tyler Court of Appeals opinion styled, Protective Life Insurance Co. v. Russell, the 1996, Austin Court of Appeals opinion styled, American National Insurance Co. v. Paul, and the 1983, 1st District Court of Appeals opinion styled, Cartusciello v. Allied Life Insurance Co.

The same cases recognize that if the language of the policy expressly provides that coverage does not take effect unless the applicant is in good health, the provision is enforceable as a condition precedent.  When the language states that answers in the application are true and correct at the time of delivery of the policy, such a requirement is merely a representation.  Also, when the language of an insurance policy is susceptible to more than one construction, the policy should be construed in favor of the insured to avoid exclusion of coverage.  As was explained by the U. S. 5th Circuit in the 1997, opinion styled, Riner v. Allstate Life Insurance Co., “Short of inserting an unambiguous “good health” warranty demonstrating that the parties intended the contract to rise or fall on the literal truth of an insured’s general certification of good health, Texas has not allowed an insurer to change that result by contracting to make truthful application answers a condition precedent to coverage.”  The same Riner court added that “a warranty is a statement made by the insured, which is susceptible to no construction other than that the parties mutually intended that the policy should not be binding unless such statement be literally true.”

Life insurance lawyers, disability lawyers, auto policy lawyers, homeowners policy lawyers, and any other type of insurance lawyer needs to be able to read an insurance policy and know how the Courts interpret policies.

A principle that has particular impact is the rule that insurance policies are strictly construed in favor of the insured to avoid excluding coverage.  This is stated in the 1984, Texas Supreme Court opinion styled, Puckett v. U.S. Fire Ins. Co.  Exceptions or limitations on liability are strictly construed against the insurer and liberally in favor of the insured.  This is illustrated in numerous cases from the Texas Supreme Court – 1) the 1991, opinion, National Union Fire Ins. Co. v. Hudson Energy Co., 2) the 1987, opinion, Barnett v. Aetna Life Ins. Co., 3) the 1982, opinion, Blaylock v. American Guar. Bank Liab. Ins. Co., 4) the 1977, opinion, Glover v. National Ins. Underwriters, and 5) the 1896, opinion, Brown v. Palatine Ins. Co.

Stated another way, “An intent to exclude coverage must be expressed in clear and unambiguous language” according to the 1993, opinion styled, State Farm Fire & Cas. Co. v. Reed.

Insurance lawyers need to know how insurance contracts are interpreted by the Courts.

The 1984, Texas Supreme Court opinion styled, Puckett v. U.S. Fire Ins. Co., says that the rule for insurance policies is that they are strictly construed in favor of the insured to avoid excluding coverage.  Exceptions or limitations on liability are strictly construed against the insurer and liberally in favor or the insured.  This is made clear in the 1991, Texas Supreme Court opinion, National Union Fire Ins. Co. v. Hudson Energy Co., and in the 1987, Texas Supreme Court opinion styled, Barnett v. Aetna Life Ins. Co., and the 1987, Texas Supreme Court opinion styled, Blaylock v. American Guar. Bank Liab. Ins. Co., and the 1977, Texas Supreme Court opinion styled, Glover v. National Ins. Underwriters, and as far back as the 1896, Texas Supreme Court opinion styled, Brown v. Palatine Ins. Co.

Stated another way in the 1993, Texas Supreme Court opinion styled, State Farm Fire & Cas. Co. v. Reed, “an intent to exclude coverage must be expressed in clear and unambiguous language.”

Bad faith insurance lawyers always want to see the policy a potential client has when a claim is denied.  The words in the policy compared with the facts of the case will often determine whether or not the attorney can be helpful.

When a policy has words or wording that is difficult to understand, then the rules of “ambiguity” apply.

These rules apply to ambiguities in insurance policies:

Here is an interesting case from the San Antonio Court of Appeals.  The opinion is styled, Infinity County Mutual Insurance Company v. Michael Tatsch.

Tatsch had auto insurance with Infinity.  Tatsch made a claim for engine damage.  Infinity denied the claim and sent Tatsch a letter explaining its decision.  The letter read:

The vehicle damage occurred due to poor quality fuel being added to the vehicle which caused mechanical failure to your insured vehicle. There is an applicable exclusion in Your Texas Commercial Auto Policy that states we do not provide comprehensive coverage for damages resulting from mechanical failure.

Insurance Policy interpretation is something the Courts are often called upon to do.  Here is a twist to that.  A 2020, case from the Southern District of Texas, Houston Division, was asked to require appraisers to use a specific format for an appraisal.  The Court refused this request.

The case is styled, Mt. Hawley Insurance Company, et al. v. Harrod’s Eastbelt, Ltd.

Harrod’s had invoked the appraisal provision in the policy issued by the insurer.  Mt. Hawley, requested the Court to require the appraisers to use a specific format for the appraisal and to select an umpire.

Here is a case that may apply to many of the rural areas of Texas.  The case is a 2020, opinion from the Corpus Christi Court of Appeals and is styled, State Farm Mutual Insurance Company v. Rolando Lopez, Individually and Rolando Lopez D/B/A R&A Transport.

This is an appeal of a summary judgment in favor of Lopez and against State Farm.  This Court reversed the trial court and rendered judgment in favor of State Farm.

The main point of this case is the interpretation of the words “in use” in the commercial policy at issue.  The policy provides in part:

Properly notifying an insurance company about a claim is not always as simple as it might seem.  This is illustrated in a 2020, opinion from the Northern District of Texas, Dallas Division.  The opinion is styled, Vela Wood PC, et al v. Associated Industries Insurance Company, Inc.

This case is before the Court on competing motions for summary judgment.  Because the Plaintiff’s notice of this claim was ruled to be untimely, the Court founds against Plaintiffs and in favor of Associated.

The pertinent part of the two policies at issue, a 2017 and 2018 policy, in this case states that as “a condition to coverage, the Insured shall provide the company written notice of any Claim made against any Insured as soon as practicable, but in no event later than: (i) the expiration date of this Policy; (ii) the expiration of the Automatic Extended Reporting Period; or (iii) the expiration of the Optional Extended Reporting Period, if purchased.  Under the terms of the policies, a “Claim” is defined as “a written demand received by the Insured for monetary Damages which alleges a Wrongful Act,” including “the service of suit or any civil proceeding in a court of law or equity, including any appeal therefrom, which is commenced by the filing of a complaint, motion for judgment, or similar proceeding.”

Whenever an insured is sued, the insured must provide notice to the insurance company.  Here is a case where the insured did not do so.  The 2020, opinion is from the 14th Court of Appeals and is styled, Krystle D. Lewis, Individually and as Next Friend of Eliseo Lewis and Chrishelle Wortham v. ACCC Insurance Company.

After obtaining a default judgment against another driver for her injuries, Lewis sued the other drivers insurance company, ACCC.  The trial court granted summary judgment in favor of ACCC on the fround that the insurer was prejudiced as a matter of law by the insured’s failure to notify ACCC of the lawsuit and request a defense.  Lewis maintains that ACCC was  not prejudiced as a matter of law because she, as a third-party beneficiary of the policy, gave ACCC actual notice of the lawsuit, notice of the pending motion for summary judgment, and notice of the hearing on unliquidated damages.  This Court affirmed the trial court and explained why.

Like many liability policies, ACCC’s policy requires the person covered by the policy to promptly send the insurer “copies of any notices or legal papers received in connection with [an] accident or loss” and cooperate with the insurer “in the investigation, settlement or defense or any claim or suit.”  The policy states that ACCC may deny coverage if ACCC can show that the covered person’s failure to comply with those terms materially prejudiced the insurer.

To answer the question above, let’s first look at third parties.  In the 1994, Texas Supreme Court opinion styled, Allstate Insurance Company v. Watson, the Court declined to let a third party tort claimant sue the tortfeasor’s liability insurer.  The Court held that the third party could not sue as a “person” under the statute.  This conclusion was in part based on the court’s construction of the statute, and in part based on the Court’s concern that creating a duty owed by the insurer to the injured third party would conflict with the duties owed by the insurer to the insured.

In 1995, the Texas Legislature codified the holding in Watson.  The unfair settlement practices prohibition, in Texas Insurance Code, Section 541.060(b),  now specifically states that it “does not provide a cause of action to a third party asserting one or more claims against an insured covered under a liability insurance policy.”

What about persons who rely on representations made by the insurance company?

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