Articles Posted in Interpreting An Insurance Policy

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?

An intended beneficiary of an insurance policy may sue under the Texas Insurance Code for any resulting harm.  This is made clear in the 1996, 5th Circuit Court of Appeals opinion styled, Palma v. Verex Assurance , Inc.  After reviewing Texas cases and other Fifth Circuit cases, the court concluded that “if the Texas Supreme Court were presented with the question before us it would hold that standing under Article 21.21 is satisfied by not only those who can establish privity of contract or reliance on a representation of the insurer, but also by those who can establish that they were an intended third party beneficiary of the insurance contract.”  The court set out the standards under Texas law for third-party beneficiary status this way:

1) the claimant was not privy to the written agreement between the insured and insurer;

2) the contract was made at least in part for the claimant’s benefit; and

Lawyers who handle insurance claims need to know how insurance and other related laws are interpreted by the Courts.

The Texas Supreme Court made clear in its 1995 opinion styled, State Farm Life Insurance Co. v. Beaston, that the Insurance Code sections the Texas Deceptive Trade Practices Act (DTPA) were adopted together in 1973 as part of a package to reform legislation, are interrelated, and incorporate each other.

The Insurance Code provisions are to be be liberally construed and applied to promote the underlying purposes to define and prohibit unfair and deceptive insurance practices, according to the 1988, Texas Supreme Court opinion styled, Vail v. Texas Farm Bureau Mutual Insurance Co.  This is also made clear in Insurance Code, Section 541.008.

Most property insurance policies contain appraisal clauses.  These clauses define a process for appraising the value of the damaged property, if the parties cannot agree.  Common provisions call for each party to choose an appraiser.  Those appraisers then choose a neutral third appraiser, called the umpire.  If the parties or their appraisers cannot agree on an umpire, either party may petition a court to appoint one.  Once the appraisers and umpire are chosen, they value the loss.  If all do not agree on the value, the decision of any two will control.  A 1938, Waco Court of Appeals opinion describes the process saying the intent is to give the insurer and insured a simple, speedy, and fair means of deciding disputed value.  This opinion is styled, Fire Association of Philadelphia v. Ballard.

The San Antonio Court of Appeals in a 1994 opinion styled, Providence Lloyds Insurance Company v. Crystal City, says that when the two appraisers do not agree, the umpire does not simply choose between them.  It is the duty of the umpire to ascertain and determine, in the exercise of his own judgment and as the result of his own investigation, the values of the disputed items.

The 14th Court of Appeals tells us in a 1974 opinion styled, Standard Fire Insurance Co. v. Smith, that either party may seek specific enforcement of the appraisal clause, and the court will abate any pending lawsuit and compel the parties to submit to the appraisal process.  In 1979, the same court said in, Standard Fire Insurance Co. v. Fraiman, that in addition, an insured may recover consequential damages sustained as a result of the insurer’s failure to comply with the appraisal clause.

The San Antonio Court of Appeals issued an opinion in a case wherein the facts were similar to what happens all across the State of Texas in auto cases.  The opinion is styled, Infinity County Mutual Insurance Company v. Michael Tatsch.

This is a summary judgment opinion wherein the sole issue was whether the trial court erred in concluding the insurance policy exclusion for damage to a vehicle resulting from or caused by mechanical breakdown or failure did not apply to Tatsch’s claim.

The background facts should be read but in the essence is that Tatsch had a truck with a diesel engine that broke down immediately after he had refueled.  There was some evidence of the break down being the result of water in the fuel and some evidence of a few other possible fuel issues.

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