Interpreting An Insurance Policy

Insurance Policies In Texas Are Contracts

October 19, 2009 | Mark S. Humphreys

The Texas Supreme Court stated in 2008 that insurance policies are contracts. This was stated in the case Ulico Casualty Company v. Allied Pilots Association. This is not new in Texas. In the Ulico case the court cited earlier Texas case law. The earlier case law was a Texas Supreme Court case styled Barnett v. Aetna Life Insurance Company and was decided in 1987.

What this means is that rights and obligations arising from an insurance policy, and the rules used to construe them, are those rules generally pertaining to contracts. One relevant concept here is that when a court construes or tries to interpret a contract and that contract can be read to mean more than one thing, then the interpretation is suppose to be in favor of the party who did not draft the contract. The burden is on the party drafting the contract to make it clear. Since an insurance company is always the party who drafts the insurance policy, the result is that if the reading of the policy can be interpreted in more than one way, the court is supppose to interpret it in such a way as to find coverage under the policy.

When an insurance contract covers certain risks, such as liability, but the policy contains exclusions or limitations of coverage, then when the insured customer makes a claim for coverage benefits, the insurance company must assert any applicable exclusion or limitation to avoid liability. This would be called an avoidance or in the Texas Rules of Civil Procedure it is called an affirmative defense. The burden of proof here then falls on the insurance company. This law is found in the Texas Insurance Code, Section 554.002.

A Recent Case Interpreting A Texas Insurance Policy

October 17, 2009 | Mark S. Humphreys

The Court of Appeals of Texas, Houston (1st Dist), recently handed down a decision that dealth with interpreting an insurance policy here in Texas. The case was, National Fire Insurance Company of Hartford, as Assignee of Kelvin Ray Gatlin v. State and County Mutual Fire Insurance Company. This case should have had the same result whether it was decided in Dallas, Fort Worth, or anywhere else in Texas.

This case arose out of an auto accident on December 23, 2000. A 1994 Ford Ranger driven by Gatlin ran a red light and damaged a truck owned by Rainbow Play Systems and insured by National Fire Insurance.

State and County denied coverage on the accident and National Fire filed a subrogation suit against Gatlin to recover the monies paid to Rainbow for damage to their truck. National took in excess of a $42,000 judgment against Gatlin. National then got Gatlin to assign to National the claim Gatlin had against State and County for State and County denying the claim. This assignment included claims for breach of contract, a Stowers action, and violations of the Insurance Code.

Subrogation Issues In Texas Insurance Law

October 14, 2009 | Mark S. Humphreys

Whether you live in Dallas, Fort Worth, Arlington, Grand Prairie, or any other metroplex city, or in a smaller town such as Weatherford, Granbury, Cleburne, or Azle here is something that happens just about every day. An accident occurs because of someone elses negligent actions. Someone is injured and gets medical treatment. The medical treatment is paid for by the injured persons’ health insurance, such as Blue Cross Blue Shield, Humana, Prudential, or any number of other health insurance companies. Maybe the medical care is paid for by the injured persons’ own auto insurance company through the personal injury protection (PIP) benefits or med-pay benefits. Most property insurance like homeowners policys and commercial policys have some sort of med-pay that pays for injuries.

In most these cases, someone else, or someone else’s insurance company is ultimately responsible for the injury that was incurred. The medical benefit that was used to pay bills is seldom going to pay all the bills. The injured person still has co-pays and deductibles to meet and sometimes there are caps on what is paid. Also, these medical benefits do not pay lost wages or anything for pain and suffering or anything for impairment or disfigurement or scarring that may have resulted from the injury. As a result of these other losses, even the person who does not want to “sue” anybody has to make a claim against the responsible people and their insurance company to recover all their losses.

When the injured persons’ insurance pays for a loss that was ultimately the resposibility of the other person or the other persons’ insurance, the injured persons’ insurance has a subrogation right to the monies received from others. In other words, the injured persons’ insurance has to be paid back and there is no legal, double recovery.

Personal Injury Protection (PIP) Coverage In Texas

October 13, 2009 | Mark S. Humphreys

PIP coverage is comparable to Medical Payments Coverage in a Texas Insurance Policy in that both are no-fault and pay for similar expenses. The difference between the two is this: Medical Payments Coverage only pays for reasonable and necessary medical expenses. PIP pays for that and up to 80% of lost wages, both to a maximum of whatever the amount of coverage is that has been purchased. Their similarity is that both are nofault coverages.

Texas Insurance Code, Article 5.063(b) sets up PIP coverage as a quick source (payable with 30 days of providing the information needed to pay the claim) of funds for an insured accident victim when the losses are for medical expenses or lost wages. The legal minimum is $2500, but much higher amounts can be purchased. The highest this writer has seen by an individual is $50,000.

PIP coverage exists in every automobile policy automaticly, unless rejected in writing by each insured. This is firmly established in Texas law in the cases, Ortiz v. State Farm Mutual Automobile Co., and Old American v. Sanchez.

Notifying Your Texas Insurance Company Of A Claim

October 9, 2009 | Mark S. Humphreys

Whether you purchase your insurance policy in Dallas, Texas, or in Fort Worth, Arlington, Grand Prairie, Weatherford, or anywhere else in Texas, there is one thing you can count on. The policy of insurance that you purchase is going to require that you notify the insurance company “immediately” or “as soon as practicable” whenever there is an occurrence or an offense that may result in a claim. If you fail to do so, the one thing you can almost always count on is that the insurance company is going to deny your claim for benefits.

What if your failure to timely notify your insurance company of the claim or occurrence results in no harm to the insurance company? You still violated a policy provision by not notifying the company in the time frame in which the policy requires you to notify them. Do you lose? Is your claim for benefits lost?

This issue was addressed in the case PAJ, Inc. v. Hanover Ins. Co. This was a Texas Supreme Court decision. The issue for the court to decide was whether a policy holder who failed to timely notify its insurance company of a claim defeats coverage under the policy if the insurance company was not prejudiced by the delay. Prejudiced meaning, the insurance company suffered no real harm or loss due to the delay in being notified of the claim.

Fort Worth Court Interpreting An Insurance Policy

October 8, 2009 | Mark S. Humphreys

Venture Encoding Service, Inc. v. Atlantic Mutual Insurance Company is a Texas Appeals Court case wherein the Fort Worth Court of Appeals made a decision in a dispute between a policy holder and its insurance company. The dispute was one of policy interpretation.

The basic facts were that Venture, a printing company, made a printing error in the publication of 328,799 coupon books. The error was the printing of an incorrect lock box payment return address. The cost of re-printing and re-mailing the coupons books was $122,888.

Venture, who had a commercial general liability policy and an errors and omissions policy with Atlantic, made a claim for the $122,888. Atlantic denied the claim stating that the wording of the policy did not cover the type of loss that was incurred by Venture. The wording of the policy used to describe “property damage” was what was at issue. Plus, Atlantic cited an exclusion in the policy as another reason for denying the claim.

Insurance Law Attorneys and Texas Auto Insurance Claims

October 3, 2009 | Mark S. Humphreys

There are many, many types of insurance that a person can purchase. The types most people first think of are life insurance, home owners insurance, and auto insurance. Beyond these you have health, disability, credit, commercial, flood, etc.

Every State has their own laws regulating insurance plus there are Federal Laws that apply to the States. Further each type of insurance, such as those listed in the prior paragraph have laws that are specific to that type of insurance in addition to the general laws of insurance that may exist at the State and Federal level.

The laws dealing with and regulating auto insurance can be found in some obvious places, such as the Texas Insurance Code and at the Texas Department of Insurance. An attorney in Dallas, Fort Worth, Arlington, Grand Prairie, Weatherford, or anywhere else in Texas may not even know that the Insurance Code exists. As for the Texas Department of Insurance, most attorneys would know there is an agency that deals with insurance that is run by the State but may not know its name.

How Do I Know When My Texas Insurance Company Is Not Doing Its Job

September 30, 2009 | Mark S. Humphreys

It is easy to say “you know when you know”. Most people will sense something isn’t right. Often times the insurance company sends you a letter saying your claim for benefits is being denied and state as a reason, something you absolutely know is wrong.

Let’s look at what the Texas Insurance Code says. Section 542.055 is titled “Receipt of Notice of Claim”. This section gives guidance to the first actions an insurance company is suppose to take when a claim is filed. It says that not later than the 15th day after the date they receive notice of a claim that they shall, (1) acknowledge receipt of the claim, (2) begin their investigation of the claim, and (3) request from the person making the claim all statements, and forms that the insurance company believes it will need to evaluate the claim. It then says that the insurance company may make additional requests for information if during the investigation of the claim the additional requests are necessary. Also, they are suppose to acknowledge the claim in writing or make a written record of how the acknowledgement was made.

Section 542.056 is titled “Notice of Acceptance or Rejection of Claim”. This section is a little complicated and varies depending on the type of claim made, but does have deadlines for when the insurance company is suppose to make their determination. Also it is in these actions required of the insurance that they are most likely to be making mistakes. If the claim is one they should be paying, a letter from an Insurance Law Attorney at this point usually gets them acting properly in a hurry. If they are not sure whether they should be paying the claim or not, the requirements of this section and a letter from an Insurance Law Attorney makes the insurance company take a stand or be in further violations of these sections or others in the Insurance Code. The Insurance Law Attorney wants the insurance company to make that stand rather than continuing to string out the matter.

Life Insurance Policies, Interpretation, and ERISA

September 11, 2009 | Mark S. Humphreys

A United States Federal District Court in Texas recently discussed the above in a case. The life insurance policy was for $200,000. The policy was provided through a voluntary plan the beneficiary of the policy had with his employer and was an ERISA plan. ERISA stands for Employee Retirement Income Security Act. The case was Carmichael Khan v American International Group, Inc.

Like many people in Dallas, Fort Worth, and surrounding cities and counties Khan was a voluntary participant in a plan provided by his employer. The facts and issues in the case centered around Khans’ employment terminating around April 7, 2006 and his wife having died in a car wreck on April 20, 2006. There were issues about termination paperwork Khan had filled out prior to his termination and his intent to covert coverage he had through his employer to continuing coverage once he left American. Also, there were issues about deductions from Khans last pay check for coverage. The fact pattern is long and the legal battle is also long and complicated. In the end the Federal Court ordered the case back to the Plan Administrator for further determinations to be made by the Plan Administrator. This case will likely continue over the next several months and possibly years unless a settlement is reached among the parties involved.

One of many things to be drawn from this case is that when a life insurance policy is in an ERISA plan, there is an administrative process that has to be exhausted before an appeal to a Federal Court can be fully litigated. All ERISA disputes are fought out in Federal Courts rather than State Court because ERISA issues are a matter of Federal Jurisdiction. Insurance companies prefer Federal Court for fighting their battles whereas attorneys who represent claimants prefer State Courts.
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Determining Coverage In Texas Insurance Policy

September 10, 2009 | Mark S. Humphreys

An accident happens. A loss is incurred. A lawsuit is filed. You say “no problem I got insurance to protect me”. Well, do you?

The Texas Court of Appeals in Houston recently discussed this question in the case, Accufleet, Inc. v. Hartford Fire Insurance Company. This case involved a discussion of the definition of “auto”. Accufleet is an aviation support business. In January 2003, a ground tug, transporting luggage, rear ended another vehicle causing injuries. When a lawsuit was filed, Hartford denied coverage arguing that the ground tug was not an auto.

The Court in this case, got into a discussion of how to determine whether or not the language of the insurance policy requires the insurance company to defend its insured in a lawsuit and pay on a claim or whether it can get away with refusing to do so. The court draws two distinctions. One, is what does the policy language say as far as its duty to pay, if liable. Two, how is this different from the duty to defend in a lawsuit.

The plain language of an insurance policy, like that of any other contract, must be given effect when the parties’ intent may be discerned from the plain language used in the policy. If the policy language has only one reasonable interpretation, then it is not ambiguous and the court decides it as a matter of law. If the contract is susceptible to two or more reasonable interpretations, then it is ambiguous and the uncertainty is resolved by adopting a reading that favors the insured as long as that construction is not unreasonable.

The duty to defend is distinct from, and broader than, the duty to pay. An insurance company must defend its customer if the lawsuits factual allegations “potentially” support a covered claim. So even though the facts may not play out in such a way as to require payment on the claim, the allegations themselves are what trigger whether or not the insurance company must hire attorneys and defend the claim.

The previous two paragraphs are what is known as the “eight corners rule”. The first four corners are the pages of the contract or policy and the language with-in the four corners of that document. The second four corners are the pleading used in the lawsuit. Do the allegations used as the facts made the basis of the lawsuit, give notice that if the lawsuit is successful, the claim will have to be paid by the insurance company. If the answer is yes, then the duty to defend the lawsuit is placed on the insurance company. The general rule being that the insurance company is obligated to defend the lawsuit if there is, potentially, a case under the complaint within the coverage of the policy.
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