Articles Posted in Interpreting An Insurance Policy

Llano County insurance lawyers need to keep up with how the Courts interpret insurance policies.  The 5th Circuit issued an opinion worth reading in 2016.  It is styled, AIG Specialty Insurance Co. v. Tesoro Corp.

In this case the 5th Circuit had to decide whether a subsidiary not designated as an additional insured under an excess policy, was covered, because the insurer ought to have known the insured intended the subsidiary to be covered.

The facts of this case begins with a refinery, subject to a series of federal and state pollution remediation orders, changing hands twice.  First, Tosco Corp. sold the refinery to Unltramar.  Tosco indemnified Ultramar $50 million, and Ultramar acquired $100 million in excess insurance coverage from AIG.  Then Ultramar sold the refinery to Tesoro, and transferred the policy as well.

For those insurance lawyers handling flood claims, a Corpus Christi Court of Appeals opinion issued in 2017, is a must read.  It is styled, Housing & Community Services, Inc. and HCS 401, LLC D/B/A Lantana Square Apartments v. Texas Windstorm Insurance Association.

This is an appeal in favor of TWIA

HCS had policies providing coverage with TWIA through December 2012.  On May 15, 2012, HCS sustained damage to covered property and on May 28, 2013, filed two claims with TWIA.  On July 1, 2013, TWIA denied both claims on the grounds that HCS failed to fulfill its duty to file its claim with TWIA within one year of the loss.

A problem for Kimble County insurance lawyers is knowing and being able to predict how a Judge will interpret an insurance policy.  This topic is discussed in a State Bar of Texas, Insurance Section article.  The article is titled, The Tentative Draft Of The Restatement (Third) Of Liability Insurance: How Could It Affect Texas Insurance Law?

Under Section 5 of the Restatement of Insurance (Third), a party may waive a right under the policy if, with actual or constructive knowledge of the right, the party (a) either expressly relinquishes the right or engages in conduct that would reasonably be regarded by the other party as relinquishing the right, and (b) that waiver is communicated to the other party.

Waiver permits the enforcement of terms different from the original contract or bars enforcement of such terms without creating a new contract.  A party may waive only terms that benefit it; thus, the insured cannot waive policy conditions.  The law of agency determines when the agent’s words or conduct binds the principle and waives its rights.  Waiver necessarily requires extrinsic evidence.

One of the first things Dallas and Fort Worth insurance lawyers want to do in an insurance case is to read the policy.  The next thing would be to know how the courts interpret policies.  A recent article from the State Bar of Texas, Insurance Section, is a must read for insurance attorneys.  The article discusses proposed changes to the Restatement (Third) of Insurance Liability.  Here is a short exert from the 12 page article.

A.  General principle — plain meaning is the preferred interpretation.

Under Section 2, policy interpretation is the process to determine the meaning of policy terms; enforcement is determined by other substantive law.  Absent other law to the contrary, the ordinary rules of contract interpretation apply.

One situation insurance lawyers see often is where a person is involved in an accident with another driver and the other driver is at fault.  When it comes to making a claim against the insurance company for the other driver, you find out the other driver does not have coverage due to wording in the insurance policy.  Or maybe that situation happens to you.  So what is the law in the situations.

Named drive exclusions are common.  That is where a policy specifically excludes a named person or driver.  This is most common in households where there is a young driver such as a son or daughter who, because of the increased risk, the insurance company will charge a much higher premium, so the parent has the child excluded rather than pay the high premium.  The problem arises when the child drives the car anyway and gets involved in a wreck.  There will be no coverage.

However, an insurance driver may not exclude drivers by class, i.e., a “all unlicensed drivers.”  Texas Transportation Code, Section 601.076 says:

Insurance lawyers dealing with homeowners claims will eventually see a situation similar to the one in this San Antonio Court of Appeals opinion.  The case style is Lynn v. USAA Casualty Insurance Company and the opinion was issued in 1997.

Mr. and Mrs. Lynn’s country home was insured by USAA.  The house was completely destroyed by fire and USAA denied coverage based upon vacancy and arson.  The Lynns brought suit against USAA for breach of contract and breach of duty of good faith and fair dealing.  The trial court granted USAA’s Motion for Summary Judgment.  This San Antonio Court of Appeals confirmed the judgment.

Although there were some contents in the house six months before the fire, the testimony established that the house was vacant when it burned.  The Court of Appeals stated that the house was “without contents of substantial utility” due to lack of heating equipment, air conditioning, appliances, sleeping accommodations or efforts to preserve the contents for several months.  Therefore, the “vacancy” clause precluded recovery.  Furthermore, although the illegal acts (such as arson) of a co-insured do not bar recovery under an insurance policy, the “vacancy” clause, on the other hand, does not have a limitation for who “caused” or was aware of the “vacancy.”  The clause excludes coverage regardless of the innocent spouse’s knowledge of the “vacancy.”  Finally a bad faith claim is established by showing that the insurer had no reasonable basis for denying the claim or that the insurer failed to investigate.  In this case, USAA was justified in denying the claim under the “vacancy” clause.  Therefore, there was no bad faith.