Commercial Insurance Policy

Here is a case wherein the owner of a commercial insurance policy sued the insurance company for his personal injuries.  This case is from the Western District of Texas, El Paso Division, and is styled, Ismael Pease v. State Farm Lloyds.

State Farm issued a business owners liability policy to Pease Law Office, PLLC.  Pease is the sole member of the law office and is an insured under the policy.  The policy Declarations Page provides: “If you are designated in the Declarations as[] [a] limited liability company, … [y]our ‘members’ are also insureds, but only with respect to the conduct of your business.”

The Policy’s Coverage L provision, entitled “Business Liability,” provides that State Farm “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ … to which this insurance applies.”  The Policy further provides: “Damages because of ‘bodily injury’ include damages claimed by any person … for care, loss of services or death resulting at any time from the ‘bodily injury. “‘

During the policy period, Pease fell approximately 30 feet off a ramp on the insured premises.  He received medical services which cost in excess of $100,000.  Pease submitted the expenses to State Farm and State Farm denied the claim, stating that “nothing in a liability policy promises or hints at payment of the insured for his own injuries.”

The result of this denial of Pease’s claim resulted in this lawsuit for violations of the Texas Insurance Code, Sections 541.060 and 542.058.

State Farm filed a Rule 12(b)(6) motion seeking dismissal of the claim for “failure to state a claim upon which relief can be granted.”

Both parties agree that the validity of the claim depends on whether there exists coverage under the policy, specifically under Coverage L of the policy, which is the sole basis for coverage claimed by Pease.  Pease claims that his expenses for the medical services are covered under Coverage L.  The Coverage L provision states in relevant part:  “we [i.e., State Farm] will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ … to which this insurance applies.”  The parties dispute the meaning of this provision and its application to the facts alleged in Pease’s lawsuit.

Pease argues that he has become “legally obligated to pay” his medical providers for the medical expenses he incurred as a result of his bodily injury, and therefore, the expenses for the medical care services are covered under the Coverage L provision.  State Farm contends that Pease’s legal obligation to the medical providers does not arise because he harmed the providers in any way, but rather because he voluntarily purchased their services and thus, may be indebted to them.  State Farm adds, any obligation to the providers is the result of “contractual liability,” not the “tort liability” that triggers coverage under the policy’s language.

Texas courts say that an insurer is obligated under a COL or a standard liability policy when the insured’s conduct is tortious in nature, a claim has been made against the insured for this tortious activity, and there has been an adjudication of the insured’s liability.  It therefore held that the provision provides coverage only for damages which the insured is legally obligated to pay as a result of its own tortious conduct-not any damages arising from a breach of contract action.

lt is well settled that the use of the phrase “legally obligated to pay” in an insurance policy limits coverage to damages arising out of tortious acts and does not cover contractual obligations.

Pease tries to argue that his obligation to pay medical providers is “actually considered” a tort liability.  To reach this conclusions, Pease points to the language used by Texas courts to describe what are tort obligations and implied in law contracts.  “Tort obligations,” the Texas Supreme Court has said, “are in general obligations that are imposed by law-apart from and independent of promises made and therefore apart from the manifested intention of the parties-to avoid injury to others.”  “Contracts implied in law, or more properly quasi or constructive contracts, are a class of obligations which are imposed or created by law without regard to the assent of the party bound, on the ground that they are dictated by reason and justice.”  Seizing on the italicized phrases, Pease posits that a breach of an implied in law contract is a tort liability because an implied in law contract is an obligation imposed by law.  Pease therefore contends that because his “medical expenses … arise from a breach of an implied contract” to pay for those services, those expenses are a tort liability.

This Court concludes that Pease’s obligation to pay his medical providers sounds in contract, not in tort.  The Texas high court has held as a matter of law that when an insured … receives healthcare services, there is created an implied contract to pay for same, and he is liable therefor until he or someone else pays the bill.  This liability to pay healthcare providers arises under elementary principles of contract law.

The Court granted State Farm’s motion to dismiss.

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