Interpreting Insurance Laws

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.

The same Court in 1988, stated that the similar liberal construction mandate in the DTPA requires that the statute be given “its most comprehensive application possible without doing any violence to its terms.”  In 1985, the Court applied the same reasoning in insurance cases in the opinion styled, Kennedy v. Sale.

Both the Insurance Code and the DTPA provide that the statutory remedies are cumulative of other remedies.  Look at Vail above and DTPA, Section 17.43Insurance Code section, 541.453, provides that a person may not recover damages and penalties for the same act or practice under both this statute and under another law.

How is the “business of insurance” to be construed?  Insurance Code, Section 541.001, regulates unfair practices “in the business of insurance.”  That phrase is not defined.  The Texas Supreme Court has rejected the definition of “business of insurance” that appears elsewhere in the Insurance Code in the 1995, Texas Supreme Court opinion styled, Great American Insurance Co. v. North Austin Municipal Utility District No. 1.

Although the statute does not define the phrase, some cases have addressed its scope.  The “business of insurance” includes the investigation and adjustment of claims and losses.  This is discussed in the Vail case and in the 1998 Texas Supreme Court opinion styled, Liberty Mutual Insurance Co. v. Garrison Contractors, Inc. which said the phrase includes soliciting and detaining insurance policy sales, explaining policy terms to prospective buyers, and explaining premium calculations.  A 2000, 14th Court of Appeals opinion styled, Dagley v. Haag Engineering Co., said an engineering firm used by an insurer to examine hail damage in connection with a loss was not “engaging in the business of insurance.”

In another case from 1995, the Texas Supreme Court concluded that the “business of insurance” does not include surety contracts.

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