For the past three months there has been a lot of information about Covid-19.  What is not clear is how insurance policies, in particular, commercial insurance policies do or do not provide coverage for losses experienced because of Covid-19 or government reaction to Covid-19.

How these cases and the resulting lawsuits are being handled is discussed in a May 2020 article written in the National Law Review.  The title of the article is, When Insurers Deny Claim, Brokers Are Next In Line For Allegations of Wrongdoing.”  Here is what the article tells us.

In the wake of government orders shutting down or seriously limiting the operations of businesses to deal with the COVID-19 outbreak, many affected businesses have turned to their insurers for coverage.  This has led to a flurry of lawsuits across the nation seeking rulings that such claims are covered and asserting that the failure to accept such claims constitutes breaches of contract, bad faith, and other common law and statutory violations.

Insurance policies are contracts.  A violation of an insurance policy is a usually going to be a breach of the contract.  A lot of insurance law, simply put, is contract law.

So what about the relationship of breach of contract to other theories of liability?

The 1996, Texas Supreme Court opinion, Liberty National Fire Insurance Co. v. Akin, says that “Insurance coverage claims and bad faith claims are by their nature independent.  But, in most circumstances, an insured may not prevail on a bad faith claim without first showing that the insurer breached the contract.”

As most insurance lawyers know by now, an insurance company can accept responsibility for the conduct of it’s adjusters when the claim is caused mother-nature and by doing so will defeat diversity jurisdiction and allow a lawsuit to be litigated in a Federal Court rather than a State Court.  The law dealing with this issue is found in the Texas Insurance Code, Section 542A.006.

Another interpretation of this law was at issue in a May 2020, opinion from the Western District of Texas, El Paso Division.  The opinion is styled, Project Vida and P.V. Community Development Corporation v. Philadelphia Indemnity Insurance Company and Robert L. Betts.

Plaintiff sued Philadelphia and Betts in State Court after a dispute arose concerning the handling of Plaintiffs claim after a hail storm.  Plaintiffs allege that Philadelphia and the adjuster, Betts, mishandled the claim.  Philadelphia and Betts removed the case to Federal Court based on diversity jurisdiction and the assertion that Betts was improperly joined in the lawsuit in an effort to defeat diversity and in response Plaintiffs filed a Motion to Remand asserting that Betts was properly joined in the lawsuit..

Bad Faith Claims and proving them have their own set of rules.  These rules were discussed in a 2020 opinion from the Eastern District of Texas, Beaumont Division.  The opinion is styled, Mt. Javed Ventures, Ltd. v. Mt. Hawley Insurance Company.

This is a summary judgment opinion.  The legal history and the facts of the case can be read in the opinion.  This writing will focus on the law related to “bad faith claims.”

The Texas Supreme Court has stated in previous case opinions that under Texas law, “an insurer has a duty to deal fairly and in good faith with its insured in the process of payment of claims.”  This duty is breached if: “(1) there is an absence of a reasonable basis for denying or delaying payment of benefits under the policy and (2) the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim.”  Whether an insurance company’s liability has become reasonably clear is a question of fact as cited in the 1997, Texas Supreme Court opinion, Universal Life Ins. Co. v. Giles.  However, evidence establishing only a bona fide coverage dispute does not demonstrate bad faith.  Evidence that shows a bona fide coverage dispute does not, standing alone, demonstrate bad faith.

Here is a complicated case regarding policy cancellation.  The case is from the Eastern District of Texas, Sherman Division, and is styled, Scottsdale Insurance Company v. All Citizens Transportation, LLC, et al v. Burns & Wilcox of Texas, Inc. et al.

The procedural history is complicated and the opinion needs to be read to have a full understanding of the facts.  The lawsuit is over the issue of whether an auto insurance policy had been properly cancelled when the finance company had not been properly notified of the policy cancellation.

This is a summary judgment case that was decided in favor of the insurer.  A policy cancellation notice had been sent to the insured but not to the finance company as required by Texas law.  The question before the Court, therefore, is whether an insurance company may cancel a policy despite a premium finance company’s failure to meet notice-of-cancellation requirements imposed by Texas law.  The answer is yes.

In the majority of cases it is best for a cases wherein an individual or small company litigates the case in State Court rather than Federal Court.  As a result, knowing how to keep a case in Federal Court is important.  Here is a 2020 opinion from the Eastern District of Texas, Sherman Division, wherein the Federal Court was not willing to allow the case to be in State Court.  The opinion is styled, Helayas Logistics LLC v. Jacob Christian Stineman, Streamline Insurance, Inc., Luis Alberto Roman, and Great Lakes Insurance SE.

Helayas sued the Defendants in State Court and the Defendants timely removed the case to Federal Court based on diversity jurisdiction and Helayas timely filed a motion to Remand back to the State Court.  The Defendants assertion was that there were not proper causes of action asserted against the three non-diverse defendants, Stineman, Streamline, and Roman.

The Court is to conduct a Rule 12(b)(6) type analysis to determine whether there are sufficient detailed causes of action against the non-diverse defendants.  Where the well-plead facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged, but has not shown, that the pleader is entitled to relief.  Although the pleading standard Rule 8 announces does not require detailed factual allegations, it demands more than labels and conclusions.

Here is a 2020, case from the Eastern District of Texas, Sherman Division, that has an interesting twist.  The case is styled, Jennifer Hamorsky v. Allstate Vehicle and Property Insurance Company and Charmell King.

In this case, Jennifer sustained hail and wind damage to her home as the result of a storm in April of 2018, and timely filed a claim.  She made a claim with her home insurer, Allstate.  Allstate investigated the claim and paid Jennifer $31,614.47 to cover the damage.  Jennifer believes she should receive $51,043.27.

On January 9, 2019, Jennifer filed suit against Allstate.  A Scheduling Order was entered and after the substantial completion of the litigation process, the case was mediated on the Court was notified on September 10, 2019, that the mediation resulted in an impasse.  After said impasse, Allstate filed a motion for summary judgment on October 8, 2019, and on October 11, 2019, Jennifer invoked the appraisal clause in the insurance contract.  Allstate opposed the appraisal resulting in Jennifer filing a Motion to Compel Appraisal and Abate Pending Completion of Appraisal.

The answer to the titled question will vary according to the exact situation being reviewed.  According to the 1994, Texas Supreme Court opinion, Celtic Life Ins. Co. v. Coats, an insurance company cannot escape liability by showing that it did not authorize the specific wrongful act.  The Supreme Court in the Celtic case said that in determining a principal’s vicarious liability, the proper question is not whether the principal authorized the specific wrongful act; if that were the case, principals would seldom be liable for their agents’ misconduct.  Rather, the proper inquiry is whether the agent was acting within the scope of the agency relationship at the time of the act.  The misrepresentation in the Celtic case was made in the course of explaining the terms of the policy.  This explaining of the policy was the task the jury specifically found to be within the scope of the agent’s authority.  As a result, Celtic cannot escape liability on the basis that it did not authorize particular representations concerning the policy.

After reading the preceding paragraph, try to square that paragraph with Texas Insurance Code, Sections 4001.051(c) and 4001.053 that say an agent is not authorized to altar or waive a term or condition of an insurance policy or an application for an insurance policy.  According to Section 4001.051(b) an insurer will be liable “for purposes of the liabilities, duties, and penalties provided by “certain statutes.  The referenced statutes include the prohibitions found in Sections 4001.051 and 4001.009.  The result of is that even if the agent cannot change the policy, the insurance company may still be responsible for what the agent represented.

Bad faith claims are a common source of litigation.  A 2020, opinion from the Southern District of Texas, Houston Division, discusses bad faith claims in the situations where an appraisal clause in the insurance contract allows for appraisal and that clause is invoked.  The case is styled, Braulio Reyna v. State Farm Lloyds.

Reyna was insured by a State Farm policy which covered loss to his home.  This homeowners policy contained an appraisal clause.  The home suffered storm damage during the policy period.  A claim was timely made.  State Farm had the home adjusted by one of its adjusters and made payment of the claim.  State Farm later paid more money on the claim based on a reevaluation.

Next, Reyna requested another investigation on the damages and State Farm sent an additional small amount.  Reyna then invoked the appraisal clause in the insurance contract and the appraisal resulted in a much higher estimate of damages which State Farm immediately paid.

Here is an opinion from the Texas Supreme Court that was issued in April 2020.  This opinion deals with how an appraisal clause is handled when the appraisal clause is unilateral.  The style of the case is Steven Biasatti and Paul Gross D/B/A TopDog Properties v. GuideOne National Insurance Company.

The issue in this case is whether an insurer’s payment of an appraisal award, the award of which was obtained under a unilateral appraisal clause, bars an insured’s claim under the Texas Prompt Payment of Claims Act (TPPCA).

In June 2013, TopDog who was insured by GuideOne, sustained wind and hail damage to its property.  After a first inspection, GuideOne determined the damage fell below the $5,000 deductible and refused to pay.  A second inspection resulted in the same outcome.  TopDog sought to invoke the policy appraisal process and GuideOne refused based on the appraisal clause only allowing GuideOne to invoke the appraisal.

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