Dallas Fort Worth Insurance Lawyer Blog
Properly notifying an insurance company about a claim is not always as simple as it might seem. This is illustrated in a 2020, opinion from the Northern District of Texas, Dallas Division. The opinion is styled, Vela Wood PC, et al v. Associated Industries Insurance Company, Inc.
This case is before the Court on competing motions for summary judgment. Because the Plaintiff’s notice of this claim was ruled to be untimely, the Court founds against Plaintiffs and in favor of Associated.
The pertinent part of the two policies at issue, a 2017 and 2018 policy, in this case states that as “a condition to coverage, the Insured shall provide the company written notice of any Claim made against any Insured as soon as practicable, but in no event later than: (i) the expiration date of this Policy; (ii) the expiration of the Automatic Extended Reporting Period; or (iii) the expiration of the Optional Extended Reporting Period, if purchased. Under the terms of the policies, a “Claim” is defined as “a written demand received by the Insured for monetary Damages which alleges a Wrongful Act,” including “the service of suit or any civil proceeding in a court of law or equity, including any appeal therefrom, which is commenced by the filing of a complaint, motion for judgment, or similar proceeding.”
On January 31, 2018, JB&A Extended Warranties, LLC (JB&A) filed a suit against Plaintiffs and asserted claims of breach of fiduciary duty, fraud, and negligence. Plaintiffs assert that this suit did not constitute a “Claim” but nonetheless gave notice of the underlying petition to their retail insurance broker Higginbotham Insurance Agency, Inc. (Higginbotham) within the 2017 Policy period. JB&A amended its petition to include specific factual allegations on April 5, 2018. Plaintiffs gave Associated notice of a Claim by at least May 17, 2018. Then, Associated denied coverage for Plaintiffs against the underlying suit, alleging that the notice was untimely.
Plaintiffs make three alternative arguments that their notice was timely and Associated has a duty to defend Plaintiffs from the underlying lawsuit. First, Plaintiffs contend that they had no duty to report the original petition because it did not constitute a “Claim.” In the alternative, Plaintiffs claim that their notice to Higginbotham satisfied their notice obligation to Associated. Finally, Plaintiffs argue that their notice to Associated was timely because nonrenewal of the 2017 Policy triggered an automatic 90-day extension of the reporting period.
The Court looks to the language of the insurance policy to determine whether JB&A’s original petition constituted a “Claim.” Interpretation of an insurance policy is a question of law.” An insurance policy is a contract, generally governed by the same rules of construction as all other contracts.” If an insurance policy is ambiguous, courts will adopt the construction that favors coverage. Unless the policy dictates otherwise, the Court will give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage.
Under the terms of both the 2017 Policy and 2018 Policy, a “Claim” is “a written demand received by the Insured for monetary Damages which alleges a Wrongful Act,” including “the service of suit or any civil proceeding in a court of law or equity, including any appeal therefrom, which is commenced by the filing of a complaint, motion for judgment, or similar proceeding.” The policies define “Wrongful Act” to mean “any actual or alleged act, error or omission in the rendering or failure to render Professional Services.” “Professional Services” means services “provided by any Insured to others as a lawyer, mediator, arbitrator, or notary public but solely for services on behalf of Named Insured.
Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Here, the insurance policies contain no such requirement of “facial plausibility.” Instead, they only require that the written demand state “any actual or alleged act, error or omission in the rendering or failure to render Professional Services,” and that such allegations are within the scope of coverage even when they are “groundless, false, or fraudulent.” Whether JB&A’s original petition constituted a Claim depends on the language of the insurance policy, not a facially plausible pleading standard.
The original petition in the underlying lawsuit constitutes a Claim for two reasons. First, it was the “service of suit or a civil proceeding . . . which is commenced by the filing of a complaint, motion for judgment, or similar proceeding.” The original petition clearly meets this definition because it initiated the underlying suit. Second, the original petition was a written demand for monetary Damages which alleges a Wrongful Act. Here, the Court compares the language of the JB&A original petition to the definition of a Wrongful Act. JB&A alleged that Plaintiffs’ “actions and/or omissions constitute[d] breaches of their fiduciary duties” and that Plaintiffs “made actual misrepresentations” to JB&A. The facts of the petition allege that Plaintiffs were providing services as a lawyer at the time of these Wrongful Acts. The original petition further states that “[a]s a result of the wrongful acts of [Plaintiffs] . . . [JB&A] suffered injuries and actual damages.” JB&A’s original petition satisfies the definition of a Claim because it asserts “actual or alleged act[s], error[s], or omission[s] in the rendering or failure to render Professional Services.” While Plaintiffs cite to cases suggesting that alleged facts may clearly place an underlying lawsuit outside the scope of coverage, the original petition plainly “related to errors or omissions arising out of the rendering of professional services and sought damages.” The Court determines that the original petition was a written demand received by the Insured for monetary Damages which alleged a Wrongful Act. Thus, the Court holds that the original petition constituted a Claim under the 2017 Policy as a matter of law.
Plaintiffs contend that their notice to retail broker Higginbotham constituted notice to Associated because Higginbotham was Associateds’ agent under section 4001.051(b) of the Texas Insurance Code. Because Plaintiffs offer no evidence in the summary judgment record to show that Higginbotham had authority to receive notice of Claims, the Court holds that Plaintiffs’ report to Higginbotham did not satisfy Plaintiffs’ obligation to report to Associated. Generally speaking, an insurance broker is considered the agent of the insured; if the insured reports a claim to the broker, but the broker fails to report it to the insurer, the insured is not relieved of his notice obligation.
Here, the Court determines that Plaintiffs’ notice to Higginbotham did not satisfy their notice obligation to Associated. Plaintiffs have offered no summary judgment evidence to show that Higginbotham had previously processed claims on behalf of Associated or that Higginbotham had the authority, expressly or impliedly, to receive notice of claims on behalf of Associated. Because Higginbotham failed to report to Associated, the Court holds that Plaintiffs’ report to Higginbotham did not satisfy their obligation to give notice to Associated.