Insurance Outline – Platts, Fall 2001

Everything highlighted he said would be on exam

 

I.                     Commercial General Liability Policy

A.      Rules for Contract Construction – Ambiguities

1)       1st Party – Covers the insured’s own damages

(a)     examples: homeowner’s, collision, life insurance, medical insurance

2)       3rd Party – Covers a third party’s damage for which the insured is liable

(a)     example: Liability Car Insurance

(b)     2 types of 3rd Party Coverage

·         Defense – insurance company defends the insured

·         Indemnity – insurance company pays your expenses

3)       Gen Rule: Contra Proferentum – Construe against the drafter

4)       Insurance policies are contracts and controlled by the rules of construction applicable to all contracts

5)       Insurance policies are contracts of adhesion b/c they are take it or leave it contracts – ie take it or leave it from the insured

6)       Doctrine of Reasonable Expectations – Texas has not adopted.  It holds that with uncertainty in the contract, the court will look at the reasonable expectations of the insured.

7)       If unambiguous, then enforced as written and court may not resort to the construction rules.  If ambiguous, then construe the ambiguity in favor of the non-drafting party, so long as that interpretation is reasonable.

8)       Ambiguity exists if more than one reasonable expectation exists in the contract.

9)       2 Kinds of Ambiguity exists

(a)     Patent – where the ambiguity can be determined from the face of the instrument

(b)     Latent – where the ambiguity cannot be determined on the face of the instrument, but where ambiguity results after determining additional information or facts

10)    Each part of policy should be given effect when construing, so reasonableness is measured for contract as a whole

11)    For exclusions, a super strict construction is applied and ANY reasonable interpretation will be applied in favor of the insured

12)    Use policy definitions, but if undefined, then use commonly accepted meaning, generally the first meaning in the dictionary

13)    Intent to exclude must be expressed in clear and unambiguous language

B.      Requirements/Elements

1.        3 Types

a.        Notice

b.       Occurrence

c.        Covered Damages

2.        Notice

a.        Notice is required under the CGL and any 3rd party coverage

b.       Notice means properly served on insured - service of citation. Copy of petition alone is not good enough

c.        Insurance company cannot deny coverage for breach of prompt notice provision unless suffered prejudice

d.       Prejudice is a question of fact for the jury to decide

e.        The Texas Homeowner’s Policy currently does not require prejudice and Chiles held it does not, but if litigated again, the courts will probably require it

f.         When notice is first recieved after a default judgment has become FINAL (after plen power), then presumed prejudice as a matter of law

3.        Occurrence

a.        Occurrence is an accident, which is an unexpected happening or event

b.       Where acts voluntary or intentional and injury is natural result, then injury is not an accident or occurrence.  (eg intentionally taking dirt is not accident).  Furthermore, conduct is not an accident where dmgs are natural result or where injuries reasonably anticipated from the insured's actions. Thus a hunting accident will be covered b/c it is not the natural result of the actions.

c.        Time of occurrence is when dmgs occurred, not when negligent act took place

d.       Sexual molestation is intentional as a matter of law in all 50 states

e.        more than one occurence allowed out of one event

f.         misrepresentations do not occur out of an occurence, unless it causes unexpected accidents

4.        Damages Covered/Not Covered

a.        Bodily Injury & Property Damage

1)       CGL & Homeowners - only occur from bodily injury or property dmg

2)       Ment anguish by itself does not const bod injury

3)       2 exceptions: 1) ment anguish results in phys dmg or 2) mental anguish from phys dmg

4)       Bod injury is dmg to phys struct of human body

5)       Injury to property means phys injury to tangible property. Same under both policies, even w/ diff language

6)       Econ losses alone do not result in property dmg. Except: When loss of property results in "loss of use of phys property" like rent. (IE WHEN LOSS OF USE IS A MEASURE OF DMG)

b.       Punitive Damage

1)       Current TX law: Punitive damages are covered under CGL, unless specifically excluded, even in endorsement

2)       TX sup court never decided issue

3)       BUT Federal court predicted that puni dmgs could not be covered b/c punishes wrong party

C.      Continuous Damage Claims

1.        4 Doctrines

a.        Manifestation Period Theory- policy in effect when 1st manifested applies

b.       Continuous/triple trigger Theory - all policies through all above periods apply

c.        Injury in Fact Theory - Trigger when plantiff in fact injured only policies in effect when plaintiff actually injured in fact - could start during exposure period, but also could be latency, and ends until fixed.  This is main difficulty: determining begin date. Good b/c tracks language of policy the best.

d.       Exposure Theory - Exposure theory says to "prorate the years that the policy was in effect." Policy in effect when began exposed and ended exposure.  This is great spreads risk and easy to figure begin and end.

1)       Total Pl.'s dmg (# yrs ins co was on the risk / Total years exposed)

2.        Hypo

3.        Examples

a.        First manifestation of Damages Theory

b.       Continuous or Triple Trigger Theory

c.        Injury-in-Fact

d.       Exposure Theory

1)       “48 Installations” - Another asbestosis case

d) ON EXAM: Exposure theory says to "prorate the years that the policy was in effect"

e) ON EXAM: Total Pl.'s damage (# yrs ins co was on the risk / Total years exposed)

f) What about defense coverage?  Court held that defendant (48) had to pay its own proportionate defense.  (i.e. court held to pro rate defense like you would damage, but not all courts hold that way)

g) ON EXAM: know all points about each of the four theories:

                1. First Manifestation

                2. Continuous

                3. Injury in fact - trigger when plaintiff in fact injured

                4. Exposure (Majority rule)

D.      Exclusions

1.        3 Types

a.        Business Risk Exclusion for Own Work or Own Product

b.       Intentional Injury

c.        Injury to an Employee

d.       Motor Vehicle Exclusion

2.        Business Risk Exclusion for Own Work or Own Product

a.        Rules

1)       -J(5) & j(6) excludes insureds own work that occurs before work complete

2)       -L - excludes insured's own work after work complete

3)       -Both only apply to property

4)       -Only way that coverage could occur is when dmg occurs after work complete & insured used subcontractors were used.

b.       Overall Steps of Analysis

1)       When did property damage occur? (Before or after work was complete?)

2)       If before, then 2(j)(5) & (6)

3)       If after, then look at (L), except for subcontractors

4)       Thus insured's own work only covered if accident occurred after complete AND by a subK

3.        Intentional Injury

a.        Intent Present if:

1)       He intends the consequences of his act or

2)       That he believes that they are substantially certain to follow.

This is almost always a question of Fact, i.e. whether insured was substantially certain of the result (SUBJECTIVE TEST)

b.       State Fm v. SS & GW

1)       THE TEST IN TEXAS FOR WHEN INTENTIONAL INJURY EXEMPTION APPLIES: (p.3 of Case) Intent present if 1) he intends the consequences of his act or 2) that he believes that they are substantially certain to follow. This is almost always a question of Fact, i.e. whether insured was substantially certain of the result (SUBJECTIVE TEST)

2)       Exclusion different than whether there was an occurrence but much controversy as to whether or not.  Usually will only have both or neither, but courts generally do not address both in the same opinion.

3)       Regardless occurrence and exemption are two different issues and MUST be addressed separately

4.        Injury to an Employee

a.       After reading the following three employee cases, courts generally will not use a reasoned analysis to construe against the insurance co. b/c of workers comp ins., which really should be bought for this purpose.

5.        Motor Vehicle Exclusion - bars consequences. Purpose is to carve out general policy insurance from auto insurance

E.       Miscellaneous Provisions

1.        4 Types

a.        Duty to Defend

b.       Reservation of Rights

c.        Declaratory Judgments

d.       Burden of Proof

2.        Duty to Defend

a.        GEN RULE: "8 Corners" or "Complaint Allegation" Rule

1)       look to allegations in the petition, assume that all are true, and ask if anything is covered in terms of policy.  Give those coverages liberal interpretation and construe against drafter, per Haden v. Newport.  (ie 8 corners rule: compare allegation in petition against coverage. Doubts in favor of insured.

2)       McManus - Facts matter not legal theory.  Legal theory is the same as alleging the elements as facts.  If facts alleged result in no coverage, then no duty as a matter of law to defend. Ins co entitled to rely on what is plead, unlike California, where fruits of investigation must  be defended against as well.  Called complaint allegation rule.

3)       Nat Union v. Merchants Fast Motor Lines - will not imagine facts that could have been plead but were not

b.       Exceptions

1)      Gonzalez - possible exception to the 8 corners rule, b/c Sup Ct. has never accepted an exception before.  If exception exists, it says to only look beyond the 8 corners if 1) do not contradict anything that's pled, and 2) those facts must only bear on coverage and not on liability.  Satisfying both is hard, but possible.  (i.e. facts may come in that are not plead if both above requirements are met.)  In Gonzalez, this fact is the ownership of the Ice Auger.

c.        Multiple Claims

1)      Cruse - foundation leveling that damaged home.  Exists in book to show that so long as one thing that is plead is covered, then ins. co. must defend WHOLE lawsuit.

Remember . . .

-Duty to indemnify depends on true facts, regardless of what's pled, and normally requires jury findings.  So pay all attorneys fees and costs of defense, but only have to pay what jury tells you you're actually liable.  Therefore, attorneys that understand the rule, ask juries in original trial b/c otherwise need to have 2nd trial to determine amount liable.

-The above mentioned attorneys fees normally do not come from the general policy b/c of language in CGL saying "All expenses we incur...."

 

3.        Reservation of Rights

a.        Rules

-issue anytime ins co believes no coverage

-this is not a breach of duty to defend

-If res rights letter issued, insured gets to pick own atty, own defesne, and whether to settle.  Ins co cannot question, so long as insured's decision is reasonable

-Generally inform insured of basis for reservation

Wilkinson

-Coverage cannot be created where non exists under policy via waiver and estoppel

-Insured must generally show that he was prejudiced.  But see accompanying cases just before - McGuire,etc.

1)      Farmer's v. Wilkinson

-Rule, bottom p. 2: If you 1) defend, 2) w/o reservation, 3) w/ knowledge, then you waive all defenses or are estopped from asserting them

-Called the Wilkinson Exception

2)      Farmer's v. McGuire

-General rule, p. 2 of case,  is that ins co can never waive the basic policy provisions, meaning the exclusions, the coverage, etc.  The reservations only apply to specific conditions.  Wilikinson is the exception to this general rule.

3)      Britt v. Cambridge

-Which comes first, duty to defend or duty to indemnify?

-What to take home from the case: EXAM - 1) insurance policies do not cover intentional acts - intent comes into picture and ins co will use as basis of defense.  INTENT IS ISSUE REGARDLESS OF PLEADINGS. This case was crafty attorneys carefully drafting to collude against the judge

2) why didn't Cambridge waive their rights? Waiver and Estoppel. Maintained control over proceeding & information and protected against claim of bad faith.

-EXAM Collusion and Fraud: Collusion is an intentional act and normally excluded from coverage

-Coverage cannot exist if none existed prior to waiver.

-REVIEW: - regarding failing to defend when required, this and Gandy show what occurs when ins. co breaches duty to defend. P. 8 of the case, §57 of Restmt of Judgments, calling ins co indemnitor and insured as indemnitee.  §57 says when duty owed to third person and notice of duty to defend given, then ins. co 1) is estopped from disputing the existence and the extent of liability, 2) is precluded from disputing fact issues if ins co defended or insured defended w/ due diligence & reasonable prudence, 3) if insured doesn't defend w/ due diligence, then ins. co may relitigate, 4) if reservation of rights letter exists reserving it's right, the conflict exists only on accidental injury v. intentional, then finding of the jury does not bind the ins. co. in a separate coverage lawsuit, but all other undisputed coverages are binding on the ins. co if defended w/ due diligence, 5) later case of GANDY says that any suit where defendant does defend, i.e. show trial, then that is never binding

4.        Declaratory Judgments

a.        Rules

1)       -If 2 lawsuits, one plaint v. insured, and second insured v. ins. co, prior Texas law said that while first suit pending then cannot decide the second b/c that would be an impermissible advisory opinion. This case held that second case, logic requires us to  hold that if no duty to defend based on the pleadings, then never can have a duty to indemnify. Thing to watch, though, is a change of pleading.

2)       -Rule/EXAM - If try to get around an exclusion, plead a recognized cause of action.

3)       -Rule/EXAM - when file declaratory judgment action, indemnity is advisory only.  Meaning that many ins co's caught defending a suit for many years only b/c determining coverage can be greatly difficult

4)       -Rule/EXAM - rule of extraneous evidence: allege existing cause of action

b.       Examples

1) Western Heritage v. Pepe's

-Rule/EXAM - If try to get around an exclusion, plead a recognized cause of action.

-Rule/EXAM - when file declaratory judgment action, indemnity is advisory only.  Meaning that many ins co's caught defending a suit for many years only b/c determining coverage can be greatly difficult

-Rule/EXAM - rule of extraneous evidence: allege existing cause of action

        2) Farmer's v. Griffin

-Review: -If 2 lawsuits, one plaint v. insured, and second insured v. ins. co, prior Texas law said that while first suit pending then cannot decide the second b/c that would be an impermissible advisory opinion. This case held that second case, logic requires us to  hold that if no duty to defend based on the pleadings, then never can have a duty to indemnify. Thing to watch, though, is a change of pleading.

5.        Burden of Proof

a.        Class Rules

1)       Insured must prove claim in scope of insurance agreement/K

2)       Insurance company then must prove an exclusion applies

3)       Insured finally proves that an exception to the asserted exclusion exists

II.                   Automobile Policies

A.      Generally

1.        5 Types of Coverage within Policy

a.        Liability                                                                          3rd Party

b.       UM/UIM

c.        Personal Injury Protection (“PIP”)                                            1st Party

d.       Collision

e.        Comprehensive

2.        Generally

a. Texas Auto Policy

-Contains:

1)       Liability - 3d party coverage. Minimum limit is 20K per person, 40K per accident, both for bodily injury.  15K for property damage.  This is commonly called 20/40/15. The way it works is that 20K is most paid per person, but most ins. co will pay for the whole accident is 40K.

These are 1st party coverage (below):

2)      PIP - personal injury protection - med. bill + 80% lost wages, required to be offered

3)      UM/UIM - uninsured motorist & under insured motorist coverage, required to be offered

4)      Collision, subject to deductible

5)      Comprehensive - theft, hail, tree limb, things that damage car that aren't collisions, often w/ deductible

6)      (occasionally) Ed pay - only medical and normally replaced by PIP

3.        Ownership, Maintenance, & Use

a.        Rules

1)       Auto policy covers ownership, maintenance, & use, but additional insureds are only covered for use

2)       Permissive users are insureds, but maintainers are NOT.  Nevertheless, insured is ALWAYS covered.

3)       -Rule/EXAM - Must give effect to the purpose and intent of the policy.  The only coverage given is for the purpose given under the policy.  IF the policy language does not define, then look to purpose & Intent, facts, and other case law

4)       -Rule/EXAM - for someone to be covered under an auto person, they must fit one of the many definitions of covered person in the policy and use looks to the purpose and intent of the person using the vehicle to determine if covered

b.       Examples

1) Nationwide v. MacFarland

-Rule/EXAM - Must give effect to the purpose and intent of the policy.  The only coverage given is for the purpose given under the policy.  IF the policy language does not define, then look to purpose & Intent, facts, and other case law

-Rule/EXAM - for someone to be covered under an auto person, they must fit one of the many definitions of covered person in the policy and use looks to the purpose and intent of the person using the vehicle to determine if covered

-Purpose Test: If purpose of action is use, then coverage, but if to fix or maintain the vehicle then maintenance, and no coverage.  See p. 8 of the case.

B.      Exclusions

1.        5 Types

a.        Family Member

b.       Fellow Employee

c.        Excluded Driver

d.       Permissive User

e.        Business Use

2.        Family Member

a.        Rule -The law of the state of Texas is that family member exclusion is both valid and invalid.  Invalid up to minimum limits (20/40 for bodily injury b/c exclusion only applies to bodily injury). Valid beyond the minimum limits. Court reasoned that b/c policy of the State of Texas is to provide 20/40, it would be against public policy to allow an EXCLUSION of those limits.  However, EXCLUDING anything beyond those limits is valid.-Example: Coverage exists for 100/300. Injured family member, and gets judgment for $75K. How much must ins co pay? Ins co pays 20K (only owes) but above that amount, the exclusion is valid.

a.        Example - National County v. Johnson (ON EXAM)

-Family Member exclusion -

-Plurality Opinion - important b/c all

-Public policy that family member exclusion allegedly violates is

-Rule/EXAM - Public policy wins regardless of policy  (see p. 6 of case) - therefore NO MORE FAM MEMBER EXCLUSION IN TEXAS

REVIEW/PLATT: ALL ON EXAM:

-Family member exclusion, which says that we do not provide liability coverage for you or any family member for bodily injury to you or any family member (exclusion C)

-You is always the named insured and spouse of named insured, if spouse cohabitates

-Family member defined as those living w/ you related by blood, marriage, or adoption

-Reason of exclusion is that there is a greater risk of fraudulent claims b/t members of the same family. Medical insurance is supposed to cover that

-The law of the state of Texas is that family member exclusion is both valid and invalid.  Invalid up to minimum limits (20/40 for bodily injury b/c exclusion only applies to bodily injury). Valid beyond the minimum limits. Court reasoned that b/c policy of the State of Texas is to provide 20/40, it would be against public policy to allow an EXCLUSION of those limits.  However, EXCLUDING anything beyond those limits is valid.

-Example: Coverage exists for 100/300. Injured family member, and gets judgment for $75K. How much must ins co pay? Ins co pays 20K (only owes) but above that amount, the exclusion is valid.

-Last page of sample is an ENDORSEMENT stating this, #3, part A.

3.        Fellow Employee - Allowed

4.        Excluded Driver - Allowed

5.        Permissive User - Allowed

a.        Rule - Look only to the subjective belief of the person driving the automobile, including 2nd, 3rd, and 4th, drivers, but see the factors below for the proper analysis of cases w/ the old rule

b.       Examples

1) Snyder v. Allstate

-1st issue: Is the vehicle an owned vehicle under the policy?

-Rule: If there's a definition of the term in the policy, we go w/ it

-Here defined as a vehicle listed in the policy, and doesn't matter who actually owned it.

-2nd issue: What was the scope of permission?

-2 fact questions: authority and consent.

-Called case of the 2nd permittee: 1st permittee gives permission to the 2nd permittee. Here dad gave permission to daughter who gave permission to Snyder

-So is Snyder a permissive driver, which the policy covered? MAIN ISSUE

-Thus, issue: Whether Snyder had implied permission.

-2 part test: 1) does first permittee have AUTHORITY TO GIVE PERMISSION and 2) WHETHER CONSENT GIVEN, after AUTHORITY GIVEN.

-Coverage found b/c both elements of test

-(permissive use case that is no longer good law, just good analysis) but only for the permissive use portion

2)       Royal v. Abbott (permissive use case that is no longer good law, just good analysis)

-Facts: Herring = owner, Landers = driver,

-Issue: Implied permission granted from past conduct?

-Must have permission to qualify as an insured, and implied permission is enough, meaning "course of conduct among the parties" - term of art

-None found here, but court and jury allowed to look at ALL facts surrounding the circumstances

-Thus implied permission is a fact question, although here decided as a matter of law

-NOW: Permissive use no longer applies; now any person using your car is covered under the policy.  However, now an exclusion to anyone w/o a reasonably belief to use the vehicle.  So before, worried about the owner and permission giver, now we only care about the driver's reasonable belief. So in prior 2 cases, only look at driver.

3)      USAA v. US Fire

-Anna was using the car, just by being a passenger

-And was operating the vehicle by exercising dominion & control (i.e. that's the test: dominion & control)

-3 policies at issue: 1) Auto by us firs, 2) auto by USAA, & 3) Homeowners' policy by USAA.

-I1: Does HO policy apply? Is she using it and operating? She did both, thus exclusion applies and no coverage applicable.

-RULE: Policy issued to vehicle owner pays FIRST!!! Thus USAA only has to pay beyond us fire's coverage.

-Whether Anna was insured depends only on whether she was using the car. She was and therefore is insured. As to exclusion (whether she had a reasonable belief that she was authorized) - court reasoned that there was nothing in the pleading that showed if she had this belief, thus nothing that would trigger exclusion.  However, ins co may not have to pay if can prove later.

-Shows new focus is on the objective belief of the driver

6.        Business Use - Allowed

C.      UM/UIM Coverage

1.