Insurance Law
CHAPTER 1
A. Basic Principles
1. Two Basic Types of Insurance –First party and Third Party [liability insurance]
Ask yourself who’s damages are being covered? Then you’ll know 1st or 3rd.
* Duties of 3rd party: duty to defend, duty to indemnify (pay) either settle the case, or if a judgment is rendered they will pay it up to the limit of the policy.
1st party Insurance:
- life insurance, health, medical, fire insurance for the house, collision for the car
3rd party Insurance:
- liability insurance
- basically this type of insurance covers the insured when they cause damages to someone else.
Insurance Policy is a basic contract
- the difference is that courts find that insurance K is a K of adhesion because insurance company writes the K
- so that means that the K is construed against the drafter [insurance co.]
- in TX, the legislature tells the insurance co what to put in the K’s
- in TX what is covered is controlled by what the policy says
2. Rules of Insurance Policy (contract) Construction
*courts apply the rule of “construe against” the drafter
*if there is an ambiguity, it will construe the ambiguity against the insurance co.
*ambiguity = it can have two reasonable interpretations
*courts treats policies as K’s of adhesion
*Texas Department of Insurance tells ins co. what to put in the policies.
Barnet
v. Aetna Life Ins.
- first the plaintiff broke his heel in the navey
- Aetna issued policy for Amoco
- then he hurt his knee while working for Amoco
- Aetna wanted to subtract the VA benefits he was getting
- “carve out provision” happens when more than one insurance is insuring the person
1. court said ins policy is a K
2. court says if policy is plainly written you don’t have to refer to rules of construction
3. when language is susceptible to more than one reasonable construction it is ambiguous
4. “justum jeneris” general words applied to things mentioned
5. each part of policy should be given effect
6. construe the language against the ins co and in favor of insured
- Aetna not allowed to “carve out” because policy did not say that
- exclusion should be in plain language
National
Union Fire Ins. Hudson
- claim for damages caused to plane, physical damages to the plane
- 1st party insurance
- ins co denied coverage because the policy said that the pilot had to be licensed
- because plaintiff and instructor were piloting the plane this was key issue
-ins was saying there had to be sole control not dual control
- court said instructor was the licensed pilot even though both had control
Two Types of Ambiguity:
- Tainted: appears on the face of policy as written
- Latent: read sentence and looks straight forward but when applied, more than one way to interpret it: Hudson case
B. General Liability Insurance
1. Two liability Insurer Contractual Duties –Duty to Defend and Duty to Indemnify
3rd party insurance has to duties;
1. duty to indemnify: to pay
2. duty to defend: provide lawyer
2. ISO Commercial General Liability Coverage Form
-Declarations:
* identifies info specific to this policy, who is being insured, policy period, amount of policy
-Insuring Agreement:
* that is the broad grant of coverage, what the ins will cover, general policy
-Exclusions:
* narrow the broad grant of coverage, i.e. motor vehicle exclusion
-Conditions:
* things the insured must do, like pay your premium, give notice of claim, forward suit paper if you are sued.
-Definitions:
* define special terms of the policy, terms that are shown in bold or quotes, these definitions control
* If word is undefined, the court will give it it’s normal meaning, in Websters
3. Notice of Claim
* notice of an accident is so ins co can go get fresh statements from witness, this can come from anyone.
* notice of a lawsuit, is supposed to come from the insured, this could come from someone else, but you have to show that the insured has been properly served.. Harwell
Struna v.Concorde Ins. Serv. Inc.
- auto accident
- rule: in order for insurance co to deny coverage for lack of failure to notify, they have to
show they were prejudiced
- if you can’t show prejudice then you can’t deny coverage
Chiles v. Chubb Lloyds Ins.
- homeowner’s policy at issue in this case
- damages for divorce, husband wanted to make claim to his homeowner’s to pay them
- Issue: did husband provide appropriate notice to ins co.
- court said that ins did not have burden to show prejudice it just had to show that notice was not prompt
- this case has not been overruled but it is WRONG
- TX says all general policies must contain clause that before ins co must show prejudice before denial of claim
Liberty Mut. Ins. Co. v. Cruz
- court said that ins co was prejudiced because they were not notified of suit
- default judgment prejudices as a matter of law
Harwell v. State Farm Mut.
* Hubbard died, Leatherman was injured
* Attorney Groce was hired by Leatherman, Harwell was appointed by Groce to be the administrator of Hubbard.
* Groce gave State Farm petition, police report, The court gave State Farm notice of intent of default or dwop
* Groce did contact State Farm by phone but no more documents
* When Groce served Harwell, she was not yet the administrator, so service was no good
* Harwell never forwarded papers to State Farm
* TC renders judgment for 74k for Leatherman
* Groce waits 31 days before informing State Farm got actual notice of the suit, the court said that all the prior contact were notice of claim but not suit.
* to give notice to the ins co the insured has to forward the actual suit papers to the ins co.
* the insured, but can be the plaintiff’s lawyer, has to give the insurance co. actual notice that proper service has been effectuated, when you send the petition send a copy of the service receipt
* the ins should get notice of proper service of the insured, the insured should forward
copy of notice to ins, the plaintiff’s attorney can send to ins that it has been properly
* the ins may rely on non-cooperation defense if the insured does not help with suit
* there are some cases where it does not matter if the insured helps or not, because there
are many witnesses, so the ins has no defense
CHAPTER 2
A. What is an “occurrence” ?
* in the insuring agreement, of Commercial General liability Policy, usually says “we will all sums …as damages….caused by an occurrence”
* usually a defined term
Travelers Ins. Co. v. Volentine
* the insured performed valve service on a car and the engine was ruined, the insured was sued
* insured asked ins co to defend him in suit
* the insurance policy did not cover property damage to work performed by insured
* the court said the insured only did work on valves, so this exclusion only covered the valve work, not the rest of the engine, so the rest of the engine is covered.
* occurrence as defined in the policy includes an accident.
* what does accident mean? The court said an unexpected, undeseigned, unforeseen, happening from either a known or unknown cause
* the destruction of the entire engine was unexpected from the valve service
* accident: unforeseen, unexpected event this is the normal meaning
Argonaut Southwest Ins. Co. v. Maupin
* insured made K with state of TX, insured Maupin made K with Kipper to dig dirt from his property, but Kipper does not own property, Meyer does.
* Meyer sues Maupin for trespassing and taking the dirt.
* ins co refuses to defend because they said this was an intentional tort, not an accident,
* the court focused on the issue if the duty to defend even arose.
* maupin did not intend to damage meyers, but he intended to take the dirt, it was the action that mattered, not the result.
* TEST: voluntary and intentional act and the damage or injury is natural result then it is not an accident.
* the act was taking the dirt, the injury was taking the dirt
* in Volentine the act was valve job, the injury was engine ruined, not natural result.
Dorchester Dev. Corp. v. Safeco Ins. Co.
* the insured performed for construction of apartment complex.
* insured got sued for bad workmanship, and turn to ins co to defend them
* the court said that damage occurred after the policy expired, so there was no occurrence insured admitted this
* When is it occurence: the actual damage has to occur during the policy period, not when the act was committed.
Trinity Universal Ins. Co. v. Cowan
* cowan sued gage and h.e.b., gage made some extra copies of revealing pictures
* she sued for negligence, gross negligence, mental anguish…this is really an invasion of privacy
* court said this was not an occurrence, used Maupin [natural result] and determined that his act was an intentional act, he copied the pictures and showed him to his friends, the injury was making extra copies of her pictures and showing them to his friends.
* Gage argued that he did not expect that Cowan would find out about it, so he wanted this to be considered an accident.
* if it is an intentional tort it will not be an accident “charged with producing” the result
* the court did say that not all intentional conduct is not an accident, a hunter intentionally shoots at a deer, but it turns out that it was person.
* Test: ordinarily follows somewhat similar to Maupin
State Farm Lloyds v. Kessler
* Kessler’s selling house to Fannings, foundation problems
* State Farm said would defend, but would find out if they had duty
* court said there was a duty to defend because there was property damage
* was there occurrence? CA says there was no occurrence because under TX law if the act was intentional [making false statements, nondisclosures] is not occurrence
* misrepresentations do not cause property damage, they cause financial damages, the defects were already there so there is no property damage
* if ever you sell a home disclose everything
King v. Dallas Fire Ins. Co
- employee attacks other worker, employer wants ins to defend
- ins says that act was intentional, but employer says that he did nothing
- in deciding whether there is an “occurrence” you view it from the insured’s standpoint
- victim sues employer: negligent hiring, retention, supervision, training and respondent superior
- ins says that the employee’s assault was not an occurrence because it was intentional
- “separation of insureds” clause: means that the policy applies to each insured separately
- how do we apply this clause to the “occurrence” requirement
- if the insurance only wanted this clause to apply to exclusions, they would have said it
- the court said that the separation clause applies to occurrence, then you ask if that
insured intended the act to happen, therefore there is a duty to defend
- what about respondent superior? The court does not say much, but usually this imputes
the acts of the employee to the employer, all you have to show a master/ servant,
when this is the only issue, professor says that ins has no duty to defend, so if you are
a plaintiff you want to request relief for negligence so that you can get relief.
CHAPTER 3
A. What Damages are “Covered”?
- policy usually covers: bodily injury or property damage
- bodily injury: does not include mental anguish or emotional distress
- Exception 1: physical manifestations of mental anguish: if you have them and plead them, then you have bodily injury, so plead them; this is an exception
- Exception 2: mental anguish is covered when is “because of”: some other injury that is covered by the policy; like: bodily injury or property damage
- property damage: physical injury or loss of use tangible property
- property damage: does not include purely economic loss
- Exception: 1. where your economic loss is because of property damage or bodily injury
example; is a car wreck the damage is to your car but part of your damages is also to rent
a car,
- Exception 2. economic loss is covered if it is a measure of damages for loss of use of tangible property: comes up like in loss of rent profits; the suit is for rents that were lost
1. “Bodily Injury”
Trinity Universal Co. v. Cowan
- h.e.b. pictures case
- she sued him for bodily injury for mental anguish, she took an assignment from him to
sue only the ins and not him
- was mental anguish alone “bodily injury”
- court says no. bodily injury and mental injuries are distinct
- “bodily injury” does not include mental anguish or emotional distress
- she did not plead: the stomach aches, nausea
- physical manifestations of mental anguish: if you have them and plead them, then you have bodily injury
2. “Property Damage”
Lay v. Aetna Ins. Co.
- Lay was hired to find oil well, he instructed wrong location of oil well, j.j. were owners
of lease to drill
- j.j went to the owner of the property to get the right to continue drilling
- j.j sued lay for purchase of assignment, att fees, barrels of oil they did not get while they
had to shut down to get the assignment
- ins refused to defend, because this is not property damage, not tangible property
- is this occurrence property damage?
- purchase
of an assignment was not ‘tangible property”
- j.j were subsequent
purchasers, the cause of action for property damage does not pass to
them for the barrels of oil, they did not loose the use of the oil because they never had the
oil
Houston Petroleum Co. v. Highlands Ins. Co.
- investors original suit alleged: economic loss, and loss of capital contributed because
Houston petro told them they were going to hit oil and did not, misrepresentation
- insured is not covered by the ins policy
- Not occurrence: under the plain meaning, because not ambiguous
- economic loss is not tangible property; therefore not property damage
- original claim does not allege personal injury, therefore no coverage
- property damage does not include purely economic loss
Terra Int’l Inc. v. Commonwealth Lloyd’s Ins. Co.
- defendant sold land, which was in a flood control district, the district sold bonds,
- plaintiff alleges that defendant did not disclose these facts
- does ins have duty to defend: DTPA, c/l fraud, negligence, Issue: is it property damage?
- insured had seven policies, all similar
- 3rd party does not allege “bodily injury”; only alleged increase in taxes
so only focus on property damage
- negligent misrepresentations resulted in loss profits are not property damage
Clemons v. State Farm Fire & Cas. Co.
- clemons brought duty to defend in a prior lawsuit filed by residents of a subdivision
- Procedure: tc: granted summary judgment for ins,
- the appellees approved the construction of a garage and house in violation of deed restrictions, they built the house too close to the set back line
- the original plaintiffs sued them because they approved the plans that violated the restrictions, so clemmons went to ins to defend them
- trial court granted summary judgment because prior lawsuit was not for property damage or bodily injury
- court said there was no claim of damages to physical property, plaintiff’s only wanted an injunction, they only had loss of value to the property which is a purely economic loss,
- Texas definition of property damage is different from GLP, does not have to be physical or tangible.
- this was a purely economic loss that did not affect the property, they court got here because the plain and ordinary meaning of injury to property is physical injury.
3. Punitive Damages
American Home Assurance Co. v. Safeway Steel Products Co.
- Rawlings case: original suit was for football injuries sustained while wearing a helmet, ins paid but reserved the issue of punitive damages
- Safeway case: other original suit was for defective scaffold, ins again reserved punitive damages
- both cases were awarded punitive damages for grossly negligent conduct; note that this is the only type of punitive damages that will be an occurrence: gross negligent
- public policy argument: the insurance company argued that punitive damages are meant to punish
- court said that insurance co. could exclude punitive damages; but these policies did not say that; the court did not buy the argument that denying punitive damages to be covered will deter culpable actors
- STILL: good law; punitive damages are still covered in Texas; unless there is an exception in the policy; Texas sc has never ruled on this issue
- insured’s were arguing that the policy language says “all sums” which they wanted
to interpret as including punitive damages
- court held that there is no public policy in Texas for allowing the insured to shift the punitive damages award to their insurance carriers
Hartford Cas. Ins. Co. v. Powell
- punitive damages from motor vehicle; Powell: she was intoxicated and crashed into Gann
- Powell’s employers insurance is Hartford
- Erie Guess: a federal court has to guess what the Texas sc would say on an issue they have never ruled on
- auto coverage policy, drunk driver
- 5th circuit interprets Texas law and says punitive damages against public policy because
it would defeat the whole purpose of punitive damages to punish and deter
- professor says; that if the Texas sc ever rules on this issue they would follow this opinion because of the public policy argument
- for exam: current Texas law is that punitive damages is covered and public policy does
not bar it, unless there is an exception in the ins policy; for bonus points: but a federal court has predicted that the sc would say it does violate public policy and say not covered. Safeway is the current law: punitive damages are covered
CHAPTER 4
A. No Coverage for “Property Damage” to “Your Work” or “Your Product”
- we looked at the commercial liability coverage policy in the book;
- exclusion: j
- these exclusion are referred as business risks exclusion
- no going to insure the insured for running a sloppy business
these exclusion do not apply to damage to other property: roofing example; the roof is excluded from coverage; but the damage to the inside of the property is not excluded.
The purpose of these exclusions is to prevent coverage for bad work, because the insured had control over these damages, but the insurance will cover damages that they have no control over.
Exclusions: not covered
- j5: real property….performing operations…if the property damage arises of that operations
- j6: any property…..your work…on it
“products completed operations hazard”
- l: property damage to your work included in the PCOH…except work performed by a subcontractor.
“your work” means worker operations performed by you or your behalf, includes work done by subcontractors
PCOH: basically, all the work under the contract has to be concluded, if not they are still conducting operations,
-it means that a hazard [risk] that happens at a certain time…after the work is done….is said to be included in the PCOH
- when did the damages occur?
- if before complete; j5 applies
- if before complete; j6 applies
- if after the work completed; l applies you will be covered if subcontractor did the work;
Employers Cas. Co. v. Brown-McKee, Inc.
- hired to build a grain elevator, they built it wrong, they had to repair it;
- the company that bought the grain elevator lost storage revenue
- insurance company said that their work product is not covered; exclusion said it
- the damages were property damages because the loss of revenue resulted because of a
faulty grain elevator
- court said that exclusion applies because;
- you have to look at what is damaged; if what is damaged is to the insured work; then it is not covered; but damage to other property caused by the faulty work;
Eulich v. Home Indem. Co.
Gar-Tex Construction v. Employers Casualty Company
- city of Emis hired company to construct clearwell: underground storage to store water
- plaintiff was hired to build the clearwell but it was damaged when it rained
- there were supposed to be pumps to take care of the rain damage; but it did not work
- were they conducting operations? Court said yes because they were still working on
completing the clearwell, so the exclusion does apply; not covered
- when is your work complete: the contract is complete or you finish your part and turn it over to someone else
- the contract required them to prevent just this type of accident from happening
Houston Building Service v. American General
- HBI does janitorial services and they applied linseed oil and ruined wood floors and doors in the building
- this was a 1 year contract; so you were still conducting operations; HBI was trying to say that the job was completed
- personal property attached to real property becomes real property; like the doors
- the policy language of this case is good law
General Manufacturing d/b/a Rockwall v. CNA Lloyds
- Rockawall manufactured windows and sold them to builders
- their windows started cracking; so they had to replace them
- sued their ins co. to cover for all the windows that they replaced
- the crack windows are their work product
- they were trying to argue that it was it was not just cracked windows, it was diminishing
the value of homes
- court said no coverage because the cracked windows were their work product
CHAPTER 5
A. Continuous Damage or Injury Claims – Which Policy (ies) Is (are) “Triggered”
- what happens when the damage or injury that is continuous that spans different policies who pays?
- damages can span over a year; so what policy pays? The old one or the new one? The old policy has expired and have moved on to the new one.
How do you know which theory to use:
- it is difficult to predict which theory the court will use
- are the facts of your case similar to any Texas case, if no Texas case is it similar to any federal case who rule on this?
- Court have come with different theories to apply to each case
Four theories that apply to continuous injury:
1. First Manifestation of Damages Theory
Dorchester Dev. Corp. v. Safeco Ins. Co
- 1st suit: B&L v. Dorchester because of defective workmanship in construction of apartment complex
- 2nd suit: Dorchester v. Safeco: ins will not defend because of exception: only care when the damage occurred;
- Safeco: argued that there was no occurrence; because policy had expired
- CA affirmed TC; no duty to defend because there was no occurrence
2. Continuous (or Triple) Trigger Theory
Cullen/ Frost Bank v. Commonwealth Lloyd’s Ins. Co.
- bank sold condo’s
- the condo owner’s sued the bank and the bank sought duty to defend from ins
- condo’s claimed negligence in disbursing funds and not fixing the problems
- bank argued that it was a “continuous occurrence”; the ins argues that only one occurrence discovered in 1986; court held that there was more than one occurrence; why facts did the court look at? The court said that the repeated breakdown of the elevators; the condo owners alleged that they kept breaking down; so each time they broke down; it caused an additional loss of use of the property; this is the one the professor believes the court hung the repeated argument on;
- tc: gave summary judgment to ins, but CA: reverse
3. Injury in Fact Theory
Dayton ISD v. National Gypsum Co.
La Farge Corp. v. National Insurance Fire Ins Co.
- sold cement to Lone Star
- Lone Star used the cement to manufacture RR cross ties; they began to crack prematurely and deteriorated
- they settled; but National did not participate; this suit is to recover the part of the settlement that National owes to La Farge
- Texas law was applied because the policies were written and signed in Texas; Maryland court made an “Erie” guess as to what the Texas SC would do; they guessed that they would apply an Injury in Fact theory
- the holding was that National was on the risk somewhere on the time line; but they don’t have to pay the whole sum because the court prorated the time on the risk that National; the period of time that the injury in fact occurred;
- injury in fact occurred when the ties were manufactured until they found out about the damage occurring;
4. Exposure Theory
Insurance Co. of N. America v. Forty-Eight Insulations
1955 1972 1975 1976 1977 Present
self insured
INA insured AFM llnat trav Liberty Mutual
- who will cover? When did the injury occur?
- court applied the exposure theory:
- exposure period: is the time the person was first exposed to asbestos until the end of the exposure:
- example: goes to work in 1966 exposed and works there until 1974;
- INA would be responsible for 66 to 72 and
- AFM from 72 to 74
- basically the amount of time the ins was on the risk when the person was exposed to
- there is latency period before you are diagnosed: basically when it is manifested; then you go along until you start to suffer from the asbestos
- exposure period; latency period; then injury period
- for example: the manifestation would say that liberty mutual has to pay because that is when the injury was manifested
- the continuous theory would say that ins has to pay for every stage of the exposure; latent and manifestation.
- injury in fact: would require a very detail injury report; hard to pin down the exact date of injury in fact:
- so , this exposure theory ignores the policy language
- the formula:
#
of years [or months] [ins on the risk ] [x] plaintiffs total damages =
# of years that the plaintiff was exposed
- usually firms go to SS office to get a print out of where the person has worked and go from there; to determine which companies he worked for; to see when they were exposed
CHAPTER 6
- Concurrent causation doctrine: Partridge [California] when 2 independent clauses come to cause an injury; the court says that both policies have to provide coverage: the hitting the bump while driving and the modification of the gun were responsible for the injury.
- Partridge did not apply because negligent entrustment was not the cause of he death; only the driving was the cause. Here there was only one independent cause of the accident: the driving.