Recent Insurance Case Law in Texas

A. DECEPTIVE TRADE PRACTICES

BAD FAITH:

1. State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42 (Tex., February 13, 1998): The court held that a homeowner's insurer breached its duty of good faith and fair dealing by denying its insureds' burglary and fire loss claims based upon a biased investigation intended to construct a pretextual basis for the denial.

2. Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482 (Tex., April 14, 1998): The Texas Supreme Court held that an insurer's employee-agent whose duties included soliciting and selling insurance policies for his employer, as well as explaining policy provisions and premium calculations to customers, was a person subject to liability under Tex. Ins. Code art. 21.21, prohibiting unfair or deceptive acts or practices in the "business of insurance." The Court emphasized that an employee of an insurance company who has no responsibility for the sale or servicing of insurance policies and no special insurance expertise does not engage in the "business of insurance" for purposes of Article 21.21 liability.

3.St. Paul Surplus Lines Ins. Co. v. Dal-Worth Tank Co., Inc., _____ S.W.2d _____, 41 Tex. Sup. Ct. J. 380 (Tex., February 13, 1998) (not yet reported): The Court held that even though a liability insurer was negligent in failing to ascertain whether its insured had been sued and in delaying for four weeks after learning that a judgment had been entered against the insured, there was no basis for holding that the insurer knew that it was acting falsely, deceptively or unfairly toward its insured for purposes of awarding statutory penalty damages under the Texas Deceptive Trade Practices Act ("DTPA").

4.Muniz v. State Farm Lloyds, _____ S.W.2d _____, 1998 WL 224882 (Tex. App. - San Antonio, May 6, 1998) (not yet reported): In a suit brought by insureds against their homeowners' carrier and an engineering firm hired by the carrier to investigate their insurance claim, the court held that where the trial court in a previous judgment had found that the insurer had a reasonable basis for denying the plaintiffs' claim, the plaintiffs were foreclosed from pursuing any claims based on breach of the duty of good faith and fair dealing or breach of any statutory duty predicated upon liability becoming reasonably clear, as well as any complaint that the insurer had engaged in unfair trade practices by forcing the plaintiffs to sue to recover under the policy. The court also held that the engineering firm, which was acting as an agent of the insurer in investigating the claim, owed no duty to the insureds and, therefore, was not liable to them as a matter of law for its allegedly negligent investigation.

B. STOWERS CLAIM:

1.Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489 (Tex., April 14, 1998): The Court held that an insured had no cause of action under the Stowers doctrine, whereby an insured can sue his insurer for negligently failing to settle a third party's claim within policy limits, where the third party's settlement offer did not include an agreement to provide a full release which included hospital liens.

2.State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d 38 (Tex., February 13, 1998): The Court held that a settlement offer which exceeded the insurer's policy limits was not an unconditional offer to settle within limits and, therefore, did not trigger the Stowers duty to settle.

C. GENERAL LIABILITY:

1.POLLUTION EXCLUSION:

a.Guaranty National Ins. Co. v. Vic Manufacturing Co., 143 F.3d 192 (5th Cir., June 5, 1998): The court, applying Texas law, held that contamination from dry cleaning equipment sold by the insured was within the pollution exclusion of a product liability policy, and that the "sudden and accidental" exception to the exclusion did not apply. Although the petitions in the underlying lawsuits contained the words "sudden and accidental," they described gradual pollution occurring in the regular course of a dry cleaning business during a period of over forty years.

b.E&L Chipping Co. v. Hanover Ins. Co., 962 S.W.2d 272 (Tex. App. - Beaumont, February 5, 1998): The court held that the absolute pollution exclusion of a liability policy barred coverage for a claim arising out of the contamination of a lake and groundwater as the result of run-off of water from the insured's effort to extinguish a fire on its property. The court also held that the "hostile fire" exception to the exclusion, for property damage caused by heat, smoke or fumes from a hostile fire, did not apply because the alleged cause of the property damage was liquid pollution.

2. INTENTIONAL MISCONDUCT:

American States Ins. Co. v. Bailey, 133 F.2d 363 (5th Cir., January 30, 1998): The court held that a CGL policy did not afford coverage for a church and its ministers for claims based on alleged sexual misconduct by the church's pastor. The court held that the alleged misconduct was not accidental and fell within a "sexual action" exclusion in the policy. The court also held that all claims against the church and its others ministers, including those based on their alleged failure to adequately respond to the pastor's conduct, were interdependent on intentional sexual actions and, therefore, excluded.

3.PROFESSIONAL SERVICES EXCLUSION:

State Farm Lloyds v. Performance Improvement Corp., _____ S.W.2d _____, 1998 WL 130254 (Tex. App. - San Antonio, March 25, 1998, review requested) (not yet reported): The court held that a business liability policy did not afford coverage for the insured, which had been hired by a landlord to screen its employees, in a suit brought by the mother of a young child who had allegedly been molested by an employee of the landlord after he had been screened and tested by the insured. The court held that where the petition alleged that the insured was negligent in failing to check the background of prospective employees and to administer a test more capable of revealing deviant or criminal tendencies, the lawsuit was based solely upon the insured's performance of professional services (management consulting) and, therefore, fell within the "professional services" exclusion.

a.E&L Chipping Co. v. Hanover Ins. Co., 962 S.W.2d 272 (Tex. App. - Beaumont, February 5, 1998): The court held that an insured's failure to tender lawsuits to its CGL carrier for a defense at any time during the pendency of the lawsuits relieved the insurer of its duty to defend, despite the insurer's denial of coverage for another claim arising out of the same occurrence and despite the absence of prejudice to the insurer. The court stated that promptly providing written notice of suit and immediately forwarding suit papers were conditions precedent to the duty to defend. Further, the insured's voluntary payment of its defense costs without its insurer's consent precluded recovery of such costs.

b.Certain Underwriters at Lloyd's v. Oryx Energy Co., 142 F.3d 255 (5th Cir., May 26, 1998): The court held that a liability insurer was not estopped from arguing its coverage defenses, despite the insured's claim that it never consented to the insurer's condition of reserving its right to dispute coverage. The insurer never fully assumed the insured's defense prior to issuing its reservation of rights letter, the policy did not require the insurer to assume the insured's defense, a letter to the insured informed it that a third party had agreed to defend and indemnify the insured, and the insured could not claim that it was harmed by a settlement which it believed was fair.

D. HOMEOWNERS:

1.State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d 38 (Tex., February 13, 1998): The court held that the insured's judgment creditor was not entitled to sue the insurer as a third party beneficiary where the insured had failed to satisfy the "actual trial" condition of his policy and, therefore, was not entitled to sue the insurer.

2. State Farm Fire & Cas. Co. v. Vaughn, 868 S.W.2d 931 (Tex., May 8, 1998): The Court held that a standard homeowners' policy's business pursuits provision excluded coverage for the insured for a claim brought against her arising out of her operation of a full-time, for-profit, residential child care business, where the insured's liability was based upon the way in which she conducted her business.

3.Balandran v. Safeco Ins. Co. of America, _____ S.W.2d _____, 41 Tex. Sup. Ct. J. 1153 (Tex., July 3, 1998) (not yet reported): The Court held that a Form B standard homeowner's policy covered damage to the insured's dwelling from foundation movement caused by an underground plumbing leak, and that Exclusion 1(h) does not apply to a loss caused by the accidental discharge, leakage or overflow of water or steam from within a plumbing, heating or air conditioning system or household appliance.

E. AUTO:

1.Decker v. Urrutia, 965 S.W.2d 26 (Tex. App. - Houston [1st Dist.] February 12, 1998, review requested): The court held that the liability limits stated in a vehicle rental agreement, as permitted by an auto policy endorsement covering lessees only to the extent and for the limits of liability agreed to under the agreement with the named insured, were void where the limits were not written on forms prescribed by the State Board of Insurance and were not written into the policy, as required by Tex. Ins. Code art. 5.06.

2.Home State County Mut. Ins. Co. v. Acceptance Ins. Co., 958 S.W.2d 263 (Tex. App. - Amarillo, November 13, 1997): The court held that a trucking company's auto policy, which covered damages resulting from the ownership, maintenance or use of a covered auto, provided no coverage for injuries incurred in a collision between the plaintiff's vehicle and a load of rock and sand delivered by the insured to a construction site, under the "complete operation" rule equating unloading with delivery. The load in question was used as road base for a construction project and was delivered and dumped by the insured's truck before the collision.

3.Carter v. Allstate Ins. Co., 962 S.W.2d 268 (Tex. App. - Houston [1st Dist.] February 5, 1998) (review requested): The court held that an auto insurer's alleged presuit oral promise to settle injured third parties' claims against its insured was not barred by the statute of frauds and did not violate a procedural rule requiring agreements "touching any suit pending" to be in writing.

4.UNINSURED/UNDERINSURED

MOTORIST:

a.United Services Auto. Ass'n v. Keith, 970 S.W.2d 540 (Tex., June 5, 1998): The Texas Supreme Court held that an insured did not have a claim under the UM/UIM provision of her auto policy for injuries she sustained as a bystander witness to the death of her daughter in an automobile accident. The insured was not at the scene when the accident occurred, she did not see or hear the crash, and the emotional impact that she suffered did not result from a contemporaneous observance of the accident, although the insured arrived at the accident scene and witnessed her daughter's pain and suffering while rescue operations were underway.

b.Kim v. State Farm Mut. Auto Ins. Co., 966 S.W.2d 776 (Tex. App. - Dallas, March 30, 1998): The court held that an auto insurer was entitled to an offset reducing UM benefits by the amount of PIP benefits which it had paid, where the policy required the insurer to pay UM benefits not paid or payable under PIP coverage.

F. LIFE:

1.Riner v. Allstate Life Ins. Co., 131 F.3d 530 (5th Cir., December 16, 1997): The court held that a temporary insurance agreement furnished to the insured at the time he applied for life insurance was a binding contract for temporary insurance coverage pending approval of his application; that coverage began when the insured completed the required medical examination and was not terminated by the occurrence of any condition specified in the contract; and that the insurer's attempt to make truthful answers on the application a condition precedent to coverage was inconsistent with Texas law defining an insurer's qualified right to avoid coverage on the basis of an applicant's untruthful representations in a life insurance application. The court stated that the insurer's failure to comply with a statutory provision precluding an insurer from relying upon representations in an application unless a copy of the application is attached to and made a part of the contract or policy of insurance, rendered any evidence that the insured made misrepresentations in his application inadmissible and precluded the insurer's misrepresentation defense as a matter of law.

2.Butler v. Group Life & Health Ins. Co., 962 S.W.2d 296 (Tex. App. - Austin, February 12, 1998): The court held than an insured's death from a self-inflicted gunshot wound while playing with what he believed to be an unloaded gun was "accidental" under an accidental death policy, where the insured had fired an empty gun shortly before the fatal shot, someone had inserted a clip in the gun without his knowledge, and the evidence showed that the insured did not seem depressed or suicidal.

G. PROFESSIONAL LIABILITY: