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Insurance Law
South Texas College of Law Houston
Platts Jr., Henry S.

 
INSURANCE LAW OUTLINE
Platts – Fall 2008
 
I.      CHAPTER ONE (Basic Rules & GLI)…………………………………………………………………………………………………………………………….. 1
II.      CHAPTER TWO (Accident/Occurrence)……………………………………………………………………………………………………………………….. 6
III.      CHAPTER THREE (Damages)…………………………………………………………………………………………………………………………………….. 10
IV.      CHAPTER FOUR (Continuous Damage/Injury – Which Policy Triggered?)…………………………………………………………… 13
V.      CHAPTER FIVE (Exclusions)………………………………………………………………………………………………………………………………………. 17
VI.      CHAPTER SIX (Duty to Defend)…………………………………………………………………………………………………………………………………… 22
VII.      CHAPTER SEVEN (Reservation of Rights)…………………………………………………………………………………………………………………. 25
VIII.      CHAPTER EIGHT (Auto Liability)……………………………………………………………………………………………………………………………… 32
IX.      CHAPTER NINE (UM/UIM Coverage)………………………………………………………………………………………………………………………… 36
X.      CHAPTER TEN (Homeowner Insurance)……………………………………………………………………………………………………………………. 41
XI.      CHAPTER ELEVEN (Failure to Settle/Assignment)…………………………………………………………………………………………………… 45
XII.      CHAPTER TWELVE (Duty of Good Faith & Fair Dealing)………………………………………………………………………………………. 50
XIII.      CHAPTER THIRTEEN (Extra Contractual Statutory Claims)…………………………………………………………………………………. 53
 
 
I.      CHAPTER ONE (Basic Rules & GLI)
A.      Basic Principles
1.       General Definitions:
                                                    i.      Insurer- company issuing insurance policy
                                                   ii.      Insured – individual covered by the insurance policy.
·         Policy Holder – (aka – ‘the named insured’)àthe person/business who purchased the policy
–          Generally: the insured and the policy holder have the same rights under the policy.
·         Non-named (other insureds) the employees, partners or other officers under the policy
                                                 iii.      Coverage – this is governed purely by the language in the policy.
2.       Two Basic Types of Insurance:
                                                    i.      First Party—issued to cover an insured’s own loss
·         person damaged is the person insured
–          insurance for the insured’s losses à damages to me
–          Ex. If your house burns down, the fire insurance pays for the cost of the house; collision insurance covers the damage to your vehicle; life insurance pays beneficiaries when you die; health insurance covers out of pocket expenses for doctors
                                                   ii.      Third Party-liability insurance
·         covers damage to a third party (plaintiff) caused by the insured
–          (coverage for liabilities caused by insured to others à damages I caused)
–          Ex. A car wreckà the harm that you cause to your own car is covered under first party insurance but the harm you cause to the other car is third party insurance b/c you are liable to a third party for damages.
3.       Rules of Insurance Policy (Contract) Construction:
[Generally àit is a fundamental rule of law that insurance policies are contracts and as such are controlled by rules of construction which are applicable to contracts generally. If the insurance contract is expressed in plain and unambiguous language, a court cannot resort to the various rules of construction. When language in a policy is susceptible to more than one reasonable construction, it is patently ambiguous.] 4.       **THE 7 RULES OF CONSTRUCTION**
                                                    i.      These can only be applied if the court finds ambiguity in the policy.
                                                   ii.      If the policy uses only plain language (unambiguous) à these rules of construction should not be used.
                                                 iii.      (1) Contra Proferentum: “construe against the drafter”
·         Ambiguity construed against drafter (insurance company) since insurance is an adhesion K.
–          ambiguities will be read in favor of the insured.
·         EXCEPTON à manuscript policy: negotiated by the parties so not construed against the drafter; custom written for the insured; not very common.
 
                                                 iv.      (2) Contract of Adhesion: “take it or leave it”
·         Generally the insured does not have a say in the terms of the K so the policy is strictly construed against the drafter b/c insured is in weaker position
–          Exception: large commercial policies may be negotiated
·         Note. in TX, most insurance polices aren’t drafted by the insurance companies themselves – they are required by the TDI to use standard polices.
 
                                                  v.      (3) Reasonable Expectations:
·         If ambiguity/uncertainty in coverage exists à look to what the average insured’s reasonable expectations would be.
–          Ask: Would a reasonable insured expect it to be covered?
§ If so, construe the policy in harmony with the average insured’s reasonable expectations of what the policy covers.
·         *This is not the rule in TX!* à In TX you have a duty to read/know what is in your policy.
 
                                                 vi.      (4) Coverage Exclusions:
·         Barnett v. Aetna
–          coverage exclusions are strictly construed in favor of the insured à because there is an ambiguity, the insured cannot offset VA benefits because they are not specifically identified in the language and applying ejusdem generis, VA benefits are not based on employment, thus the offset for earnings from employment exclusion does not apply.
·         National Union Fire v. Hudson
–          intent to exclude coverage must be expressed in clear & unambiguous language.
–          In this case, because the intent to exclude did not specifically exclude situations where two pilots were flying, it is not clear that the exclusion clause must be interpreted to exclude coverage.
§ courts do not look at what insurer meant or intended – only at what ‘s written—so an intent to exclude coverage is strictly construed in favor of the insured.
 
                                               vii.      (5) Ambiguity:
·         If more than one reasonable construction of the contract exists à it will be considered ambiguous. Ambiguity is a question of law determined by the court.
·         There are two basic types:
–          1) patent – ambiguous on its face (language can read two different ways)
–          2) latent – have to look at the facts before any ambiguity manifests itself; the ambiguity only becomes apparent when you try to apply the language to a fact pattern or set of circumstances and only then does the ambiguity arise.
                                              viii.      (6) Ejusdem Generis: “of the same kind”
·         Where specific and particular enumerations of persons or things are followed by general words, the general words are not to be construed in their widest meaning or extent but are to be treated as limited and applying only to persons or things of the same kind or class as those expressly mentioned.
–          If there are two possible constructions and one is consistent with the provisions of the policy and the other one is reasonable for one provision but unreasonable for the other provisions, we will favor the one that is more accurate.
–          General language that follows specific examples only applies to the specific examples it follows
·         When the language chosen is susceptible of more than one construction, such policies should be construed strictly against the insurer and liberally in favor of the insured.
–          Example: if a law refers to automobiles, trucks, tractors, motorcycles and other motor-powered vehicles à “vehicles” would not include airplanes, since the list was of land-based transportation
                                                 ix.      (7) Effect:
·         In construing Ks, the court should avoid a construction that makes another provision meaningless or violates the laws of construction à if possible, they should give full force and effect to all parts of the policy.
·         NOTE: a term is always given its plain/ordinary meaning if not otherwise defined in the policy.
B.      General Liability Insurance (GLI)
1.       Two Liability Insurer Contractual Duties:
[Duty to Defend & Duty to Indemnify àthey are considered distinct and separate duties created by the language of the insuring agreement. The duty to defend is often said to be broader than the duty to indemnity, because the plaintiff’s pleadings may allege a potentially covered claim triggering a duty to defend, but a judgment could ultimately be entered that awards no recovery on that claim, such that

roper notice of the suit à the insurer must show they have suffered prejudice
§ prejudice does not have to be substantial – can show that the insurer has been put into a detrimental position or will have to pay more $$ b/c of the insured’s failure to give notice.
·         Burden – the insurer holds the burden to prove prejudice.
–          the prejudice requirement must be written into the policy – likely in the endorsements.
§ However, if policy does not say that prejudice is required, common law adds ità breach of the policy (lack of notice) to deny coverage insurer must show materiality of breach.
·         Question of Fact
–          PAJ v. Hanover à tardy notice is not a defense to liability (coverage) unless the insurer has suffered prejudice (harm).
–          Harwell v. State Farm à Absent actual notice of proper service, even notice given after trial, is prejudicial, if insured doesn’t try to defend himself.
–          Struna v. Concorde à lack of notice is a question of fact for the jury – as to if the insurer was prejudiced or not.
·         Prejudice as a matter of law.
–          absent any actual knowledge/notice of suit – if insurer receives notice after default judgment has been entered, then they are deemed to be prejudiced as a matter of law.
§ i.e. If a default judgment is finalized (unappealable after 30 days) à insurer is prejudiced as a matter of law
·         Additional Insureds
–          The insurer has no duty to inject itself into a lawsuit by defending an additional insured who has not requested a defense and who fails to give notice.
§ Absent a request from insured to be defended through process of forwarding service papers, the insurance company has no duty to hire a lawyer and defend and NO affirmative duty to tell the additional insured that they are entitled to a defense.
·         Compare to a Homeowner’s Policy
–          NOTE – TX Homeowners policy doesn’t contain a provision that they must show they have been prejudiced by lack of notice (contrary to CGL and Auto policies)
§ BUT – Platts à TX courts will likely hold that HO must show prejudice
                                               vii.      CASES:
·         Liberty Mutual v. Cruz­:
–          ROLà An insurer that is not notified of suit against its insured until a default judgment has become final, absent actual knowledge of the suit, is prejudiced as a matter of law.
§ For CGL à insurer only escapes liability if prejudiced.
·         Harwell v. State Farm:
–          ROLà An insurer who is not notified of a suit against its insured until after the available time period to appeal the judgment (30 days) is prejudiced as a matter of law.
§ This is an exception to the rule; see Struna.
·         Struna v. Concorde
–          ROLà Whether an insurer is prejudiced by late notice of claim against its insured is generally a question of fact.
·         Chiles v. Lloyds:
–          ROLà there is no requirement to demonstrate prejudice where a HO policy is involved.
–          ROLà HO policy requires prompt notice of accidents/claims and the forwarding of suit documents immediately upon receipt – no prejudice requirement to deny coverage for late notice.
                                              viii.      GENERAL RULES:
·         Insurer has no duty to inject itself into a case for an additional insured that has not requested a defense nor provided proper notice of suit.
·         Insurer has not affirmative duty to investigate to see if any claims exist.
·         SOL begins when judgment is entered, not when the accident occurs.
·         Insurer has a duty of good faith to the insured à third party cannot sue insurer for bad faith.
·         If insured cant be found à service through alternate means will suffice (ie – publication).
–          Insurer wont pay a claim until it can find the insured and get their side of the story.
–          Insurer must use reasonable means to contact the insured.