ALWAYS ASK WHOSE INJURIES/LOSSES ARE BEING COVERED?
I. BASIC PRINCIPLES
a. Types of Insurance
i. First party
1. Covers insured’s own damages
a. Jimmy Durante insured his nose.
b. Homeowner’s insurance
c. Health insurance
ii. Third party (Liability insurance)
1. Insures 1st party for damage to 3rd parties.
b. Insurance Policy
i. An insurance policy is just a contract between the insurer and the insured.
1. Generally, the insurer chooses the language.
2. RULE OF CONSTRUCTION: When ambiguity appears in contract, language is construed against the drafter (insurer) — contra proferentum. BARNETT v. AETNA LIFE INS. CO., Tex. 1987
a. The court held that an exclusionary clause cannot be construed to include VA benefits when the clause does not expressly list VA benefits, and they are sufficiently different from the benefits listed.
b. Whether contract provision is ambiguous is a matter of law for the court to decide.
c. RULE OF CONSTRUCTION: Types of ambiguity.
i. Latent – words look like they could only mean one thing, but under a certain fact pattern could mean something else.
ii. Patent – ambiguous on its face.
d. STUDY THIS FOR THE EXAM
i. It 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.
ii. If the insurance contract is expressed in plain and unambiguous language, a court cannot resort to the various rules of construction.
iii. When language in a policy is susceptible to more than one reasonable construction, it is patently ambiguous.
e. Some courts construe insurance policies as adhesion contracts (relatively true where “little guy” is concerned). Large corporate consumers can negotiate for special terms.
f. In states like TX that regulate insurance industry, Dept. of Insurance approves all language used in consumer policies (results in standard forms).
3. RULE OF CONSTRUCTION: Must adopt the stricter construction of an exclusionary clause as long as it is not unreasonable – even if the insurer’s construction is more reasonable (“super/heightened strict construction”). An intent to exclude coverage must be expressed in clear and unambiguous language. NAT’L UNION FIRE INS. CO. OF PITTSBURGH v. HUDSON ENERGY CO., Tex. 1991
a. The court held that the insurance policy could not be construed to exclude coverage of an accident when a certified pilot and student pilot were attempting to control the aircraft.
4. RULE OF CONSTRUCTION: In some states, policies are construed in accordance with the expectations of the “reasonable insured” (NEVER ADOPTED IN TEXAS). No case law in either direction in Texas currently.
5. If a policy provision is NOT ambiguous, then rules of construction do not apply.
II. GENERAL LIABILITY INSURANCE (CGLI)
a. Contractual Duties of Liability Insurer
i. Duty to Defend
ii. Duty to Indemnify
b. Basic policy structure
i. Declarations page(s)
1. Info specific to that policy
a. Policy #
b. Names of insureds
c. Duration of effect
d. Limit of liability
ii. Insuring agreement
1. What are we insuring?
2. Broad grant to cover categories of harm or damages (1st or 3rd party).
1. What is specifically NOT being covered.
2. These would be covered under the insuring agreement, if not expressly excluded.
1. Catch-all for other provisions.
2. Duties of the insured.
a. Ex.: Notice to insurer.
1. Defines special terms used later in the policy.
2. Where the policy defines a term, that definition controls.
3. Undefined terms are subject to “plain and ordinary meaning” by court.
c. Prompt Notice of Claim
i. 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. LIBERTY MUT’L INS. CO. v. CRUZ, Tex. 1993
1. The court held that failure to comply with an insurance policy’s notice provision by not providing notice of suit to the insurer until after default judgment prejudiced the insurer as a matter of law, and so relieved insurer of liability under policy.
2. Insurer only esc
’S INS. CO. v. VOLENTINE, Tex. Civ. App., 1979
1. The court held that because the engine damage was unexpected and unintended, it constituted an accident within the meaning of the policy provisions.
2. Policy Exclusion – Ø coverage for property damage resulting from the insured’s own work.
a. Here policy language excludes only damages from the work, Ø damage ultimately resulting from the work.
b. When damages are unexpected → “accident” → “occurrence”
ii. Where acts are voluntary and intentional and the injury is the natural result of the act, the result was not caused by accident even though that result may have been unexpected, unforeseen and unintended. ARGONAUT SOUTHWEST INS. CO. v. MAUPIN, TX, 1973
1. The court held that Π’s intentional act of taking the barrow dirt could not qualify as an accident sufficient to be an occurrence for insurance recovery purposes.
2. Despite the reality of trespass, Maupin intended to remove the dirt, therefore it cannot be an accident/occurrence.
a. Maupin’s implied duty was to ensure the ownership of the land from which he obtained the dirt.
3. Sketchy difference between this case and Volentine.
4. An intentional tort (here, trespass) will NEVER be an accident/occurrence.
iii. Where the injury is of the type that ordinarily occurs from certain conduct, and the injuries could be reasonably expected from the conduct, then the act is not an accident or occurrence. TRINITY UNIVERSAL INS. CO. v. COWAN, TX, 1997.
1. The court held that, because Π’s injury was caused by photolab insured’s intentional distribution of compromising photos of Π, it could not be considered an accidental occurrence for purposes of insurance recovery.