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

Insurance Law – Spring 2010
Monday, 5:30-7:30
Prof. Platts

Attendance: two absences, dropped on third

Recitation: alphabetical; after recitation (next class) turn in a multiple choice exam question about case that you recited on (if everyone does this, the curve will be increased by 0.333, from B- to a B), include 4 or 5 choices and indicate the correct one

Exam: multiple choice (90), 1.5 minutes/question, closed book

-Insurer v Insured
-Name insured same as policy holder
I. Chapter One: Texas Cases on Insurance Law
A. Basic Principles
1. Two Basic Types of Insurance – First Party & Third Party
a. First Party – protects insured from loss on account of insured’s own damages
1) Life insurance, health insurance, medical insurance, fire insurance, collision insurance
b. Third Party – covers damage caused by insured to a third party (a.k.a. liability insurance)
c. Whose damages are being covered?
1) First party (party to the insurance contract)
2) Third party (someone not named on the insurance contract)
2. Rules of Insurance Policy (Contract) Construction
a. Contra proferentem – any ambiguities in the policy are construed against drafter
1) Construed in favor of the insured and of finding coverage for the claim
2) Must be a reasonable construction
b. Contract of adhesion – insurance company writes policy, and insured takes them as written (construed against drafter)
1) Contract must be taken by the insured as it is written by the insurer; the insured cannot negotiate the terms of the contract so the terms of the policy are construed against the drafter (insurer)
2) In Texas, the Texas Insurance Board dictates what is included in the insurance policy, so this is not so applicable
c. Reasonable expectations – what the average insured expects the policy to cover, regardless of what the policy states
1) If a term in the policy is ambiguous, the court will construe the policy in light of the insured’s reasonable expectation of the meaning of the term
a) I.e., what did the insured expect when he bough the policy?
2) Texas does not follow this
d. Barnett v. Aetna Life Ins. Co.
1) Rules of Construction
a) Insurance policies are just contracts and are construable as contracts
b) If the K is expressed in plain and unambiguous language, a court cannot resort to the various rules of construction
c) Policy is Ambiguous (question of law) – when language in a policy is susceptible to more than one reasonable construction, it is patently ambiguous. Latent ambiguity is only ambiguous with certain facts.
d) Ejusdem generis – 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
e) Each part of the policy should be given effect when it will not do violence to rules of law or construction; the court must avoid construction of policy which does not give all portions of the policy meaning and effect
f) When language is susceptible of more than one construction, such policies should be construed strictly against the insurer and liberally in favor of the insured
(i) Intent to exclude coverage must be expressed in clear and unambiguous language
g) Must adopt the construction of an exclusionary clause urged by the insured as long as that construction is not itself unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties’ intents
(i) I.e., for exclusions, must adopt the insured’s interpretation as long as it is reasonable, even if the insurer’s interpretation is more reasonable
(a) Applies only to exclusions
h) When trying to construe a particular word or phrase, the plain, or ordinary meaning will be used (Webster’s definition, etc)
(i) An exception is when a term has been specifically defined within the policy itself
i) Generally, whether or not an insurance company is prejudiced is a matter of fact
2) Carve-out provision – Aetna wanted to reduce the amount of benefits payable to the insured b/c he was receiving benefits from another source (here, the Federal Government under the VA Act)
3) Exclusions from coverage must be in plain and unambiguous language
e. National Union Fire Ins. Co. v. Hudson Energy Co.
1) Types of Ambiguities:
a) Patent ambiguity – ambiguous on its face
b) Latent ambiguity – when the language is compared to a fact pattern it obviously becomes ambiguous
c) Endorsement- changing a clause such as lengthening policy
d) An intent to exclude coverage must be unambiguous.
3. Three Basic Types of Insurance Policies
a. Commercial General Liability (CGL)
b. Texas Homeowner’s
c. Texas Personal Auto
B. General Liability Insurance
1. Two Liability Insurer Contractual Duties
a. Duty to Defend – obligation by insurer to provide counsel to defend the insured against a claim
1) Notice of service is required to be forwarded to insurer
b. Duty to Indemnify – insurer must pay the damages the insured is responsible for (up to amount of coverage)
1) Will pay the judgment up to the limit of liability under the policy
2. ISO Commercial General Liability Coverage Form (5 parts to an insurance policy)
a. Declarations – specifics of the particular insurance policy; specifies amount of liability, beneficiaries, limits of liability, policy number, etc.
b. Insuring Agreement – sweeping statement by insurer agreeing to pay a broad group of items
c. Exclusions – usually specific, narrows the broad coverage of the Insuring Agreement
d. Conditions – insurance company duties w

ing or consequence from either a known or unknown cause
2. Argonaut Southwest Ins. Co. v. Maupin
a. Rule – when 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; no insurance against liability for damages caused by mistake/error
1) No coverage for damages caused by mistake/error
2) If voluntary and intentional, and the natural result, then no accident
3) Exs:
a) Mechanic does work on car, but damages another part of the car à Covered (duty to defend) as an occurrence within the policy because it was unintended
b) Man has a STD, that he is unaware of, which he passes on to another person à Covered (duty to defend) as an occurrence because he did not intend the injury
c) Construction company intends to take dirt from a property, but takes it from the wrong property à Not covered (no duty to defend) because company intended the act (taking the dirt) and thus, intended the injury of the loss of dirt
(i) Different from STD case because in STD case, person intended the act (sex) but could not have intended the injury (transmitting a disease) because he was unaware of the disease
d) A clerk who reproduces nude pictures of a patron without the patron’s consent and displays the pictures to others à Not covered (no duty to defend) because even though clerk did not intend patron to find out about the reproduction and displayance, he did intend to reproduce and display the pictures, and the patron’s embarrassment was a natural result of the act
e) A defect not fully disclosed by seller of house, buyer sues seller for breach of contract and warranty for the negligent misrepresentation of the condition of the house à Not covered (no duty to defend) because claims of negligent misrepresentation are not occurrences; there must be a causal relationship/nexus between the occurrence and the damage; here the only damage caused by the misrepresentation was economic, so not covered under the policy
3. Dorchester Dev. Corp. v. Safeco Ins. Co.
a. Rule – time of occurrence is the time the complaining party was actually damaged, not the time the wrongful act took place (Manifestation rule)
1) Faulty workmanship is not an occurrence