General Practice, Solo and Small Firm Section of the State Bar of Texas


FALL 2018



USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 489 (Tex. 2018)(on reh’g)


EXTRA-CONTRACTUAL DAMAGES; BAD FAITH; POLICY BENEFITS; ACTUAL DAMAGES; STATUTORY VIOLATIONS: This case is a “must read” (and then, frankly, read several more times) for anyone that wants a historical review and current understanding (of still developing) first-party “bad faith”/extra-contractual damage issues regarding Texas insurance law.  What follows is the Texas Supreme Court’s introduction to its opinion, on rehearing, of this case: “Having granted Petitioner’s motion for rehearing, we withdraw the judgment and opinion we issued on April 7, 2017. We unanimously reaffirm the legal principles and rules announced in that opinion, but we disagree on the procedural effect of those principles in this case. Because a majority of the Court agrees to reverse the court of appeals' judgment and remand the case to the trial court for a new trial, our disposition remains the same. 


In our first opinion, we sought to fulfill our duty to eliminate confusion regarding the Court’s previous decisions addressing insureds’ claims against their insurance companies. As presented in this case, the primary issue is whether the insured can recover policy benefits based on the insurer's violation of the Texas Insurance Code even though the jury failed to find that the insurer failed to comply with its obligations under the policy. We sought to clarify the Court’s previous decisions by announcing five rules addressing the relationship between contract claims under an insurance policy and tort claims under the Insurance Code. We unanimously reaffirm those rules today and provide additional guidance in response to the parties’ arguments on rehearing. We also concluded in our first opinion that the trial court erred in this case by disregarding the jury's answer to Question 1, in which the jury failed to find that the insurer failed to comply with its obligations under the policy. We unanimously reaffirm that holding as well.  In light of the parties’ understandable confusion regarding the Court’s previous decisions, we decided in our first opinion to remand the case for a new trial in the interest of justice without addressing the procedural effect of our holdings in this case. We address those issues today, but we reach three different conclusions. JUSTICE GREEN, JUSTICE GUZMAN, and JUSTICE BROWN conclude that the jury’s answer to Question 1 is dispositive as to the plaintiff's ability to recover damages for the Insurance Code violation the jury found in answer to Question 2, so they would render judgment for the insurer. See post at ___ (GREEN, J., dissenting). THE CHIEF JUSTICE, JUSTICE LEHRMANN, JUSTICE BOYD, and JUSTICE DEVINE conclude that the jury's answer to Question 1 creates a fatal conflict with its answers to Questions 2 and 3. THE CHIEF JUSTICE concludes that we must remand the case for a new trial because we cannot resolve that conflict on appeal. See post at ___ (HECHT, C.J., concurring). JUSTICE LEHRMANN, JUSTICE BOYD, and JUSTICE DEVINE conclude that, because the conflicting answers do not present a fundamental error, the insurer waived the conflict by failing to raise it before the trial court discharged the jury. See TEX. R. CIV. P. 295. Nevertheless, because the parties lacked the benefit of the clarity we provide today, they conclude that we should remand the case for a new trial in the interest of justice. JUSTICE BLACKLOCK agrees with that disposition, although he does not join any opinion. With five votes (JUSTICE JOHNSON not participating), the Court remands the case for a new trial.


Note: : According to the court (in its (in part) “plurality” opinion: “The primary question in this case is whether an insured can recover policy benefits as ‘actual damages’ caused by an insurer's statutory violation absent a finding that the insured had a contractual right to the benefits under the insurance policy. Generally, the answer to this question is ‘no,’ but the issue is complicated and involves several related questions. In an effort to clarify these issues, we distill from our decisions five distinct but interrelated rules that govern the relationship between contractual and extra-contractual claims in the insurance context. First, as a general rule, an insured cannot recover policy benefits as damages for an insurer's statutory violation if the policy does not provide the insured a right to receive those benefits. Second, an insured who establishes a right to receive benefits under the insurance policy can recover those benefits as actual damages under the Insurance Code if the insurer’s statutory violation causes the loss of the benefits. Third, even if the insured cannot establish a present contractual right to policy benefits, the insured can recover benefits as actual damages under the Insurance Code if the insurer's statutory violation caused the insured to lose that contractual right. Fourth, if an insurer's statutory violation causes an injury independent of the loss of policy benefits, the insured may recover damages for that injury even if the policy does not grant the insured a right to benefits. And fifth, an insured cannot recover any damages based on an insurer’s statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits.”


Kidd v. State Farm, W. L. 1755487; LEXIS 2620 (Tex. App.—Dallas 2018, pet. filed)(mem. op)


AUTO AND UMBRELLA COVERAGE; FAMILY MEMBER EXCLUSION; STEP-CHILD; MINIMUM LIMITS: Kidd appealed the trial court’s order granting summary judgment in favor of State Farm, contending that “a family member exclusion in a Texas personal auto policy does not preclude coverage for his claim arising from an automobile collision and a similar provision in a personal liability umbrella policy [was] void as against public policy.” “In July 2008, Hall was killed in an automobile accident while a passenger in a vehicle driven by her stepfather David McDonald. ... At the time, Hall was eighteen and lived with MacDonald and her mother Kristina MacDonald. David MacDonald was insured by a Texas personal auto policy (auto policy)[fn. omitted]  and a personal liability umbrella policy (umbrella policy)[fn. omitted], both issued by State Farm.” The auto policy contained a standard form endorsement with a “family member exclusion.” The policy’s declarations showed “David and Kristina MacDonald as the named insured,” and the policy defined “Family member” “a person who is a resident of your household and related to you by blood, marriage, or adoption.” The umbrella policy also contained a family member exclusion provision.  “The umbrella policy defined “named insured” as the person named in the declarations and the spouse, if the spouse is a member of the same household; the declarations show David and Kristina MacDonald as the named insured.


“The auto policy’s family member exclusion precludes coverage for ‘you or any family member for bodily injury to you or any family member’ except to the extent of the statutory minimum limits. ‘You’ and ‘your’ is defined as both the named insured shown in the declarations and the spouse, if a resident of the same household. The declarations name David and Kristina MacDonald as insureds. Thus, ‘you’ and ‘your’ in the auto policy’s provisions refer to either David MacDonald or Kristina MacDonald. The auto policy defines a ‘family member’ as ‘a person who is a resident of your household and related to you by blood, marriage or adoption.’ Hall, as a resident of David and Kristina MacDonald's household and related by blood to her mother Kristina MacDonald, falls within the auto policy’s definition of ‘family member.’ Applying these definitions to the family member exclusion, the auto policy unambiguously excludes coverage for David MacDonald for bodily injury to Hall except to the extent of the statutory minimum limits.  Held: “Considering the auto policy's family member exclusion together with the policy’s relevant definitions and giving them all effect, the only reasonable interpretation is that the policy unambiguously excludes coverage for David MacDonald for injury to Hall except to the extent of the statutory minimum limits.” ... “Kidd urges us to find the umbrella policy void as against public policy. Kidd concedes the umbrella policy's family member exclusion is broader than the auto policy’s, excluding coverage for personal injury to, among others, a household resident under the age of 21 and under the ‘care of a person named above,’ which would include Kristina. Kidd asserts that, under the facts of this case, the exclusion should be void as against public policy because it protects strangers to the auto policy up to the policy's limits of liability but limits an innocent adult stepchild living with the insured to the $25,000 state minimum. Precedent, however, requires us to conclude otherwise. In National County Mutual Fire Ins. Co. v. Johnson, 879 S.W.2d 1, 5-6 (Tex. 1993) (Cornyn J., concurring and dissenting), a plurality of the Texas Supreme Court upheld the family member exclusion in auto policies so long as the insurer provides the minimum statutory limits required by state law.” Note: A petition for review has been filed and is pending as of July 27, 2018.


In re Allstate Vehicle and Property Insurance Company, W. L. 2069185; LEXIS 4328 (Tex. App.—Fort Worth 2018) (orig. proceeding)


PROPERTY COVERAGE; APPRAISAL; WAIVER; MANDAMUS: This case is worth reading, as it is rare that Texas courts find that a party – insurer or insured – have waived an appraisal provision, even post-litigation. In this case, where Allstate demanded appraisal just days before trial, the appellate court stated: “Based on the facts and circumstances outlined above, we hold that it was within the trial court’s discretion to determine that Allstates’ conduct clearly constituted intentional conduct inconsistent with its right to invoke the contractual right of an appraisal to determine the amount of loss.”  Further, the appellate court stated: “A lawsuit settlement offer like the one Allstate made to Jackson here – an offer ‘to pay $24,000 ... in new money in exchange for a complete release of all claims [contractual and extra-contractual, and attorney’s fees] against ... Allstate and a dismissal with prejudice of the above referenced suit’ – is not a negotiation concerning the ‘amount of loss.’ Allstate cannot make a settlement offer to pay money in exchange for the dismissal with prejudice of all of Jackson’s claims against it and then argue that its settlement offer in fact constituted ‘good faith negotiations concerning the amount of loss suffered by the insured.’  A rejected settlement offer does not create a new ‘point of impasse concerning the amount of loss’ that will make an untimely demand for an appraisal timely, especially here, where Allstate’s settlement offer – purportedly masquerading as a point of impasse concerning the amount of loss – was not made until after discovery was closed, after the expert designation deadline had passed, after Jackson had been deposed, after Allstate had agreed to a trial setting, after Allstate had requested and had obtained an extension of the expert designation deadline, and after Allstate had compelled an opposed seventh inspection of the insured's home for the express purpose of trial preparation.”



Texas Windstorm Ins. Ass’n v. Dickinson ISD, W. L. 2436924; LEXIS 3856 (Tex. App.—Houston [14th Dist.] 2018, no pet.)


PROPERTY COVERAGE; APPRAISAL; POST-APPRAISAL AWARD; CAUSATION  AND DAMAGES: In a case that is pending a motion for rehearing, the appellate court reversed and remanded a trial court’s judgment and jury findings based on an appraisal award under an insurance policy, having found that the appraisal award and evidence offered did not conclusively prove “whether and how much alleged loss was caused by a covered peril.  The only issue submitted to the jury – post-appraisal and appraisal award – was whether TWIA breached the policy by not paying the appraisal award, to which the judy answered “yes,” and the trial court entered a final judgment against TWIA for almost $10 million. TWIA challenged the on four issues, and the appellate court determined that the first issue was determinative. Simply, TWIA argued that the school district failed to conclusively prove damages caused by a covered peril under the policy. The appellate court engaged in a very detailed discussion of the Texas Supreme Court’s decision in State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009), also discussion doctrine of concurrent causes and an insured’s duty to segregate damages arising from covered and non-covered causes of loss. The policy in issue in ths case stated that coverage was provided for “direct physical loss” to “covered property” caused by windstorm, unless excluded. The appellate court found that, “ [s]tanding alone, the appraisal award simply does not provide sufficient evidence from which a court may determine as a matter of law which appraisal award damages, if any, were caused by a covered peril.” Note: This opinion is must reading for any practitioner that is considering demand appraisal or is dealing with the appraisal process and an appraisal award – and the case history going forward ought to be followed in regard to a possible grant of rehearing or further appeal to the Texas Supreme Court.  Whether, when, and to what extent an insurer can challenge causation following a damage determination through appraisal are clearly in issue in this case, specifically including consideration of the Texas Supreme Court’s Johnson opinion.



Certain Underwriters at Lloyd’s v. Lowen Valley View, LLC, 892 F.3d 167 (5th Cir. 2018)


PROPERTY COVERAGE; HAILSTORM; SEGREGATION OF COVERED LOSSES; POLICY PERIOD:  A “Lowen Valley employee ‘noticed that the shingles on the top of the hotel looked bad’ and called a roofing contractor to investigate. The contractor found evidence of significant hail damage.  On December 29, 2014, Lowen Valley notified the company’s insurance agent that the hotel roof had suffered hail damage. The agent filed ‘Property Loss Notice’ with Lloyd’s the same day. The notice listed Lowen Valley’s ‘Date of Loss’ as June 13, 2012. The agent apparently based the June 2012 date of loss on a weather history report obtained by Lowen Valley’s roofing contractor. The report listed nine hail events of varying severity occurring ‘[a]t location’ between January 2006 and December 2014.  After receiving the claim, Lloyd’s sent an adjuster, Derek Phipps, to inspect the property. Phipps concluded that the roof would need to be replaced, and estimated a total repair cost of $429,225.41. On March 2, 2015, Lloyd’s, through another adjuster, sent Lowen Valley a ‘reservation of rights’ letter, which stated that ‘potential coverage issues may exist.’


After sending the reservation of rights letter, Lloyd’s commissioned Haag Engineering to prepare a report – what would become the first of three -- analyzing Lowen Valley’s claim. In this first report, Haag confirmed that the hotel had suffered hail damage and concluded that ‘the most recent hailstorm with hailstones large enough to cause the damage [Haag] observed was on June 13, 2012.’ (emphasis added). At Lloyd’s request, Haag also completed a second report. This time, Haag stated that its previous report had ‘concluded that the observed damage most likely occurred on June 13, 2012.’ (emphasis added). On February 18, 2016, Lloyd’s denied Lowen Valley’s claim. The same day, Lloyd’s filed this suit seeking a declaratory judgment that it owed no coverage for Lowen Valley’s hail damage claim. Lowen Valley counterclaimed for declaratory judgment, breach of the insurance contract, and violations of the Texas Insurance Code.” Lloyd’s moved for summary judgment on all claims and the “district court granted summary judgment on Lloyd’s declaratory judgment claim for two, independent reasons: (1) Lowen Valley failed to meet its burden to offer evidence that would allow a trier of fact to segregate covered losses from non-covered losses, and (2) Lowen Valley failed to provide prompt notice of its loss, and this delay prejudiced Lloyd’s as a matter of law.” “The summary judgment evidence reveal[ed] that several hail storms struck the vicinity of the hotel in the several years preceding Lowen Valley’s claim. Only one of these storms fell within the coverage period. The district court held that Lloyd’s was entitled to summary judgment because the record lacked reliable evidence permitting a jury to determine which of these storms— alone or in combination— damaged the hotel.” With this, the 5th Cir. Court of Appeals agreed.  “To resist this conclusion, Lowen Valley relie[d] on two purported sources of proof. The first is a computer log note entered by Derek Phipps, the Lloyd’s adjuster, which state[d]: ‘The roof materials are totaled by hail on reported and documented [Date of Loss].’ But, as is suggested by Phipps’ full report and confirmed by his later deposition testimony, Phipps did not offer an opinion on when the hotel was damaged. His job was to determine whether the hotel was damaged by hail, and estimate the cost to repair it. He therefore did not question the date of loss provided by Lowen Valley’s agent. Phipps’ short note would not help a jury decide when the roof was damaged. Second, Lowen Valley points to Haag Engineering’s second report. That report twice referred to the June 13, 2012 storm as the ‘most likely’ cause of the damage. We agree with the district court that, considered in context, these statements could not meet Lowen Valley’s trial burden.’ 


Held:  Because Lowen Valley has failed to meet its burden to show what portion, if any, of the claimed damage occurred during the coverage period, Lloyd’s is entitled to summary judgment on its claim seeking a declaratory judgment. Lowen Valley’s counterclaims for a declaratory judgment and breach of contract fail for the same reason. Finally, as Lowen Valley concedes, its counterclaims under the Texas Insurance Code are based on unpaid coverage benefits rather than some other, independent injury. Accordingly, Lowen Valley’s statutory claims fall with its breach of contract claim. See USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 489 (Tex. 2018) (“[A]n insured cannot recover any damages based on an insurer’s statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits.”).  NOTE: The 5th Circuit Court of Appeals also stated: “Lowen Valley does not attempt to explain how the data underlying the Haag reports could support the conclusion that the hotel was damaged on June 13, 2012 and not during the other reported storms. Instead, it focuse[d] on the stray ‘most likely’ language, and allege[d that Haag has shifted its opinion to shore up Lloyd’s litigation position. But even assuming that Haag genuinely concluded that June 13, 2012 was the most likely date of damage to the hotel, that opinion conflicts with the data it purports to rely on and has since been disclaimed. Given the undisputed evidence of severe hail events outside the coverage period, Lowen Valley’s evidence does not ‘afford[ ] the jury a reasonable basis on which to allocate the damage.’

Frederking v. Cincinnati Insurance Company, W. L. 1514095; LEXIS 92720 (W.D. Texas 2018) (Order)


LIABILITY COVERAGE; POLICY LANGUAGE; GROSS NEGLIGENCE; ACCIDENT OR OCCURRENCE; PUNITIVE DAMAGES:  Based on the language of the liability coverage in issue, the insurer argued that it was entitled to summary judgment because, among other things, “the insurance policy does not afford coverage for [the insured’s] gross negligence because that conduct does not constitute an accident or occurrence to trigger coverage under the Auto and Umbrella Policies,” and “punitive damages are not insurable under the Auto and Umbrella Policies as a matter of Texas public policy.” Held: [The insured’s] conduct of driving while intoxicated, found to be grossly negligent in the Underlying Lawsuit, resulted in a car collision with Plaintiff in which Plaintiff was injured. The collision was the natural and expected result from [the insured’s] intentional conduct of driving while intoxicated, and Plaintiff’s resulting injuries were highly probable. See Commercial Underwriters Ins. Co. v. Royal Surplus Lines Ins. Co., 345 F. Supp. 2d 652, 663 (S.D. Tex. 2004), aff’d sub nom. N. Am. Specialty Ins. Co. v. Royal Surplus Lines Ins. Co., 541 F.3d 552 (5th Cir. 2008) (“If a bodily injury would not result but for the intentional conduct of the insureds, claims of negligence and gross negligence emanating from the same conduct are excluded” from coverage.) ... “Accordingly, there is no genuine dispute of fact that the finding that [the insured] was grossly negligent in the Underlying Lawsuit is not an ‘accident’ or ‘occurrence’ under the Auto or Umbrella Policies. Defendant is entitled to summary judgment that it has no duty to indemnify [the insured] for the punitive damages awarded from the finding of gross negligence. The Court need not analyze the arguments whether insurance coverage for punitive damages awarded violate Texas public policy or whether Sanchez was an ‘insured’ under the Policies.”


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