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Article of Interest

Texas Supreme Court Issues Multiple Insurance Opinions That Literally Interpret Policy Language And That Decline Equitable Theories That Alter Express Rights or Duties
By:  David F. Johnson

Insurance is a very important part of the business and personal lives of the citizens of Texas. Understanding this importance, the Texas Supreme Court actively selects insurance cases to decide. The Court has recently delivered five opinions that deal with insurance issues, and those opinions follow two recent trends. First, the Court will interpret an insurance policy strictly pursuant to its terms, will not read into it any additional language, and will take the policy at its literal language. Second, the Court disfavors any extra-contractual or equitable claims or defenses that would alter the express rights and duties of an insurer under a policy.

In Zenith Ins. Co. v. Ayala, a worker’s compensation case, the issue was whether the insurer waived its right to challenge medical expenses by waiting over sixty days from the date of notice of injury to challenge that additional diagnoses were caused by degenerative problems. No. 09-0292, 2010 Tex. LEXIS 418 (Tex. June 11, 2010). The Texas Supreme Court held that Texas Labor Code Section 409.021(c)'s sixty-day deadline applied only to compensability disputes, and not disputes over the extent of an injury. Additionally, the Court held that preauthorization of a treatment did not preclude the insurer from disputing the extent of injury.

In State Farm Lloyds v. Page, the Texas Supreme Court decided whether Texas Standard Homeowner's Policy Form B afforded coverage for mold contamination to real and personal property resulting from plumbing leaks. 315 S.W.3d 525 (Tex. 2010). The policy provided separate coverage for dwellings and their contents. Ultimately, the Court concluded that the insurer was not obligated to pay for losses incurred with regard to mold damage to the dwelling, but was obligated to pay for losses due to mold damage to personal property in the dwelling. In literally interpreting the language of the policy, the Court stated that to construe the provision to reinstate coverage for mold damage for the insured's dwelling would wholly ignore the structure of the policy because it only appeared in the coverage for personal property. But the Court also held that to ignore the provision’s impact as to the personal property coverage would be to outright ignore it altogether.

In Gilbert Texas Construction, LP v. Underwriters at Lloyd's London, the Texas Supreme Court strictly construed an insurance policy’s exclusion for contractual liability. No. 08-0246, 2010 Tex. LEXIS 407 (Tex. June 4, 2010). A contractor, who was sued in contract and tort for damaging real property next to a construction site, sued its excess insurer for breach of contract and urged that the insurer waived its right to deny coverage. The Court agreed with the excess insurer, who argued that the exclusion precluded coverage because at the time the contractor settled, the trial court had already granted summary judgment on all of the statutory and tort claims, and the only remaining basis for liability was breach of a contract. The Court held that it should not judicially rewrite the exclusion by inserting the word "another's" into it, as argued by the contractor and as other jurisdictions, including the Fifth Circuit, would have done. Moreover, the Court determined that the excess insurer did not assume control over the defense of the lawsuit by suggesting trial strategy that helped set up its coverage defense and was therefore not estopped to deny coverage.

In Texas Health Insured Risk Pool v. Sigmundik, after her husband’s death, a wife filed a negligence action against the alleged culpable party on behalf of her family and her husband's estate. The husband’s health insurer intervened because it had a contractual, subrogated right to recoup over $300,000 in medical expenses. 315 S.W.3d 12 (Tex. 2010). After the wife settled all claims without an allocation between the family and the estate, the trial court awarded the entire $800,000.00 in settlement funds to the family, finding they had not been made whole by the settlement. The Supreme Court held that the equitable made-whole doctrine was inapplicable in this case where there was an express subrogation provision. Additionally, the Court held that the trial court could not cut the estate completely out of the settlement just because the estate's main beneficiary is an insurance company or, more to the point, because the trial court believed the surviving family needed the money more than the insurer.

Finally, in Travelers Ins. Company v. Joachim, the Texas Supreme Court decided that a trial court's erroneous dismissal of a suit with prejudice, following the plaintiff's filing of a non-suit in his suit against his insurer under an uninsured/underinsured policy, operated to bar a later suit because of res judicata. No. 08-0941, 2010 Tex. LEXIS 380 (Tex. May 14, 2010). The plaintiff should have challenged the dismissal with prejudice in the first suit via appeal, or if the plaintiff did not receive notice of the judgment, via a collateral bill of review.

The Texas Supreme Court has been very active in 2010 in deciding insurance issues, and as outlined above, this precedent has been consistent with several themes from the past several years. A party with an insurance issue in the Texas Supreme Court should be aware of these themes and should attempt to craft their argument accordingly.

David F. Johnson is a shareholder in Winstead PC's Fort Worth office and is board certified in civil appellate law, civil trial law, and personal injury trial law by the Texas Board of Legal Specialization.