Insurance Law




A.        Basic Principles


            1. Two Basic Types of Insurance –First party and Third Party [liability insurance]


            Ask yourself who’s damages are being covered? Then you’ll know 1st or 3rd.


* Duties of 3rd party: duty to defend, duty to indemnify (pay) either settle the case, or if a judgment is rendered they will pay it up to the limit of the policy.


            1st party Insurance:

            - life insurance, health, medical, fire insurance for the house, collision for the car


            3rd party Insurance:

            - liability insurance

- basically this type of insurance covers the insured when they cause damages to someone else.


            Insurance Policy is a basic contract

- the difference is that courts find that insurance K is a K of adhesion because insurance company writes the K

- so that means that the K is construed against the drafter [insurance co.]

- in TX, the legislature tells the insurance co what to put in the K’s

- in TX what is covered is controlled by what the policy says



            2. Rules of Insurance Policy (contract) Construction


            *courts apply the rule of “construe against” the drafter


            *if there is an ambiguity, it will construe the ambiguity against the insurance co.

            *ambiguity = it can have two reasonable interpretations


            *courts treats policies as K’s of adhesion


            *Texas Department of Insurance tells ins co. what to put in the policies.








            Barnet v. Aetna Life Ins.

            - first the plaintiff broke his heel in the navey

            - Aetna issued policy for Amoco

            - then he hurt his knee while working for Amoco

            - Aetna wanted to subtract the VA benefits he was getting

- “carve out provision” happens when more than one insurance is insuring the person

1.      court said ins policy is a K

2.      court says if policy is plainly written you don’t have to refer to rules of construction

3.      when language is susceptible to more than one reasonable construction it is ambiguous

4.      “justum jeneris” general words applied to things mentioned

5.      each part of policy should be given effect

6.      construe the language against the ins co and in favor of insured


- Aetna not allowed to “carve out” because policy did not say that

- exclusion should be in plain language


            National Union Fire Ins. Hudson

            - claim for damages caused to plane, physical damages to the plane

            - 1st party insurance

            - ins co denied coverage because the policy said that the pilot had to be licensed

            - because plaintiff and instructor were piloting the plane this was key issue

                        -ins was saying there had to be sole control not dual control

                        - court said instructor was the licensed pilot even though both had control


Two Types of Ambiguity:


  1. Tainted: appears on the face of policy as written
  2. Latent: read sentence and looks straight forward but when applied, more than one way to interpret it: Hudson case



B.        General Liability Insurance


1. Two liability Insurer Contractual Duties –Duty to Defend and Duty to Indemnify


            3rd party insurance has to duties;

1.      duty to indemnify: to pay

2.      duty to defend: provide lawyer






2. ISO Commercial General Liability Coverage Form



* identifies info specific to this policy, who is being insured, policy period, amount of policy


            -Insuring Agreement:

            * that is the broad grant of coverage, what the ins will cover, general policy



            * narrow the broad grant of coverage, i.e. motor vehicle exclusion



* things the insured must do, like pay your premium, give notice of claim, forward suit paper if you are sued.



* define special terms of the policy, terms that are shown in bold or quotes, these definitions control

            * If word is undefined, the court will give it it’s normal meaning, in Websters


3. Notice of Claim


* notice of an accident is so ins co can go get fresh statements from witness, this can come from anyone.


* notice of a lawsuit, is supposed to come from the insured, this could come from someone else, but you have to show that the insured has been properly served.. Harwell


Struna v.Concorde Ins. Serv. Inc.

            - auto accident

            - rule: in order for insurance co to deny coverage for lack of failure to notify, they have to

            show they were prejudiced

            - if you can’t show prejudice then you can’t deny coverage


Chiles v. Chubb Lloyds Ins.

            - homeowner’s policy at issue in this case

            - damages for divorce, husband wanted to make claim to his homeowner’s to pay them

            - Issue: did husband provide appropriate notice to ins co.

- court said that ins did not have burden to show prejudice it just had to show that notice was not prompt

- this case has not been overruled but it is WRONG

- TX says all general policies must contain clause that before ins co must show prejudice before denial of claim



Liberty Mut. Ins. Co. v. Cruz

            - court said that ins co was prejudiced because they were not notified of suit

            - default judgment prejudices as a matter of law


Harwell v. State Farm Mut.

            * Hubbard died, Leatherman was injured

* Attorney Groce was hired by Leatherman, Harwell was appointed by Groce to be the administrator of Hubbard.

* Groce gave State Farm petition, police report, The court gave State Farm notice of intent of default or dwop

* Groce did contact State Farm by phone but no more documents

* When Groce served Harwell, she was not yet the administrator, so service was no good

* Harwell never forwarded papers to State Farm

* TC renders judgment for 74k for Leatherman

* Groce waits 31 days before informing State Farm got actual notice of the suit, the court said that all the prior contact were notice of claim but not suit.

* to give notice to the ins co the insured has to forward the actual suit papers to the ins co.

* the insured, but can be the plaintiff’s lawyer, has to give the insurance co. actual notice that proper service has been effectuated, when you send the petition send a copy of the service receipt

            * the ins should get notice of proper service of the insured, the insured should forward

            copy of notice to ins, the plaintiff’s attorney can send to ins that it has been properly

            * the ins may rely on non-cooperation defense if the insured does not help with suit

            * there are some cases where it does not matter if the insured helps or not, because there

            are many witnesses, so the ins has no defense






















A.        What is an “occurrence” ?


* in the insuring agreement, of Commercial General liability Policy, usually says “we will all sums …as damages….caused by an occurrence”

* usually a defined term



Travelers Ins. Co. v. Volentine

* the insured performed valve service on a car and the engine was ruined, the insured was sued

            * insured asked ins co to defend him in suit

            * the insurance policy did not cover property damage to work performed by insured

* the court said the insured only did work on valves, so this exclusion only covered the valve work, not the rest of the engine, so the rest of the engine is covered.

* occurrence as defined in the policy includes an accident.

* what does accident mean? The court said an unexpected, undeseigned, unforeseen, happening from either a known or unknown cause

* the destruction of the entire engine was unexpected from the valve service

* accident: unforeseen, unexpected event this is the normal meaning


Argonaut Southwest Ins. Co. v. Maupin        

* insured made K with state of TX, insured Maupin made K with Kipper to dig dirt from his property, but Kipper does not own property, Meyer does.

* Meyer sues Maupin for trespassing and taking the dirt.

* ins co refuses to defend because they said this was an intentional tort, not an accident,

* the court focused on the issue if the duty to defend even arose.

* maupin did not intend to damage meyers, but he intended to take the dirt, it was the action that mattered, not the result.

* TEST: voluntary and intentional act and the damage or injury is natural result then it is not an accident.

* the act was taking the dirt, the injury was taking the dirt

* in Volentine the act was valve job, the injury was engine ruined, not natural result.



Dorchester Dev. Corp. v. Safeco Ins. Co.

            * the insured performed for construction of apartment complex.

            * insured got sued for bad workmanship, and turn to ins co to defend them

* the court said that damage occurred after the policy expired, so there was no occurrence insured admitted this

* When is it occurence: the actual damage has to occur during the policy period, not when the act was committed.


Trinity Universal Ins. Co. v. Cowan

            * cowan sued gage and h.e.b., gage made some extra copies of revealing pictures

* she sued for negligence, gross negligence, mental anguish…this is really an invasion of privacy

* court said this was not an occurrence, used Maupin [natural result] and determined that his act was an intentional act, he copied the pictures and showed him to his friends, the injury was making extra copies of her pictures and showing them to his friends.

* Gage argued that he did not expect that Cowan would find out about it, so he wanted this to be considered an accident.

* if it is an intentional tort it will not be an accident “charged with producing” the result

* the court did say that not all intentional conduct is not an accident, a hunter intentionally shoots at a deer, but it turns out that it was person.

* Test: ordinarily follows somewhat similar to Maupin


State Farm Lloyds v. Kessler

            * Kessler’s selling house to Fannings, foundation problems

            * State Farm said would defend, but would find out if they had duty

            * court said there was a duty to defend because there was property damage

* was there occurrence? CA says there was no occurrence because under TX law if the act was intentional [making false statements, nondisclosures] is not occurrence

* misrepresentations do not cause property damage, they cause financial damages, the defects were already there so there is no property damage

* if ever you sell a home disclose everything


King v. Dallas Fire Ins. Co

            - employee attacks other worker, employer wants ins to defend

            - ins says that act was intentional, but employer says that he did nothing

            - in deciding whether there is an “occurrence” you view it from the insured’s standpoint

- victim sues employer: negligent hiring, retention, supervision, training and respondent superior

            - ins says that the employee’s assault was not an occurrence because it was intentional

            - “separation of insureds” clause: means that the policy applies to each insured separately

            - how do we apply this clause to the “occurrence” requirement

            - if the insurance only wanted this clause to apply to exclusions, they would have said it

            - the court said that the separation clause applies to occurrence, then you ask if that

            insured intended the act to happen, therefore there is a duty to defend

            - what about respondent superior? The court does not say much, but usually this imputes

            the acts of the employee to the employer, all you have to show a master/ servant,

            when this is the only issue, professor says that ins has no duty to defend, so if you are

            a plaintiff you want to request relief for negligence so that you can get relief.











A.        What Damages are “Covered”?


- policy  usually covers: bodily injury or property damage


- bodily injury: does not include mental anguish or emotional distress

- Exception 1: physical manifestations of mental anguish: if you have them and plead them, then you have bodily injury, so plead them; this is an exception

- Exception 2: mental anguish is covered when is “because of”: some other injury that is covered by the policy; like: bodily injury or property damage


- property damage: physical injury  or loss of use tangible property

- property damage: does not include purely economic loss

            - Exception: 1. where your economic loss is because of property damage or bodily injury

            example; is a car wreck the damage is to your car but part of your damages is also to rent

            a car,

- Exception 2. economic loss is covered if it is a measure of damages for loss of use of tangible property: comes up like in loss of rent profits; the suit is for rents that were lost




            1. “Bodily Injury”


Trinity Universal Co. v. Cowan

            - h.e.b. pictures case

            - she sued him for bodily injury for mental anguish, she took an assignment from him to

            sue only the ins and not him

            - was mental anguish alone “bodily injury”

            - court says no. bodily injury and mental injuries are distinct

            - “bodily injury” does not include mental anguish or emotional distress

            - she did not plead: the stomach aches, nausea

- physical manifestations of mental anguish: if you have them and plead them, then you have bodily injury


            2. “Property Damage”


Lay v. Aetna Ins. Co.

            - Lay was hired to find oil well,  he instructed wrong location of oil well, j.j. were owners

            of lease to drill

            - j.j went to the owner of the property to get the right to continue drilling

            - j.j sued lay for purchase of assignment, att fees, barrels of oil they did not get while they

            had to shut down to get the assignment

            - ins refused to defend, because this is not property damage, not tangible property

            - is this occurrence property damage?

            - purchase of an assignment was not ‘tangible property”
            - j.j were subsequent purchasers, the cause of action for property damage does not pass to

            them for the barrels of oil, they did not loose the use of the oil because they never had the



Houston Petroleum Co. v. Highlands Ins. Co.

            -  investors original suit alleged: economic loss, and loss of capital contributed because

            Houston petro told them they were going to hit oil and did not, misrepresentation

            - insured is not covered by the ins policy

            - Not occurrence: under the plain meaning, because not ambiguous

            - economic loss is not tangible property; therefore not property damage

            - original claim does not allege personal injury, therefore no coverage

            - property damage does not include purely economic loss


Terra Int’l Inc. v. Commonwealth Lloyd’s Ins. Co.

            - defendant sold land, which was in a flood control district, the district sold bonds,

            - plaintiff alleges that defendant did not disclose these facts

- does ins have duty to defend: DTPA, c/l fraud, negligence, Issue: is it property damage?

            - insured had seven policies, all similar

            - 3rd party does not allege “bodily injury”; only alleged increase in taxes

            so only focus on property damage

            - negligent misrepresentations resulted in loss profits are not property damage


Clemons v. State Farm Fire & Cas. Co.

            - clemons brought duty to defend in a prior lawsuit filed by residents of a subdivision

            - Procedure: tc: granted summary judgment for ins,

- the appellees approved the construction of a garage and house in violation of deed restrictions, they built the house too close to the set back line

- the original plaintiffs sued them  because they approved the plans that violated the restrictions, so clemmons went to ins to defend them

- trial court granted summary judgment because prior lawsuit was not for property damage or bodily injury

- court said there was no claim of damages to physical property, plaintiff’s only wanted an injunction, they only had loss of value to the property which is a purely economic loss,

- Texas definition of property damage is different from GLP, does not have to be physical or tangible.

- this was a purely economic loss that did not affect the property, they court got here because the plain and ordinary meaning of injury to property is physical injury.









            3. Punitive Damages


American Home Assurance Co. v. Safeway Steel Products Co.

- Rawlings case: original suit was for football injuries sustained while wearing a helmet, ins paid but reserved the issue of punitive damages

- Safeway case: other original suit was for defective scaffold, ins again reserved punitive damages

- both cases were awarded punitive damages for grossly negligent conduct; note that this is the only type of punitive damages that will be an occurrence: gross negligent

- public policy argument: the insurance company argued that punitive damages are meant to punish

- court said that insurance co. could exclude punitive damages; but these policies did not say that; the court did not buy the argument that denying punitive damages to be covered will deter culpable actors

- STILL: good law; punitive damages are still covered in Texas; unless there is an exception in the policy; Texas sc has never ruled on this issue

            - insured’s were arguing that the policy language says “all sums” which they wanted

            to interpret as including punitive damages

- court held that there is no public policy in Texas for allowing the insured to shift the punitive damages award to their insurance carriers



Hartford Cas. Ins. Co. v. Powell

- punitive damages from motor vehicle; Powell:  she was intoxicated and crashed into Gann

- Powell’s employers insurance is Hartford

- Erie Guess: a federal court has to guess what the Texas sc would say on an issue they have never ruled on

            - auto coverage policy, drunk driver

            - 5th circuit interprets Texas law and says punitive damages against public policy because

            it would defeat the whole purpose of punitive damages to punish and deter

- professor says; that if the Texas sc ever rules on this issue they would follow this opinion because of the public policy argument

            - for exam: current Texas law is that punitive damages is covered and public policy does

not bar it, unless there is an exception in the ins policy; for bonus points:  but a federal court has predicted that the sc would say it does violate public policy and say not covered. Safeway is the current law: punitive damages are covered












A.        No Coverage for “Property Damage” to “Your Work” or “Your Product”


- we looked at the commercial liability coverage policy in the book;

- exclusion: j

- these exclusion are referred as business risks exclusion

- no going to insure the insured for running a sloppy business


these exclusion do not apply to damage to other property: roofing example; the roof is excluded from coverage; but the damage to the inside of the property is not excluded.

The purpose of these exclusions is to prevent coverage for bad work, because the insured had control over these damages, but the insurance will cover damages that they have no control over.


Exclusions: not covered

- j5: real property….performing operations…if the property damage arises of that operations

- j6: any property…..your work…on it

-paragraph does not apply if the damages are included in the

 “products completed operations hazard”


- l: property damage to your work included in the PCOH…except work performed by a subcontractor.


“your work” means worker operations performed by you or your behalf, includes work done by subcontractors


PCOH: basically, all the work under the contract has to be concluded, if not they are still conducting operations,

-it means that a hazard [risk] that happens at a certain time…after the work is done….is said to be included in the PCOH


  1. when did the damages occur?
    1. if before complete; j5 applies
    2. if before complete; j6 applies
    3. if after the work completed; l applies you will be covered if subcontractor did the work;


Employers Cas. Co. v. Brown-McKee, Inc.

            - hired to build a grain elevator, they built it wrong, they had to repair it;

            - the company that bought the grain elevator lost storage revenue

            - insurance company said that their work product is not covered; exclusion said it

            - the damages were property damages because the loss of revenue resulted because of a

            faulty grain elevator

            - court said that exclusion applies because;

- you have to look at what is damaged; if what is damaged is to the insured work; then it is not covered; but damage to other property caused by the faulty work;


Eulich v. Home Indem. Co.

            - plaintiff sued building contractor when building collapsed because steel member was

            not strong enough

            - court held that failure to perform according to specs is not covered


Gar-Tex Construction v. Employers Casualty Company

            - city of Emis hired company to construct clearwell: underground storage to store water

            - plaintiff was hired to build the clearwell but it was damaged when it rained

            - there were supposed to be pumps to take care of the rain damage; but it did not work

            - were they conducting operations?  Court said yes because they were still working on

            completing the clearwell, so the exclusion does apply; not covered

- when is your work complete: the contract is complete or you finish your part and turn it over to someone else

            - the contract required them to prevent just this type of accident from happening


Houston Building Service v. American General

- HBI does janitorial services and they applied linseed oil and ruined wood floors and doors in the building

- this was a 1 year contract; so you were still conducting operations; HBI was trying to say that the job was completed

- personal property attached to real property becomes real property; like the doors

- the policy language of this case is good law



General Manufacturing d/b/a Rockwall v. CNA  Lloyds

            - Rockawall manufactured windows and sold them to builders

            -  their windows started cracking; so they had to replace them

            - sued their ins co. to cover for all the windows that they replaced

            - the crack windows are their work product

            - they were trying to argue that it was it was not just cracked windows, it was diminishing

            the value of homes

            - court said no coverage because the cracked windows were their work product
















A.        Continuous Damage or Injury Claims – Which Policy (ies) Is (are) “Triggered”


- what happens when the damage or injury that is continuous that spans different policies who pays?

- damages can span over a year; so what policy pays? The old one or the new one? The old policy has expired and have moved on to the new one.


How do you know which theory to use:

- it is difficult to predict which theory the court will use

- are the facts of your case similar to any Texas case, if no Texas case is it similar to any federal case who rule on this?

- Court have come with different theories to apply to each case


Four theories that apply to continuous injury:

1.      manifestation theory: only the policy in effect at the time damages manifest themselves; applies in almost every non-continuous damage; exposure, latency and injury are all triggered; not applied very often

2.      continuous (triple) trigger theory: all policies in effect during the period of time when damages continue to occur are triggered

3.      injury in fact theory: we are going to extend coverage under all policies that plaintiffs were actually injured; policies are triggered if they are on the “risk” at any time the claimants suffered injury from; this follows policy language precisely

4.      exposure theory: use a lot in bodily injury asbestos cases; problem is that it has very little to do with policy language; very easy to apply;  the injury that occurs during the policy theory


Notes: all these theories only comes into play for long term exposure; continuous injuries; not used for a single injury

-you don’t know what theory the court will apply; but exposure theory is the most popular;

- Texas SC has not approved any of these theories for use in this state. Trick question on the final exam:


Know the math for the exposure theory: how much will the plaintiff get


Plaintiff’s total damages [times]: the number of year of the ins was on the risk

                                                      The total # of years the plaintiff was exposed









            1.         First Manifestation of Damages Theory


Dorchester Dev. Corp. v. Safeco Ins. Co

- 1st suit: B&L v. Dorchester because of defective workmanship in construction of apartment complex

- 2nd suit: Dorchester v. Safeco: ins will not defend because of exception: only care when the damage occurred;

            - Safeco: argued that there was no occurrence; because policy had expired

            -  CA affirmed TC; no duty to defend because there was no occurrence


            2.         Continuous (or Triple) Trigger Theory


Cullen/ Frost Bank v. Commonwealth Lloyd’s Ins. Co.

            - bank sold condo’s

            - the condo owner’s sued the bank and the bank sought duty to defend from ins

            - condo’s claimed negligence in disbursing funds and not fixing the problems

- bank argued that it was a “continuous occurrence”; the ins argues that only one occurrence discovered in 1986; court held that there was more than one occurrence; why facts did the court look at? The court said that the repeated breakdown of the elevators; the condo owners alleged that they kept breaking down; so each time they broke down; it caused an additional loss of use of the property; this is the one the professor believes the court hung the repeated argument on;

            - tc: gave summary judgment to ins, but CA: reverse


            3.         Injury in Fact Theory


Dayton ISD v. National Gypsum Co.

            - school districts in Texas sue Grace the manufacturer of asbestos insulation

            - schools claimed property damage [to the buildings]; no claims of bodily injury

            - Policies: in effect from 1978 – 1985; suit filed in 1984

            -  Grace settles w/ schools and wants ins to pay

            - DC grants summary judgment for Grace

- p. 6 the policies were triggered if they were on the risk at any time that the claimants suffered injury from asbestos through the time of their death or filing of their claim.


La Farge Corp. v. National Insurance Fire Ins Co.

            - sold cement to Lone Star

- Lone Star used the cement to manufacture RR cross ties; they began to crack prematurely and deteriorated    

- they settled; but National did not participate; this suit is to recover the part of the settlement that National owes to La Farge

- Texas law was applied because the policies were written and signed in Texas; Maryland court made an “Erie” guess as to what the Texas SC would do; they guessed that they would apply an Injury in Fact theory

- the holding was that National was on the risk somewhere on the time line; but they don’t have to pay the whole sum because the court prorated the time on the risk that National; the period of time that the injury in fact occurred;

- injury in fact occurred  when the ties were manufactured until they found out about the damage occurring;



            4.         Exposure Theory


Insurance Co. of N. America v. Forty-Eight Insulations

            - people exposed to asbestos sued 48 for failure to warn about the product



1955                                        1972                1975    1976    1977                                 Present      

self insured                              

                        INA insured                 AFM       llnat            trav               Liberty Mutual


            - who will cover? When did the injury occur?

- court applied the exposure theory:

- exposure period: is the time the person was first exposed to asbestos until the end of the exposure:

            - example: goes to work in 1966 exposed and works there until 1974;

                        - INA would be responsible for 66 to 72 and

                        - AFM from 72 to 74

- basically the amount of time the ins was on the risk when the person was exposed to

- there is latency period before you are diagnosed: basically when it is manifested; then you go along until you start to suffer from the asbestos

- exposure period; latency period; then injury period

- for example: the manifestation would say that liberty mutual has to pay because that is when the injury was manifested

- the continuous theory would say that ins has to pay for every stage of the exposure; latent and manifestation.

- injury in fact: would require a very detail injury report; hard to pin down the exact date of injury in fact:

- so , this exposure theory ignores the policy language


- the formula:


            # of years [or months] [ins on the risk ]             [x]     plaintiffs total damages =    

            # of years that the plaintiff was exposed


- usually firms go to SS office to get a print out of where the person has worked and go from there; to determine which companies he worked for; to see when they were exposed




A.        Intentional Injury Exclusion


State Farm Fire &.  Cas. Co. v. S.S.

            - G.W. transmitted herpes to SS

- SS sued HW and for negligently transmitting the disease; GW requested his homeowners policy to defend him.

- GW hired his own lawyers and settled with SS for $1 million and assigned claim to SS against state farm; SS promised not go against GW personally

            - state farm was GW’s  homeowners policy

            - state farm initiated this case and filed for summary judgment;

            - tc granted sj and CA  reversed

            - at issue: was Exclusion of the policy for intentional injury

            - he intended to have sex with SS but did not know he was going to transmit the herpes

- Tex SC ruled that the sex was intentional but the exception does not apply because he did not know that he would transmit the disease.

- court adopted restatement 2nd of torts; intent: if he intends the consequences of his acts or believes injury is “substantially certain”

- *** intent is normally a question of fact for the jury

- know intent definition of herpes

            - the application of the intentional injury exclusion is a question of fact for the jury.

- rarely it will be applied as a question of law: it will be applied in sexual assault of a child by an adult.; rape also


B.        Injury to Employee Exclusion


National Union Fire Ins. Co. v. National Convenience Stores, Inc.

            - supervisor grabbed and embraced Cathy Carbajal;

            - supervisor worked for NCS; NCS sought duty to defend for ins co

            - NCS was the employer; they supervised Fisher and Fisher supervised Carbajal

- she wanted to sue for bodily injury; and then wanted to sue for negligent hiring and negligently supervising or training.

            - ins co said; no duty to defend because of exception

- SC reversed tc and held that exception applies because the negligent hiring does not apply to the bodily injury

- exception: does not apply to employee injury during the course of employment










C.        Motor Vehicle Exclusion


Centennial Ins. Co. v. Hartford Acc & Indem.

            - Eve Lawson died in car accident caused by Susan Webb

            - Webb was working of World Courier;

            - World Courier had two policies:

                        Centennial : automobile liability

                        Hartford: comprehensive general liability

            - Centennial settled wanted Hartford to pay their part

            - CA: the negligent hiring did not cause the death; the driving did;

            - negligent entrustment is different from negligent hiring; Hartford was not liable

- exclusion: applies to any automobile used; owned or operated, rented or loaned, to the insured; as long as it is used in the course of the employment

- they “loaded” an automobile but it was not owned by them or it was not operated  or owned by any person in the course of his employment.

- Concurrent causation doctrine:  Partridge [California] when 2 independent clauses come to cause an injury; the court says that both policies have to provide coverage: the hitting the bump while driving and the modification of the gun were responsible for the injury.

- Partridge did not apply because negligent entrustment was not the cause of he death; only the driving was the cause. Here there was only one independent cause of the accident: the driving.



























A.        Duty to Defend


            1.         “Eight Corners” or “Complaint Allegation” Rule


Heyden Newport Chem. Corp v. Southern Gen Ins. Co.

            - Newport: turpentine refining business

- Pikering: agent for Newport and Marks: agent for Pikering to pick up and deliver the stumps to turn into turpentine

- Marks has accident in truck and kills someone

- Southern general provided the auto insurance for Pikering; Southern defended Pikering and Marks but not Newport

- Issue: did Southern have to cover Newport?

- Newport alleged that Pikering was at all times an agent of Newport; but they had originally denied that they were an agent of them .

- “Insured” is defined as anyone that is legally responsible for another insured.

-  8 corners =  you look at the 4 corners of insurance policy and the 4 corners of the complaint [petition] against the insured that is filed in court; and from this info you determine if you have a duty to defend.

- when we look at the 4 corners of the complaint: we assume they are true; they take the plaintiff at his word.


Fidelity & Guar.Ins. Underwriters, Inc. v. McManus

            - Mc Manus buy bike for son; son lets Willey borrow and injures Garcia

            - Garcia sues Willey and McManus jr . for negligent entrustment of the bike

            - McManus sr homeowners policy had recreational vehicle exclusion

- sc court said that McManus jr was being sued for a cause of action [negligent entrustment]which requires the operation of a vehicle which was excluded

            - this was a case of derivative cause of action

            - ****it is the facts alleged that control even considering the truth or the legal theories



Notes: Guest Speaker

-duty to defend continued

-what triggers duty to defend? And how to trigger the duty to defend?



National Union Fire Ins. Co v. Merchants Fast Motor Lines, Inc.

            - truck driver negligently discharged gun in truck and bullet hit other driver

- deceased: cassimiro Gonzalez family filed wrongful death suit against driver and Trucking company

            - ins claimed no duty to defend because the shooting was not covered by the policy

            - sc said that pleading did not allege that the injury resulted from the use of the covered auto.   

            - just because he was in the car was insufficiently to trigger duty to defend;

            - court has to rely what is in the lawsuit to determine if there is a duty to defend.



            2.         Possible Exception to the Eight Corners Rule


Gonzales v. American States Ins. Co

            - kid’s leg was caught in an ice auger; Gonzalez welded the gate over the auger

            - pleading said that defendant may have owned the ice auger

            - ins claimed that the completed operations hazard exclusion applied

            - CA held that

1. where the ins refused to defend its insured on the ground that the insured is not liable to the claimant, the allegations in the claimant’s petition control

2. where the basis for the refusal to defend is that the events for the suit are outside the coverage of the insurance policy, facts extrinsic to the claimant’s petition may be used to determine the duty to defend exists

- exclusion does not apply because the petition claimed that Gonzalez owned the auger not that he operated

- the ins wanted to look at extrinsic evidence; court said you can’t look at real facts

.           - if the question is Whether you are insured? Then the court can look at extrinsic evidence

            -Note: Texas SC has never had opinion with this exception

            3.         Multiple Claims


Hartford Cas. Co. v. Cruse

            - j&j  : defective foundation leveling work; filed for bankruptcy

            - Cruse: were the home owners; sued j&j got assignment to sue ins co

            - ins co claimed that damages not covered because of faulty workmanship exclusion

            - exclusion only applied to the work performed; not to damage to other property

            - if they had only claimed damage to the foundation the exclusion would have applied;

            but because they claimed damage to other property, mental anguish and loss in value; the

            exclusion was not applicable to those claims.

*** Rule of case: if multiple claims are raised, some covered but some not, if there is anything that is covered the ins must defend the whole lawsuit.


















A.        Reservation of Rights


Employers Ca. Co. v. Tilley

            - Tilley was contractor;  Straky lost arm in accident

            - Tilley claimed he did not know of the suit until it was filed

            - ins claimed that Tilley failed to notify them

            - Issue: can an ins waive or estopped their exceptions

            - attorney for Tilley provided defense but also went against him for the ins; gave the ins

            co evidence     

            - Note: non-waiver agreements are rarely used now, reservation of right is now used

            - attorney owes his loyalty to the insured not the insurance co.


            “captive firm” firm set up by ins to provide defense for its insured, this lawyers still owe

            duty to insured


Rhodes v. Chicago Ins. Co

-purpose of case:*** the duty to defend is based on the plaintiffs petition, and if the plaintiffs amend their petition the duty to defend changes

- it is possible that the original petition alleges a duty but the amended can drop that duty so insurance therefore does not have to defend, but on second amended they can add it again and duty comes in again.

- look at each amended pleading to see when duty to defend was invoked


Ideal Mut. Ins. Co. v. Myers

            - defendants argue that there was not an effective reservation of right letter

            - what is required in a reservation letter?

                        - must timely

                        - must be specific and inform the insured

- courts require that the insured was prejudiced because of the untimely ness of the reservation of right


- the insure has the right to control his defense and also has right to reject the ins co counsel and look for their own defense,


Farmers Texas County Mut. Ins. Co. v. Wilkinson


            Issue: did ins waive reservation of rights when letters were ambiguous?



            Mom bought auto liability for son and son Clifton, sold Datsun and bought Ford pick up

            Son Clifton got into accident in pickup truck w/ Pena and Farmers paid property damage

            Pena tried to get settlement w/ Farmers for personal injuries

            Farmers never tried to assert the defense of noncovereage


            2. Garza tries to negotiate settlement w/ Farmers not successful

            3. Pena filed suit against Wilkinson for PI

4. In 1977 Farmers seeks declaratory judgment saying that it had no obligation to defend Wilkinson

                        -said that Pickup was not insured and that Wilkinson was not named insured

            5.DC: declaratory judgment said that Farmers did cover Clifton for the Pickup;

                        -Farmers appealed

            6. Farmers in appeal: says that Wilkinson not covered

            7. CA: district court affirmed



When farmers sent two letters they were ambiguous, they said this was a waiver of the reservation of right letter and other letter.

            Defense w/ out reservation of right all defenses are waived


Texas Farmers Ins. Co. v. Mc Guire



            TC: held granted judgment for Texas Farmers

            CA: reversed

            SC: reversed and affirmed trial court


            Mc Guire was in auto accident in truck owned by employer

                        - he contacted his PERsonal insurance agent; who reported to Texas

                        - in statement #1: said he was driving company truck

                        - this raised question of coverage because he was driving employer’s truck


            McGuire sued for:

                        a. breach of K

                        b. DTPA

                        c. Violation of the Insurance code


            Farmers took second statement #2 and told him there was no-coverage


            Other drivers sued McGuire and Farmers advised of defense but with reservation


            There was a judgment of 12,547 and Farmers refused to pay  based on non-coverage

                        -Note: the pleading could have said only that he was driving a truck, so that is

                        why the ins co went ahead and defended although they refused coverage


            McGuire argues that insurance agent did not advise him to get attorney for statement #2

                        - the CA agreed and that is why they reversed





            SC: said that estoppel cannot be used to create insurance coverage

- Farmers did not Forfeit anything they defended him under reservation; it involves coverage under the policy

                        - example: late notice: the insured then forfeits the policy


- Rule:***the policy exclusions and the terms of policy; cannot be re-written by waiver and estoppel,

            - however you may waive or estopp a forfeiture

- Exception: if an insurer continues to defend w/ knowledge of non-coverage without obtaining a non-waiver agreement, the reason for this is that if the ins company misleads the insured that there is coverage by representing them and then later argues that there is none.


Britt v. Cambridge Mut. Fire Ins. Co.



            TC: granted declaratory judgment for Cambridge ins

            CA: denied motion for rehearing


David Britt was found guilty of murder when he stabbed his aunt Sandra Groves while visiting his parents home.


Patrick Groves husband brought demand on Cambridge under homeowners saying that murder was Unintentional            

            1. Groves brought suit against parents and son for negligence of David

            2. Cambridge offered defense of Britt’s w/ reservation of right

                        - later notified Britt’s of unqualified defense of them but not David


            Insurance Issues of this case

a.       obligation to indemnify: plead negligence and put on negligence conduct, insurance was saying that it was intentional

b.      duty to defend: before the lawsuit was file Cambridge said they would not defend but during civil suit they said they would defend subject to reservation of right. 


Note: section 57 of the Restatement, basically it said that the insurer is never precluded from reserving it’s coverage


Holding: Cambridge did not waive because they did offer to defend David but w/ reservation.







B.        Declaratory Judgment Actions


Western Heritage Ins. Co v. River Entertainment



            1. Rodriquez filed suit against Hill and River Entertainment: said hill got drunk at

            Pepe’s on the River restaurant or bar and hit their car killing their daughter


            2. Western denied to defend and indemnify because of liquor-liability exclusion


             Western: sought declaratory judgment to determine what obligations it owed River Ent.

                        -DC: said no duty to defend

                        -CA: modified and said if no duty to defend then “forecloses” indemnity issue




DC: no duty to defend and dismissed the indemnity issue because it was advisory ruling for a declaratory judgment


CA:  when the petition does not allege facts sufficient for determination of whether those facts are even true, the EVIDENCE adduced at trial in a declaratory judgment may be considered along with the petitions allegations


CA: held that there was no duty to defend and there was no duty to indemnity based on common sense

- so if the exclusion applied, the judgment [duty to indemnify] could never be covered


Note: by Professor

Duty to indemnify: is based on true facts

Duty to defend: based on the pleadings

- rules of civil procedure says that judgments must be supported by pleadings; so if there is no duty defend, then logically if what is plead is not covered, then what is paid is not covered

-BUT:  these are distinct and separate duties, so there can be a duty to indemnity, even if no duty to indemnify.


Farmers Texas County Mut. Insurance v. Griffin

            -Griffin: got shot in Beaumont, TX

            - Royal: driver of car and insured tried to get Farmers to pay

            - Farmers: says this was an intentional act not an auto accident, not duty to defend.


            Issue: can duty to indemnify be determined in a declaratory judgment.



-Tex SC: says that parties can secure a declaratory judgment on the insurer’s duty to indemnify before the underlying tort suit proceed to judgment.

- the duty to indemnify is justicible when there is no duty to defend and that when there is no duty to defend there is no chance that the parties can recover

- court said that the act was intentional and drive by was NOT an auto accident, so the exclusion applied.

            - Farmers has no duty to defend Griffin, therefore they have no duty to indemnity either.



C.        Procedure: Who has Burden to Prove Exclusion Applies?


Telepak v. United Servs. Auto


Issue: whether the insured [telepak] or the insurer has the burden of proof as to the applicability of an exception to an exclusion in an ins policy?


Holding: applicability of an exception to an exclusion is a question of coverage, on which the INSURED has the burden of proof that the claim is covered.

- the insurer has the burden of proof  on an exclusion

- the insured has burden of proof on an exception to an exclusion



- damage to home was caused by settling of foundation

- ins pled exclusion from coverage damage from settling

- Telepak said settling was caused by water from AC, that this loss fell under Exception to exclusion that settling from accident is not excluded

























A.        Automobile Liability Insurance


            1.         Texas Personal Auto Policy

            - best described as different policies in one

            - Part A: is liability coverage : 3rd party coverage

            - Part B: divided in subparts: 1st party coverage

                        1. medical expenses

                        2. PIP: we will cover medical expenses and 80% of loss wages

                        - they are pretty much no fault, if you are hurt in auto accident you can recover

                        - minimum in Texas is 20k per person and 40k per accident

- Part C: UIM/ UM [1st party]underinsured or non-insured motorists: this pays you if the person that hits you does not have insurance

- Part D: [1st party]collision and comprehensive: damage to your own car


            2.         “Ownership, Maintenance or Use” of Auto Required


Nationwide Property & Cas. Ins. Co. v. Mc Farland

-Issue: does ins have duty to defend Mashewske under policy issued to McFarland, because Mashewske was not family he had to be “using” the car, so was he “using” the care when it fell off the jacks?



                        -Trial court:

                        - ins sought declaration that Mashewske was not a covered person

                        - Mc Farland wanted the court to declare that Mashweske was covered, therefore

                        he could recover for his damages

                        - TC: granted McFarlands motion for summary judgment

                        - ins appealed


                        -Court of Appeals:

- ins claims 1. no subject matter jurisdiction 2. “no authorized use” exclusion applies

                        -CA: held that Mashewske was NOT a “covered person” under policy


Holding: more specifically: the court analyzed was it “use” or “maintenance”?  for Mashewske to be covered under the omnibus provision of the policy he had to be “using” the car

- he was not using the car, he was helping McFarland “maintenance” the car, so therefore, he was not covered under the policy.

- Purpose TEST: to determine “use” or maintenance: court must look at the purpose behind the particular act, so the purpose of Meshewske was to help McFarland maintenance his car, not use the car.

- so to be covered under someone else’s policy you have to be “using” the car

- owner and family member’s are covered for use and maintenance



- McFarland underneath car; car was sitting on jacks and Mashewske was helping and put car into neutral

            - car rolled off jacks and fell on McFarland

            - Mc Farland sued Mashewske for negligence and Mashewske though  he was covered

            - ins provided defense w/ reservation of rights

                        - ins argued no duty to defend because Mashewske was not “using” the car,

                        - later filed supplement alleging the “unauthorized use” exclusion applied



            3.         “Family Member” Exclusion Invalid Below Statutory Minimum Limit Amount


National County Mut. Fire Ins. v. Johnson


Issue: whether the family member Exclusion is consistent with the legislative purpose of the Texas Motor Vehicle Safety-Responsibility Act: ensuring that every motor vehicle is covered by an automobile liability policy that will protect all claimants losses which arise out of the operation of the vehicle?



            - husband was driving and collided with another car, wife was passenger

            - wife was injured and brought suit against husband for her injuries

            - husband wanted ins to defend him in suit, but ins refused

- ins argued that the family- member exclusion applied, but the ins agreed to defend w/ reservation of rights

- family –member exclusion says damages caused by family members not covered


                        Trial Court:

                        - husband filed for declaratory judgment to determine his rights under policy

- ins filed a counterclaim for declaratory judgment to determine validity of family member exclusion

- TC: held hat family member exclusion was invalid, and ins was liable for defense and coverage under policy

            - Exclusion conflicts w/ Texas Motor Vehicle Safety-Responsibility Act


                        Court of Appeal:

- affirmed, saying it violated Act, because it requires insurance for “all sums which the insured shall become legally obligated to pay”


Texas SC:

- affirms the judgment of CA



- Exclusion  is void because it conflicts w/ Texas Motor Vehicle Safety-Responsibility Act  and well as with the public policy underlying the act.

            Note: there will be a question on the test about this case********


            4.         “Fellow Employee” Exclusion


Truck Ins. Exch. v. Musick



The validity of the “fellow employee” exclusion in a standard Texas vehicle liability policy.



- Musick purchased policy from Truck Insurance covering his ½ ton truck

- Musick and Luis Quilo were both employed by  “Abrams”

- Musick backed his truck over Quilo causing traumatic head injuries, ultimately died

- Quilo family filed suit against Musick and Abrams

- Musick requested coverage under the ins policy, but ins [truck] denied coverage citing the “fellow employee” exclusion

- ins Truck filed for declaratory judgment



            Trial Court:

            - rendered judgment for Musick

            - ins appealed citing 3 points of error:


                  1. erred in holding the fellow employee exclusion partially enforceable

- CA held that the “fellow-employee” exclusion in the policy was clear, and that the parties have stipulate that Musick and Quilo were fellow employees, so under the plain language of the exclusion Truck has no duty to provide coverage


-Truck argued that the unlike the “family member” exclusion in Johnson, the “fellow employee” exclusion is specifically authorized by the Texas Motor Vehicle Safety Responsibility Act and additionally the Quilo family is not left without a remedy because they can sue under Workers Comp.


- Musick argued that the “fellow employee” exclusion does violate the Act and that if the legislature wanted Worker’s Comp a substitute for motor vehicle coverage it would  put that language in the  ACT.


- CA: said that Worker’s Compensation Act specifically provides recovery for

this type of matter and that the Legislature by enacting § 21 (e)(1) of the  Safety-Responsibility Act intended to avoid conflict with Worker’s Comp ACT.



                  - CA: said that by sustaining Truck’s first point of error it disposes of points two

                              and three.

2. erred in holding that Truck has a duty to defend Musick in the personal injury suit

3. and finally, that the TC erred in holding that Truck has an obligation to make payment under the police.


            - CA; reversed the TC judgment and rendered judgment for Truck insurance.


                        Court of Appeals:

- Holding:  that “fellow employee” exclusion is valid and enforceable because it is not inconsistent with Texas Safety Responsibility Act and the Quilo family still has remedy under Workers Comp laws.



- the policy was clear and not ambiguous

- Quilo and Musick were fellow employees, and the accident arose during the course of employment, therefore the exclusion applied

- exclusion is not inconsistent w/ Texas Safety Responsibility Act because it will be held liable under Workers Comp.



            5.         “Excluded Driver” Endorsement


Wright v. Rodney D. Young



            - Jonathan Wright was a minor son of the Wrights

- he was involved in accident w/ Bobbie Chance and at the time he was unlicensed and specifically excluded from the Wrights liability policy 

- the policy was issued by Old American through RDY



- Chances sued the Wrights for damages for:

            - negligence and gross negligence and

            - negligent entrustment

            -later amended suit to include Old American and RDY


- Old American and RDY filed cross-action seeking declaratory judgment that Jonathan was an excluded driver and therefore there was no duty to defend

- TC: held that Old American and RDY have NO duty to defend because of Exclusion

- Wrights appealed w/ two points of error

1. they argued that summary judgment was improper because a material issue of fact exists as to whether they knew that they would not be covered in an accident caused by their son Jonathan

2. also contended that excluded driver endorsement is contrary to public policy and Texas Motor Vehicle Safety-Responsibility Act.


- CA: disagreed w/ both points of error

1. on their first point of error the CA said that the policy was plain and unambiguous, they never intended to include Jonathan and they signed the exclusion voluntarily

2. on their second point of error the CA said that the Act was designed to protect innocent victims, the Wright’s were not innocent because they negligently allowed they minor unlicensed son to drive,


Note: this type of exclusion is used for people who have too many accidents excluded from the policy to lower the premiums on the policy



            6.         Permissive User


Note: the first two cases are no longer good law;  but the last is current law  because it interprets the current policy in Texas,

- the new policy focuses on the reasonable belief of the user;

- NOW: the exclusion applies if the person is using without reasonable belief.


Snyder v. Allstate



            - does ins [Allstate] policy  require that the name insured be the owner of the vehicle?



- J.B. Rhodes purchased car and gave to daughter Darla; a minor; the parties dispute if legal and equitable title passed by giving the car to his daughter as a gift

            - Mr. Rhodes purchased automobile liability insurance from Allstate covering the car

            - Darla allowed Robert Snyder to drive the car, and were involved in accident

- Snyder’s and Rhode’s requested Allstate defend Robert up to the limits of policy against any suit arising out of the collision.



- Allstate sought declaratory judgment seeking an affirmative determination that it has no obligation under its policy or:

- in the alternative: that both Fidelity and Allstate are obligated to Darla and Robert “pro-rata”

- Fidelity contends that Allstate has primary coverage and therefore was only limited to excess coverage under Mr. Snyder’s policy [father of Robert]

- Snyder’s filed cross-action for medical expenses and services up to Allstate limit


- TC: granted judgment against Allstate


- CA: reversed and Remanded TC ruling because they:

- interpreted the Allstate policy as requiring that legal title  of the “owned automobile” be in the name of the named insured and because the evidence presented a disputed question of fact of ownership

- Dispute: was the delivery of the car a gift and did a pass title?


- SC: reversed the CA and affirmed TC

- stated that the Texas Insurance Commission in 1963  omitted all previous requirements of  “actual ownership from the definition of  “owned automobile with the new language which basically says “any car described in the policy”
 - so, since Mr. Rhodes paid the premium for that specific car involved in the accident it was covered by Allstate, therefore


-  SC: held that the provisions of Allstate policy does not require that the name insured be the owner of the vehicle.


Royal Indem. Co. v. H.E. Abbott


Issue: was there an implied permission between the insured and the actual driver that caused the accident?



            - Herring owned truck driven by Landers

- Landers worked for Herring as a “ranch hand”  and never drove off the ranch unless specifically instructed.

            - Landers on a personal trip damaged a building owned by Abbott

- Herring’s truck was insured by Royal containing an “omnibus clause” extending coverage to anyone using the truck w/ permission of named insured



- Plaintiff Abbott recovered judgment against Landers for damage to building

- then Abbott brought suit against Royal to enforce liability against the policy

- jury found that Landers’ had implied permission from Herring

- CA: affirmed

- basically Abbott wanted to argue that Landers had implied permission from Herring in order to recover damages from Herring’s policy

- they argued that implied permission can be inferred in view of the relationship between Herring and Landers; they said that their relationship was more than mere employer/ employee

            - Royal used two case examples to show no implied permission


- Tex SC: reversed

            -  and Held that Landers did NOT have implied permission from Herring

            - court cited the following reasons for their decision:

                        -courts usually look at: 1. course of conduct and 2. Relationship

                        -evidence does not show a relationship nor a prior course of conduct from

                        which implied permission can be fairly inferred

                        - Landers never drove off the ranch unless specifically instructed

                        - never used to truck before for a personal errand

                        - Herring always drove Landers into town whenever Landers wanted to go

- Herring did not have any reason to believe that Landers would use the truck on the day of the accident.


United States Fire Ins. v. United Serv.  Auto



            - this a dispute between 2 insurance companies:

                        1. United States Fire; and

                        2. United Service Auto]

            - Douglas Martin [ a minor] was driving a car and Anna Milliken was a passenger

- Douglas and Anna were playing in the car, when Anna grabbed the steering wheel causing the car to leave the road, run into a ditch

            - there are 3 policies at issue in this case, the

1. United States Fire automobile liability policy:  which covered the car  involved in the accident.

2. United Service automobile liability policy: issued to the Anna’s father of the passenger in the car,

3. United Service homeowner’s policy: also issued to the Anna’s father



            - First, Anna brought suit against Douglas for injuries she sustained

            - then, Douglas counterclaimed against Anna for his injuries

            - the Counterclaim gave rise to this dispute regarding the duty to defend

- United Service filed a declaratory judgment against Anna and US Fire to determine who, if anyone, had the duty to defend Anna in the counterclaim filed by Douglas

- Both insurers filed motions for summary judgment

- TC: granted United Service’s  and denied US Fires

- CA: affirmed the TC and held that US had a duty to defend Anna



- First, addressed exclusion in the homeowners policy and in order to determine if this exclusion applied they had to determine if Anna was “using” and “operating” the car at the time of the accident.


- the CA concluded that when a passenger grabs the steering wheel of a moving car, this is consider “using” the automobile within the meaning of a liability policy.


- the CA also concluded that Anna was “operating” the vehicle when she grabbed the steering wheel


- the CA also stated that because Douglas alleged that Anna was asserting dominion and control over the vehicle, this constitutes “operation” which would bring Anna within the Exclusion, so therefore there is no duty to defend under United Service’s homeowner’s policy


- Now, the court moved on to determine if United Service had a duty to defend under the automobile liability policy


- to determine if Anna has liability coverage under both US Fire and United Service the court looked at 2 factors:

1. Whether Anna was “using” the Martin automobile at the time of the accident.


Basically, this first inquiry pertains to whether Anna is a covered Person under the policy           

2. whether Anna was using the vehicle “ without a reasonable belief” that she was entitled to do so. 

This second inquire pertains to whether coverage under either policy is excluded.

- it was undisputed and uncontested by US Fire:so CA determined that US fire was the primary policy

- CA had already determined that Anna was using the car, so that was already settled.

- the only inquiry was if Anna was had reasonable belief to use the car.

- to determine this the court focused on Douglas pleading which alleged: ______


- the court determined that there was nothing in that statement which indicates that Anna did not have a “reasonable belief”

- that statement reflects Douglas’ state of mind not Anna’s



















A.        Uninsured/ Underinsured Motorists Coverage


-Uninsured Vehicle means:

            -No Policy

            - a hit and run

            - there is a policy but it will not pay, the company is denying coverage or is insolvent

            - or an Underinsured Vehicle


- underinsure coverage is 1st party coverage; you would think it is 3rd party coverage


            1.         What is an Underinsured Claim?          


Stracener v. United Servs. Auto. Ass’n

            - USSA argued that the damages [27,500]were more than the 15k of UIM      

- Tex SC: you compare the damages to the amount of coverage of the negligent party

- you are underinsured when you do not have enough coverage to cover the damages you caused to someone else; note: it is the available coverage that you look at 


            2.         Stacking Limits


Upshaw v. Trinity Cos.

- court held: stacking is NOT allowed in INTRA-policy; because policy said that the UM limit was only 20k, not 3x the limit, but if you  got more than one policy you get everything under each policy

            - Inter-policy: is under separate policies, this is ok

            - Intra-policy is within the same policy, NOT ok



            3.         Bystander Damages Under UIM Claim


Christian v. Charter Oak Fire

- wife and child were following husband when husband was involved in accident w/ someone else and ultimately dies

- professor disagrees w/ this case, he thinks that wrongful death and bystander claim are completely different from each other

- court said 100k per  injured person; the husband was killed so she got 100k, so to get another 100k she had to prove she suffered a bodily injury



            4.         “Owned Vehicle” Exclusion


Rosales v. State Farm Mut. Auto

            - your own vehicle could never be the UM/ UIM vehicle

            - it is possible to recover



            5.         “Settlement Without Consent” Clause


Hernandez v. Gulf Group Lloyds

- when UM/UIM pays you they become subrogated to get their money back from the tort -feasor

- the policy said before you can settle with the tort-feasor you have to get your UM/ UIM permission, because if you settle you relieve him of any liability, meaning that if he does any more assets the ins could not go after him

            - subrogation clause: the insurance can go after the tort-feasor

- court said Hernandez could keep their money that they settled for because the guy had no assets, so therefore the ins was not prejudiced


Simpson v. GEICO

- he did not need permission from ins to settle with NON-motorists, the policy only requires you to get permission for motorists who are UIM/UM


            6.         Punitive Damages Under UM/UIM Section of Policy


State Farm v. Shaffer

            - jury awards 10k compensatory -actual and 10k punitive damages;

- this is different from Safeway because in that case it only applies to 3rd party liability CGL, but in this case is 1st party UM

- you own policy will only pay for actual damages not for the malice or recklessness of someone else; you cannot get punitive damages from your  own insurance; because allowing this would not punish the right person





            7.         Injury Must Arise from “Auto Accident”


Collier v. Employers Nat’l Ins

            - drive-by shooting, he was a passenger

- rule: in order to collect UM the injury must arise from the “use” of the uninsured vehicle, this does not apply to shootings from a moving vehicle

- here the shotgun was what created the injury and not the uninsured vehicle


            8.         Hit and Run Claims- Physical Contact Rule


Mayer v. State Farm

- a truck ran him off the road, while he was riding his motorcycle, there was no physical contact

            - rule: in a hit and run there has to be actual physical contact

                        -physical contact rule only applies to hit and run UM damages

- Exception: the indirect contact rule: the multi-car pileup : if car a hits b and b hits c and a runs away, this satisfies the physical contact rule

- example: if a piece of furniture falls off a truck and kills you, this does not qualify for UM benefits, because there was no actual physical contact by the uninsured vehicle

- this applies to pedestrians; if you are struck and  the care leaves you can collect UM benefits from your policy



            9.         Personal Injury Protection Coverage Offset


Mid-Century Ins. v. Kidd

            -offset provision: UM provision that says we’ll pay everything that was not PIP

- PIP: pays medical expenses and 80% of lost wages, quick and easy, PIP says the same thing, we will not pay if UM already paid

- you can’t get a double recovery for the same injury


example: 20k UM 2,500 PIP and 50k of actual damages

            - you get the 2,500 from PIP because it is easy

- and then you can get the 20k from UM because you still have not been made whole


            but applying the offset rule if you had 5k of damages

            - you can get 2,500 of PIP and

            - only 2,500 of UM and nothing more

























1.         Texas Homeowners Policy- From B


-homeowners policy it is split into 2 sections

            - section 1: covers house: any damage unless excluded

- section 2:  liability coverage: if mailman is bit by your dog, covers you for your negligence wherever you go in the world

            - this is personal general liability insurance.

            -there are many exclusions: intentional injury


- the insurance agreement is the same as the CGL, you must have property damage; property damage does not include solely monetary damages

- distinction: the damage does not have to be physical or tangible


2.         “Business Pursuits” Exclusion


-excludes coverage for things you should have a commercial policy for


            United Servs. Auto v. Pennington

- homeowners w/ business exclusion,

- they were going to hire a jockey to ride a horse

- fell off horse suffered damages and sued the homeowner

- homeowner said it was not a business, ins was saying they will not pay because it was a business

- court said it was not a business, it was not continuous

- Test: court look at two factors to determine business

            1. continuity

2. profit motive: livelihood, commercial transaction, do not have to actually make a profit, just have a motive to make a profit

- court looked at his income tax returns to see if he was making money

- even if one of the elements is weak, the test is not too strict, if looks like business, no coverage


            Adamo v. State Farm

- goes to Adamo a lawyer and he tells him to leave the country

- changed his business name into Adamo’s partner’s name

- he comes back, and wants his business back, lawyer says no

- he sued lawyer for malpractice, and lawyer is trying to use his homeowners to indemnity or defend because he came to me as a friend not because I was a lawyer

- ins claims business exception, because all this arose out of a business transaction

- the exclusion: excludes professional services rendered

- court did not buy lawyer’s argument





            State Farm v. Reed

§         family owned a child care center at someone’s home

§         a child died drowned in the pool in their backyard; crawled through hole in fence

§         court said that this is a regulated business and there was no dispute that this was a business for profi

§         did the business exclusion exception apply to this case: “activities ordinarily incidental to non-business pursuits”

§         court said that exception did apply: they declared the exception as ambiguous and read it in favor of the insured

§         cause of drowning: 1. negligent failure to maintain fence 2. negligent supervision



            State Farm v. Vaughn

§         in home child-care facility

§         court reasoned that the nature of the injury was because of the nature of her business so the business exclusion did apply and the exception did not

§         she left the child in a closet with a blanket over his head, she failed to do what she was hired to do, which is to care for the child

§         the intentional exclusion could have applied because she acted intentionally, ins did not use this defense because they wanted the Reed decision clarifies

§         court focused here on activity that caused the injury: and said there was NO “activity ordinarily incidental to non-business pursuits”


3.         “Other Premises” Exclusion


            Bonner v. United Servs. Auto

§         mom lived in Canyon Lake and policy covered that residence

§         the son shot his girlfriend in Houston; don’t know if intentional or accident

§         exclusion: if there is property not listed on policy, we will not cover that property

§         view adopted by court: has to be a causal connection between the other premises and the act or injury on which the claim is being made

o       if the injury occurs because of the condition of the premises, exclusion applies

o       the exclusion did not kick in because the property did not cause the injury, the shooting caused the injury



4.         Claim for “Negligent Assault” Covered?


            National Union Fire v. Bourn

§         defendants committed an assault and battery

§         plaintiff relied on negligent theory so that the insurance company could pay

§         an assault is intentional by definition and is NOT covered by homeowners because

§         no such thing as a negligent assault



5.         Molestation/ Sexual Abuse Claims


            Allen v. Automobile Ins.

§         plaintiff a minor was molested by defendant

§         sexual molestation is an intentional act in all 50 states, NOT covered by homeowners policy


            State Farm v. White

§         the people who were molested bring case against molester and others: people who knew of the molestation

§         court said that everyone in society has a duty to report sexual abuse of a minor to the proper authorities;

§         white was invited to come observe the molestation

§         court said that for purposes of intentional injury exclusion it is not triggered by negligently failing to report the molestation, so she was covered



































A.        Stowers Duty: Insurer’s Negligent Failure to Settle Claim

- Stowers doctrine began in Texas

- the decision of the commission was adopted by Tex Supreme Court

- decided a novel question: can an ins co who could have settled, be liable to their insured for negligently failing to settle a claim

- Elements of a Valid Stowers Demand: EXAM understand word for word, hot it operates

- very powerful, forces a settlement

- in discovery you are entitled to a copy of the policy, so you can check the policy limits


§         claim is covered

§         the unconditional demand to settle is within the available policy limits

§         settlement must fully release the insured from liability including any liens

§         the demand is such that a prudent insurer would settle considering the likely and degree of the insured’s exposure to excess judgment

o       evaluate that there will be a judgment against the insurance co and how big


G.A. Stowers Furniture v. American Idem

§         insurance company refused to settle…to the insureds detriment

§         Stowers is a furniture company; had a 5k policy

§         Company truck was in accident with young lady; lady wanted to settle with ins for 4k

§         Ins refused and only offered 2.5k, she refused and went to trial and awarded 14k

§         Now Stowers owes 14k, only 5k is covered so they have to pay 9k

§         In this suit Stowers wants ins to cover all the damages because they failed to settle within their policy limits

§         Did a tort exist? the SC, reversed the lower court and said that ins have duty to their insureds to settle reasonable offers within the policy limits because you give up your right to control your own defense and give it to the ins, the ins promises to defend you so

§         because you have given control to ins this gives rise to a duty to the ins not to act negligently in your defense

§         insurance can’t refuse to settle and take the case to trial and then leave the insured with a huge settlement


American Physicians v. Garcia

§         based on a malpractice suit, over 3 year period

§         Garcia had 4 policies

o       1980: ICA 100k

o       1981: ICA 500k

o       1982: ICA 500k

o       1983: APIE 500k

§         the original through the 5th amended petition alleged malpractice 1980-82

o       in the 6th amended alleged malpractice 1980-83

§         where there is more than one insurance co it is common for the insurance companies to agree how they are going to share the fees.

§         There was a 600k settlement demand made in 1985, the second demand 1.1 million, the third 1.6 million

o       The increase in the demands was that the attorney thought that all the polices could be stacked

§         There was a 2.2 million judgment, it was more than the amount of insurance coverage,

§         Because the judgment was more than the coverage, the insured owns the Stowers action

§         The Plaintiff has to buy the insured’s claim against the ins: get assignment in exchange for a deal not to sue the insured

§         In this case, the court said that there was NOT a valid Stowers demand, you could not stack the ins policies, there was just one occurrence

o       There was only 500k  max worth of coverage, this was the most that was available

§         This case says that: the Texas SC has never adopted a test for occurrence


Texas Farmers v. Soriano

§         Too many claims and not enough coverage

§         Auto wreck, Soriano was drunk and ran into a family

§         A passenger Lopez in Soriano’s car was killed and a person from family was killed, everyone else was injured

§         He had 10k per person, 20k per accident

§         Ins offered 20k to family but they rejected, because they wanted to see if Soriano had other assets

§         Lopez family demanded 5k to settle claim, and ins paid it

o       Ins then offered the 15k left to family, they rejected they wanted the full 20k

§         Case went to trial, and family won, for 172k, Soriano assigns his Stowers suit to family

§         5 mil of punitive damages against ins

§         family was arguing that ins breached their Stowers because they had to pay the more “serious claims” first, meaning they should have paid the family then Lopez family

§         sc did not agree with that argument, the ins co is required to view each settlement offer without regard of other claims; basically independently

§         family never made a demand within the policy limits


Insurance Corp v. Webster

§         had 2 lawyers, one lawyer offered to settle the case for 100k w/ condition if there was no other insurance, but there was other insurance

§         he had a 100k policy, 750 excess policy

§         court said that demand was not valid because it was conditional

§         if the other policy had not existed than the condition would not matter

§         putting a time limit on your demand is not a condition


Trinity Universal v. Bleeker

§         Bleeker hit truck on shoulder of fwy

§         14 claimants, 40k policy limits

§         hospital bills greater than 40k

§         got judgment for 11.5mil  dollars

§         ins did not have to pay because there was no mention of

§         settlement must fully release the insured from liability including any liens

§         the hospital provided care to accident victims but were never paid, so they asserted a lien against any recovery they could get


B.        Insured’s Assignment of Rights Too Soon May be Invalid


State Farm v. Gandy

§         if you assign your Stowers cause to the plaintiff in exchange for no liability,

§         sc court said there are requirement for assignments to be valid or not valid

o       assignment INVALID if: on EXAM

o        made prior to trial and

o       insurance co tendered defense and

o       either insurance accepts coverage, no reservation OR insurer makes good faith effort to determine coverage prior to the trial basically file a declaratory judgment

§         court does not like agreements that distort the trial process



































A.        Breach of the Duty of Good Faith and Fair Dealing (Bad Faith)


- contractual damages: amounts within the policy limits


- extra-contractual damages:  damages beyond breach of K damages

            -include breach of the duty of good faith and fair dealing, this is a common law duty,

            - violations of the texas ins code 21.21

            - violations of the DTPA

            - collectively these are lumped together and called bad faith, not properly


1.         The Standard


Universe Life v. Giles

§         Giles had heart surgery

§         Ins denied coverage, because her policy did not cover her heart conditions because it was a pre-existing condition

§         Jury said that ins breach duty of good faith and fair dealing

§         Definition of duty of good faith and fair dealing is breached when ins:

o       Denying or delaying payment;

o       If they knew or should have known that it was reasonably clear that the claim was covered

§         Court said that there was no evidence to justify the jury’s award,



2.         Can There Be Bad Faith if there is No Coverage


Republic Ins. v. Stoker

§         Swerved and hit furniture on highway

§         Ins said they were 50% at fault and did not want to pay because they were more than 50% at fault

§         The ins said this because under an underinsured motor applies when you are injured by somebody else’s negligence, so if you are more than 50% responsible so she has no claim

§         Also there was no-hit and run because there was no actual contact with the other vehicle

§         It turned out that she was not 51% responsible

§         Issue: can they be responsible for breaching their duty of good faith and fair dealing when they denied the claim for a good reason but it was not true

§         Court said: As a general rule their cannot be a breach when the denying the claim for a good reason







3.         Recovering Mental Anguish Damages and Punitive Damages


Twin City Fire v. Davis

§         Injured his back at work and filed workers comp

§         Settled workers comp

§         Doctor said she need hot tub for medical treatment for life

§         Ins denied to pay for the tub, she sued the ins

§         Jury agreed that a hot tub was necessary and assessed punitive damages of 100k

§         The issue on appeal whether the denial of policy of benefits result in awarding punitive damages for breach of fair dealing

§         Tex sc said that employee must show an independent injury separate from your contract damages in order to also collect punitive damages


Transportation v. Moriel

§         What the court is doing is examining how we look at gross negligence and award punitive damages

§         Insurance refused to pay for test and treatments of his impotence, they delayed payment for a long time

§         The definition of gross negligence: on EXAM

o       Viewed objectively  from the actor; is there an extreme degree of risk which involves the probability and magnitude of harm to others; and

o       The actor must have a subjective awareness of the harm

o       You have to prove both elements by clear and convincing evidence


§         What is serious injury: on EXAM

o       It cannot be: the injury associated with the breach of K

o       There must be some serious injury that is independent and different from the breach of K; plain mental anguish because you lost case is not enough

o       For example: if an insured requires medical treatment and the ins denies coverage knowing they are covered and need the treatment


4.         No Cause of Action for Third Party Claimant


Transport v. Faircloth

§         There was an auto / truck accident, and the parents were killed

§         The ins thought they were her natural parents and settled for 250k

§         When she became adult she sued the ins because they settled her claim too cheap

§         She was not related to the deceased, in order to recover for wrongful death you have to be related; so if she would have sued she would have not received anything

§         She claim they breach the duty of good faith and fair dealing

§         Court said: there was no special relationship between ins and plaintiff; this duty is owed to its own insured not 3rd parties





5.         No Duty of Good Faith and Fair Dealing to settle Third-party Claims


Maryland v. Head Industries

§         a little different from above case

§         the insurance company did not know they were not really covered

§         do you owe duty to own insured in the context of a liability claim as opposed to a first party claim?

§         Court said: In the 3rd party claim you have Stowers, there is no cause of action for breach of duty; only applies to first party claims


B.        Severance of Bad Faith Claim from Contract Claim


Liberty v. Akin

§         Court asked to decide when a trial court is required to severe the K claim from the bad faith claim

§         The insured had some settlement in her foundation; there was an exclusion for settlement unless it was caused by water damage

§         Ins denied because they said no water damage

§         She sued for breach of K and bad faith

§         K case evidence of offer is inadmissible;

§          in bad faith case the insurance wants the offer to come in to show they were acting in good faith

§         court said: this situation requires a trial court to severe the case into two cases to avoid prejudice to the defendant; IF there was an offer to settle the entire K case























Chapter 14


A.        Policy Voidable for Misrepresentation by Insured in Application


Tex. Ins. Code Ann. §21.16, § 21.17

§         has to do when the insured lies in the application

§         crops in life or health insurance: when they ask they question are you suffering from a terminal condition

§         the ins can cancel the policy if the lie is:

o       if material to the risk or

o       did it actually contribute to cause

§         an inmaterial lie will not render the policy void

§         but a material lie will void the policy

§         21.17: basically it adds a notice requirement; the ins has 90 days to notify the insured that they are voiding the policy

§         a common scenario: when parents go buy auto insurance but don’t list kid as a possible driver and leave it off


Union Bankers v. Shelton

§         five elements that ins must plead or prove : ON EXAM

1.      the making of the representation

2.      the falsity of representation

3.      reliance there on by the insurer

4.      the intent to deceive on the part of the insurer****a fact question for a jury

5.      the materiality of the misrepresentation

6.      90 day notice provision of § 21.17


B.        Prompt Payment of Claims


Tex. Ins. Code Ann. §21.55

§         in response because ins were not paying claims quick enough : more specific for exam

§         in additional to your claim you get:

o       18% penalty

o       reasonable attorney fees

§         only applies to 1st party;

§         within 15 days of claim they must commence investigation and acknowledge in writing or if not make record of

§         notify in writing the acceptance or denial of claim after 15 days of receipt of claim

§         for arson you get 30 days instead of 15 days and state the reason its being rejected

§         you can get more time; if the ins requests it; no later than 45 days

§         if claim is accepted; the ins has 5 business days to pay it after they sent notice of acceptance

§         does not apply to 3rd party claims; workers comp; marine insurance




Cater v. United Services

§         if you reject a claim they and you have a reasonable basis you don’t owe this; and later you find out that you do, you have violated 21.55

§         then the 18% does add up

§         even if you have good faith basis for not paying it and litigate it


C.        Unfair Practices


Tex. Ins. Code Ann. §21.21

§         section 4 is the liability section : just general  sense for exam

o       unfair methods of competition and practices:

o       unfair settlement practices: subsection 10

§         misrepresenting a material fact or provision

§         failing to attempt in good faith to settle

§         failing to provide a reasonable explanation

§         failing to affirm or deny clam in reasonable time

§         release on back of check

§         requiring as condition to settle for insured to produce tax

o       subsection 16

§         any person who has sustained actual damages

§         this creates a cause of action for violation of 21.21



State Farm v. Beaston

§         in order to recover mental anguish damages for violation of 21.21 you have to show that ins acted knowingly before jury can award this damages