Insurance Law – Platts

I. RULES OF CONSTRUCTION
A. CONTRACT PRICIPLES
1. *Ambiguous. More than one reasonable construction equals ambiguous (may be latent or patent)
a) patent – ambiguous on face
b) latent – have to look at fact pattern before becomes manifest; has more than one reasonable meaning under the
facts of the particular case but reads OK at 1st.
B. 7 RULES OF CONSTRUCTION – only if finding that policy is ambiguous.
2. Policy is a K, use K construction rules.
3. Enforce contract as written unless patently ambiguous.
4. ejusdem generis: general terms following specific terms are construed as being in the same class as the specific
term (general language that follows specific examples only applies to the specific examples it follows).
5. Give effect to all parts of policy if policy: do not choose construction that makes other part of policy meaningless
6. Construe against insurer in favor of insured
7. *Exclusions. Strict construction (narrow) of exclusions: court will accept any reasonable interpretation made by
the insured even if interpretation of insurer is more reasonable (an intent to exclude must be expressed in clear and
unambiguous language) – applies only to exclusions
8. NOTE: a term is always given its plain/ordinary meaning if not otherwise defined in the policy
C. *OVERVIEW OF POLICY PARTS
9. Declarations: statements specific to that policy (e.g. name of insured, amounts, policy #, limits of liability,
premium, etc.)
10. Insuring agreement: broad grant of coverage—promise of coverage, broad construction.
11. Exclusions. Limit and exclude things which would otherwise be covered under the insuring agreement (e.g.,
intentional injury, workers comp stuff, ownership of motor vehicle…)—strict construction.
12. Conditions: prerequisites, conditions precedent, and duties (e.g. duty to notify).
13. Definitions of special terms—give policy definition and if not defined court will use the plain meaning.
14. Endorsements: amendments (i.e., special changes specific to each policy, additions, etc. An amendment may
change/delete parts of the policy. Sometimes additional coverage). [prejudice requirement CGL]
a) CGL and Auto (not HO) has an endorsement attached, which says an insurance company must prove prejudice
before denying coverage.
II. COMMERCIAL GENERAL LIABILITY INSURANCE (CGL).
A. PREREQUISITES TO CGL COVERAGE:
15. Notice
16. Occurrence
17. Covered Damages
a) Damages must be result of bodily injury/property damage. P must be seeking $ damages, not injunction.
b) BI/PI were result of “occurrence.”
c) Damages, not the accident/occurrence must occur during the policy period.

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B. NOTICE OF CLAIM
d) Insured duties as a condition of coverage; Must give NOTICE to insurer:
(i) Notice of accident.
(ii) Notice of claim.
(iii) Notice of suit (must forward papers to insurance company in a reasonable period of time).
(iv) Notice = notice of proper service, i.e., there is a real suit. If service was improper then no notice can
occur.
e) *Prejudice—question of fact
(i) Prejudice is a question of fact. Late notice is not a defense to coverage, unless the insurance company was
harmed (prejudiced) by it.
(a) Exception (prejudice question of law): absent actual knowledge/notice of the suit, notice after default
judgment is prejudice as a matter of law even if judgment not yet final.
(ii) Not help—matter of law
(iii) Not cooperate—matter of fact
(iv) HO may not have prejudice requirement b/c not a general liability policy?
C. ACCIDENT/OCCURRENCE
18. Definitions.
a) *Occurrence is an Accident (one event can have more than one occurrence).
(i) Time of occurrence is when insured is damaged not when act occurred.
(a) Look at cause and if one cause one occurrence (majority)
(1) * Ongoing series of damages can be more than one occurrence unless the policy says not; every
time new damage new occurrence. Cullen Frost Bank.
(2) *Fraudulent promises, false representation/misrepresentation, untrue statements are not an
occurrence as a matter of law. UNLESS causes unexpected accidents.
b) *Accident: unexpected, unforeseen, or un-designed happening, event or consequence from either a known or
unknown cause.
(i) Unexpected result from an unintended act
(ii) Unexpected result from an intended act (i.e. unintentional or unforeseen effect)
c) *NOT AN ACCIDENT where act was intended OR injury is the natural result of an intentional act OR injury
can be reasonably anticipated.
(a) Engine blowing up is not the natural result of doing a valve job—covered; a girl having her privacy
violated is the natural result of showing her nude pictures to everyone—not covered.
(b) * Molestation is always intentional. Molestation is not an accident/occurrence or insurable as a matter
of law. Allen.
(c) Note: daycare CGL, the molesting employee will not be covered but employer will if it did not know
molesting was going on (i.e. non-intentional element satisfied).
(d) Failure to disclose defects is an intentional act—not covered under HO policy.
(e) Knowledge of defect in equipment that causes harm is an intentional act—CGL.

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III. DAMAGES.
A. WHAT DAMAGES ARE COVERED—BODILY INJURY & PROPERTY DAMAGE.
19. *Bodily injury—damage to the physical structure of body caused by an occurrence; Bodily injury means bodily
injury, sickness, or disease, including death resulting therefrom, sustained by any person. NOT emotional injuries.
a) Exceptions (emotional injuries can be bodily injury IF):
(i) Emotional distress that results in physical damages (emotional distress first). If there are physical
manifestations (headaches, stomachaches etc.) OR,
(ii) Emotional distress from physical damages (bodily injury first). Result from, “because of,” bodily/physical
injury.
20. *Property damage—physical injury to tangible property OR loss of use (but not purely economic loss) caused
by an occurrence.
a) Physical injury to tangible property OR
b) Physical property damage measured by Loss of Use of tangible property.
(i) Economic loss can be used to measure the amount of property damages caused by loss of use of tangible
property (e.g., loss of rent can measure the damage to property via loss of use b/c of burst pipe) (Note it
must accompany physical property damage).
c) Injury or cause of action belongs to the owner of property at time of damages and is NOT ASSIGNABLE.
21. Property Damage in TX HO Policy:
a) Definition in TX homeowners policy has no physical injury or tangible property requirement unlike general
liability policy
(i) So cover intangible injury to non-physical property (theoretically diminution of value allowed even though
equivalent to pure economic loss).
(ii) Probably not hold up in court based on existing case law b/c plain and common understood meaning of
property damage (as defined above) but depends on how construed.
22. *Punitive Damages—Malice (gross negligence).
a) Test answer: “under current law, the standard CGL, HO, & Personal Auto policies cover punitive damages.”
NOTE: UM/UIM do not cover punitive damages.
(i) *Fed District Judge McBride in Ft. Worth predicts that coverage will be against public policy (extra credit).
That is, punitive damages could not be covered b/c punishes the wrong party. (Under Erie doctrine fed
court had to predict what TX S.Ct. would do. Not binding in TX Cts.). Powell.
B. CONTINUOUS DAMAGE OR INJURY THEORY—WHICH POLICY TRIGGERED
23. *Definitions—Know generally and definitions for exam, except exposure theory know better.
a) On the risk— insurance policy in effect during relevant period of time (for exposure theory means during the
exposure period)
(i) Occurrence can includes continuous or repeated exposure to harmful or hazardous material can be one long
occurrence (rare).
b) *Manifestation theory—one policy triggered upon actual discovery of injury/damage. Occurrence when
complaining party actually damaged.
c) *Continuous trigger/Triple trigger theory—all policies triggered; everyone that was on the risk during,
manifestation, exposure, and injury-in-fact.

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d) *Injury-in-fact—personal injury; the point when body’s defenses are overwhelmed. When injury actually took
place. May not manifest until later but if can determine when injury occurred, that policy is triggered (Relies
on medical/expert evidence to determine).
e) *Exposure theory—all policies in effect while insured exposed; trigger in policy period in which exposure to
cause of injury occurred, when began and ended exposure. Spreads the risk and is easy to figure beginning and
end (pro rata). Majority rule.
(i) Multiple parties with various histories and exposure periods that would call for exposure theory; e.g.
asbestosis or sand blasting silicosis; toxic exposure.

exposure latency manifestation

policies time
(i) Used with progressive bodily injury. Every policy in effect while Insured was actually exposed to harm is
triggered.
 yrs Insurer on the risk 
(ii) pro rata share = P' s total damages  
 yrs P exposed 

IV. CGL EXCLUSIONS.

A. TYPES OF CGL EXCLUSIONS.
24. Business Risk Exclusion for Own Work or Own Product
25. Intentional Injury
26. Injury to an Employee
27. Motor Vehicle Exclusion
B. BUISNESS RISK EXCLUSIONS—REAL PROPERTY ONLY, NOT BODILY INJURY
28. J(5) & J(6) excludes insured’s own work that occurs before work is complete.
29. L excludes insured’s own work after work is complete.
a) Both only apply to property, NOT personal injury.
30. Only way to have coverage under Business Risk Exclusion could occur is when damages occur after work
complete and insured used subcontractors.
31. Ask:
a) What’s damaged?
(i) Business risk exclusions only apply to property (not bodily injury).
(ii) Exclusions only apply to insured’s work; property that insured had contact with in performing its work is
not “other property.”
b) When did the damage occur? (Before or after work complete?).
(i) If damage occurs before work’s done (contract done or outside of “products-completed operation hazard)
j(5) and j(6) apply  NO coverage under policy
(ii) If damage occurs after work complete or job done (or within “products-completed operation hazard”)
(damage manifests itself later in time)Ask if insured used a subcontractor
(a) No – exclusion L (no coverage to “your work”) appliesno coverage
(b) Yes – claim covered
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c) Damage to real property of Insured’s own work is only covered if accident occurred after complete AND by a
sub K.
(i) REMEMBER: Bodily injury is usually covered and these exceptions do not apply (other exceptions may
apply to bodily injury).

32. Products—Completed Operations Hazard – If all work called for in K is done, and you represent it as OK then
any damage (bodily injury or property damage) that occurs to it after your work is completed is covered (exception
to the J exclusion but have L).

a) This means only Bodily Injury is covered when work is done since J and L only exclude property damage.
b) Within Hazard (an exception to the J exclusion but included in the L exclusion):
(i) Bodily Injuries/Damage that occur because of the product/work after the work is done.
(a) Work completed when all the work completed in the K is done.
(1) Or if work at specific site is done and K calls for work at more than one site.
(2) Or if work done at a job site has been put to its intended use by any person/organization other than
contractor or sub working on same project.
C. INTENTIONAL INJURY EXCLUSION
33. *Test for intent (intent is a question of fact for a jury):
a) The insured intend the consequences of his action, OR
b) Believed the injury substantially certain to result (from insured’s standpoint)
34. NOTE: occurrence (can’t be intentional) and intentional injury exclusion are two different issues and MUST be
addressed separately.
a) Intent: subjective intent or knowledge from standpoint of insured.
b) Occurrence: focus on event and resulting damages. Can be intentional with unintended result.
D. INJURY TO EMPLOYEE EXCLUSION
35. *Bodily injury to employee not covered (excluded) during the course of employment. Bodily injury to an
employee of the insured arising out of and in the course of employment, scope, and duty of employment.

36. Liberally applied b/c employers are supposed to have workmen’s compensation insurance, which is supposed to
specifically protect for this (rules of construction glossed over, i.e., construe against drafter).
E. MOTOR VEHICLE EXCLUSION—b/c should have a commercial policy
37. *Excludes coverage for an auto accident injury in the scope of employment.
a) Motor vehicle is the instrumentality of injury.
b) Injury must arise out of use, ownership, or maintenance of the auto for exclusion to apply.
c) Negligent entrustment—Excluded, this is what auto insurance is for.
38. Concurrent causation doctrine: if 2 independent forces come together to cause the injury and either could have
cause the injury by itself and only one is covered both are considered covered. Two independent acts are the
concurrent proximate cause of the injury and one is covered under one policy and the other under another policy,
both policies will cover the injury.
a) The insured force must have been able to cause at least some of the injury.

b) Partridge. Hunters go hunting in a truck with a hair trigger .357. Partidge accidentally shoots passenger. Court held both HO and Auto
policies triggered b/c the injury just happened in a truck, truck was not the instrumentality of the injury.

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V. DUTY TO DEFEND
A. DUTY TO DEFEND – much broader than the duty to indemnify
39. *Complain allegation rule (8 corners, 4 from policy and 4 from pleading) – look at allegations in the petition,
assume that all are true, and ask if anything is covered in terms of the policy, give those coverages liberal
interpretation; NOTE: under complaint allegation rule if there is no duty to defend there is no duty to indemnify.
a) Take allegations in petition as true.
(i) Without reference to truth or falsity of allegations, and
(ii) Without reference to what parties believe facts to be, or
(iii) Without reference to legal theories.
40. *Possible Narrow Exception to the eight corners rule —Gonzales.
a) Extrinsic evidence (extrinsic to petition/pleading) may be considered if the petition does not allege facts
sufficient for a determination of whether those facts, even if true, are covered by the policy. Extrinsic evidence
must (facts may come in that are not plead if both requirements are met)*Look to additional extrinsic facts
when:
(i) Those facts do not contradict anything pled, AND
(ii) Those facts must only bear on the coverage questions.
(a) They can have no bearing on the determination of liability.
(b) Additional facts that only relate to coverage but not insured liability; not to contradict facts in pleading.
b) Gonzales: question was whether insurer had a duty to defend suit that alleged that “car was driven by insured’s son” w/out naming the kid.
Held: This kid was the insured’s only kid. Good enough (OK to look outside of petition to determine coverage issue of whether this “kid”
was covered). Once this found out, court ordered insurer to defend. OK to look beyond 8 corners when petition is silent on facts that relate
only to coverage and don’t affect insured’s liability.

41. *Multiple Claims. Insurer is obligated to defend as long as the complaint alleges at least one cause of action
within the coverage of the policy - As long as insurer covers something that is part of allegation, no matter how
trivial, insurer must defend the entire lawsuit. Remember: occurrence means an accident including continuous or repeated exposure
to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

42. Amended Pleading. Duty to defend is determined by examining the latest, and only the latest, amended pleadings
but pleading can be amended to create or terminate a duty to defend. Be sure amended pleading does not fall
under an exclusion.
B. *RESERVATION OF RIGHTS
43. Non-waiver agreement – an agreement where the insured agrees that the insurance company does not waive any
of its rights by handling the claim. Allows an insurer to investigate a claim without leading the insured to think
they are accepting coverage by making him sign the agreement (also a reservation of rights letter signed by Insurer
will work).

a) Duty of Attorney. Unqualified duty to Insured even though insurer pays your bill. If there is a conflict of
interest between the insurer and insured the insured takes priority.
44. Reservation of rights letter – tells the insured that they will defend the case but that they are planning on trying
not to indemnify; does not mean the duty to defend was breached.
a) Good faith. Proper if insurer believes, in good faith, that the complaint alleges conduct which may not be covered by the policy
b) Timely Notice. Notice of intent to reserve rights must be sufficient to inform the insured of insurer’s position and must be timely (to
determine if timely look to see if party prejudiced) If not sent before trial must prejudice the insured to be fatal. Reservation of rights letter
does not need to be sent when accident occurs, but only upon notice of lawsuit.

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c) Estoppel. ROR letter estopps insurer from enforcing the assumption of liability clause and the no-action clause.
(i) Voluntary assumption of liability clause – an insured cannot go out and assume any liability without the consent of insurer, settling a
case violates this.

(ii) No action clause – cannot sue insurer until comply with all policy provisions; waived by insurer without a valid ROR.
d) ROR Letter should:
(1) Adequately apprise of insurer position
(2) Identify the policy
(3) Inform that an attorney has been retained to defend the action
(4) Apprise of the initial results of investigation and of reservation of rights under the policy; including the right to withdraw from
the defense of the action.
(5) Inform of insurer’s position and that they might not defend and why
(6) Inform that insured can obtain their own defense.

45. *Breach of duty to defend. If insurer properly reserved its rights and the insured elected to pursue his own
defense, the insurer is bound to pay damages which resulted from covered conduct, i.e., breached the duty to
defend, and which were reasonable and prudent, up to the policy limits; any settlement amount must be
reasonable.

a) + 18% per 21.55

b) ROR allows re-litigate if insurer has question

46. Insurer’s obligations to Indemnify Liability to a 3rd Party. (Rest. Judgments §57). When insurance co has an
obligation to indemnify the insured for liability to a third person and they are given reasonable notice and
opportunity to defend. They are:

a) Estopped from disputing the existence and extent of liability.

b) If insured defends self with due diligence: Precluded from re-litigating issues in the trial, bound by fact finding
of jury.
c) If insured does not defend self with due diligence: The insurance co can re-litigate.
d) If there is a conflict of interest, so that the company cannot properly defend, a judgment for the injured person
prevents the insurance co only with respect to those items the jury finds there is not a conflict of interest.
e) The insurance co can’t re-litigate those findings on facts that are not in conflict.
C. *DECLARATORY JUDGEMENT ACTIONS
47. Declaratory judgment action. Asks court to determine if duty to defend (complaint allegation rule); if no duty to
defend then no duty to indemnify; Indemnification decided prior to judgment is advisory only. Griffin.
a) Extraneous evidence is allowed to come in.
D. *PROCEDURE: WHO HAS BURDEN OF PROOF TO SHOW EXCLUSION APPLIES?
48. SJ, burden on movant

49. Declaratory action at trial

(1) To prove coverage (insuring agreement/exceptions) burden on insured.
(2) To show no coverage (exclusions) burden on insurer.

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E. SUMMARY—INSURER’S OPTIONS WHEN COVERAGE IS QUESTIONABLE.

50. Completely decline to assume insured’s defense.
51. Seek a declaratory judgment as to insured’s obligations/rights.
52. Defend under a Reservation of Rights, or a Non-Waiver agreement, OR
53. Assume the Insured’s unqualified defense.

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VI. AUTOMOBILE LIABILITY INSURANCE

A. PERSONAL AUTOMOBILE LIABILITY INSURANCE
54. Minimum limits are 20/40/15 per Safety Responsibility Act.
a) $20,000 per person —bodily
b) $40,000 per accident— bodily (sometimes split from a race to judgment/race to demand)
c) $15,000 per accident— property
55. 5 types of coverage within Policy.
(1) Liability (3rd party, all others first party)
(2) UM/UIM—uninsured/underinsured motor vehicle coverage; required to be offered
(3) Personal Injury Protection (PIP)— (medical bills and 80% of lost wages); required to be offered
(4) Collision—subject to deductible
(5) Comprehensive—(theft, hail damage, tree limbs, etc…not collisions) subject to deductible
56. *Ownership, Maintenance, or Use – to determine use or maintenance, look at purpose of what owner is doing
with auto that caused the injury. If injury to non-insured occurs, the injury MUST have arisen out of USE only.
a) Use—employment of a vehicle as a means of transportation or some other purpose incident to transportation; broad definition.
(i) To see if someone else other than the named insured is covered, see if they use or maintain the vehicle.
(ii) Permissive users are insured. If the pleading does not state whether the use was reasonable or not then the insurer will still have to
defend even though in actuality the use was not reasonable.
(iii) Manipulation of a vehicle (testing during maintenance) is not use, and therefore not covered (ask what was the purpose of the act to
determine if it was a use).
(iv) If you are a passenger you are using vehicle (owning, maintaining, or using a vehicle); hitching up a trailer is use.

B. 5 AUTOMOBIL INSURANCE POLICY EXCLUSIONS.

• Family Member—exception get stat mins.
• Fellow Employee.
• Excluded Driver.
• Permissive User—exception “reasonable belief” entitled to use.
• Business Use.
57. *Family Member Exclusion—conditionally valid & enforceable
a) Where a family member sues you to get coverage under the policy both valid and invalid in TX.
b) C: Excludes coverage to insured for injuries sustained by the insured’s family.
(i) Named insured includes spouse of named insured if cohabitate. Family member are those living with you
related by blood, marriage, or adoption. Reason. Greater risk of fraudulent claims between members of the
same family and medical insurance is supposed to cover these sorts of injuries.
c) *Exception to Exclusion. Johnson. No duty to indemnify insured from suit of family member beyond the min
limits of 20/40. Family members only get statutory minimums, effectively lowers policy limits if greater than
minimums. Reason. Family member exclusion is against public policy since statute established minimum
coverage.
58. Fellow employee exclusion—valid & enforceable.
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a) No coverage for bodily injury to fellow employee of insured arising out of and in course of fellow employee’s
employment (What workers comp for).
59. Specific driver exclusion—valid & enforceable.
a) Allows you to waive coverage on 1 particular person so that your insurance will not increase. BUT no one in
car covered if excluded driver drives.
b) Reason. So that parents who are good drivers can get affordable insurance, even though their kids have bad
records (kids would be excluded driver).
60. *Permissive User Exclusion—driver’s reasonable belief test
a) Exclusion. Persons that do not have a “reasonable belief” that they are entitled to use the vehicle – from the
user’s perspective; focuses on the user’s belief (used to focus on owner’s belief). Factual determination.
b) Factors:
(1) Relationship of parties
(2) Availability of keys
(3) Prior use/acquiescence
(4) Prior statements
(5) Course of dealings
61. Business Exclusion.
a) Your personal auto insurance does not cover your employer.
b) Insured can use OWN car for business and covered under Personal Auto Insurance.
c) Business exclusion applies to businesses’ MV that insured uses for business purposes as long as it was within
scope of business/employment.
C. UNINSURED AND UNDERINSURED MOTORIST COVERAGE (UM/UIM)
62. *Uninsured/Underinsured Claim. Actual damages exceeds Insured policy limits or available funds (actual
damages exceed available amount of others liability insurance)

(i) Applies to uninsured motorists (UM)

63. Five kinds of motor vehicle that are UM.
(1) No liability policy applies (UM).
(2) Policy but limits are less than the amount of actual damages.
(3) Policy but unavailable due to denial of coverage or insolvent insurer.
(4) Hit and run—physical contact requirement. Only applies to UM/UIM coverage—exception to
independent contact rule.
(5) Underinsured motor vehicle (UIM).
64. *Stacking—UM under different policies can be aggregated to cover actual damages (inter policy stacking but no
intra policy stacking).
a) Can stack the tortfeasor’s policy, plus your UM/UIM, plus your medical insurance. *Inter-policy stacking: you may add together to meet the
amount of actual damages (multiple policies)
b) Cannot stack/recover for multiple claims on one UM/UIM policy. *Intra-policy: Adding different policy provisions within the same policy
(not allowed)( Cannot stack UM of same policy for multiple cars)
Stack multiple policies to actual [PIP]
Offset in one policy/your policy unless actual damages not met

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No offset if Actual > UM/UIM

65. Offset/Set Off Rule - amount available to the victim from negligent parties insurance is subtracted from amount
of actual damages, not from limits of UM/UIM Insurance policy.
a) Coverage (if greater than 0): Actual damages – Setoff = Amt paid by UM/UIM.
b) Offset clause. Pay covered claims not paid under PIP comp etc. (don’t get UM if getting paid by something
else); can only use to prevent double dipping; can double dip if actual damages are greater than UM.
(i) Does not apply when have met coverage limits and have more actual damages.
c) PIP Coverage Offset. Can stack PIP if actual damages not met.
(i) Offset UM/UIM against PIP coverage. Mid Century.
(ii) Stacking is allowed, stack UM/UIM with your PIP up to the amount of your actual damages.
66. *USE of Motor Vehicle in UM/UIM coverage Test. Injury must arise from an “auto accident.” Vehicle must be
used as a motor vehicle. Car used as gun rest not covered.
(1) Accident arises out of the inherent nature of the automobile, as such (Use of vehicle as vehicle);
(2) The accident must have arisen within the natural territorial limits of the automobile, and the actual use, loading, or
unloading must not have terminated; and

(3) The automobile must not merely contribute to the cause of the condition, which produces the injury, but must itself produce
the injury.

67. Count the number of people hurt and that is that is the number of claims (20/person) against the policy limits, if
more than that number are making a claim (e.g. father injured, wife and child make claim) only 1 policy limit
used).

68. *Owned Vehicle Exclusion. Your car can never be Under Insured vehicle by definition in the policy. Person’s
own car is never an UIM vehicle; so if you hurt yourself or passengers then you cannot use UM/UIM for any
shortfall in coverage.
69. *Settlement without Consent Clause. Settling without insurer approval is a breach, but not a material breach
unless it prejudices the insurer (only applies to motorists). Don’t need permission to settle with non-motorist
tortfeasor b/c insurer only pay for liability against UM/UIM and therefore no subrogation right. Simpson. Applies
to other motorists, not for example the construction company on the side of the road.
a) UM coverage excluded if settle with tortfeasor without insured consent
b) Insurer must show how harmed or prejudiced—loss of subrogation due to settlement and release is prejudice.
70. Punitive Damages. No exemplary/punitive damages under both UM or UIM (serves no punitive function to
punish your own carrier). General liability policies cover exemplary damages
71. Hit and Run Claims. Hit and run protection must be offered to everyone in TX.
a) *Physical Contact Rule (to prevent fraudulent claims): physical contact must occur between vehicle or person.
Only applies to hit and run; not other types of liability or UM/UIM. If something falls of a truck and hits you
then that is not a hit and run. For a hit and run you must file a police report.
b) Exception: Indirect contact rule. One car hits another car into you, the first care hits and runs; chain reaction of
more cars will probably qualify.

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VII. HOMEOWNERS INSURANCE

A. INTRO
72. Two Elements:
(1) Must have bodily injury or property damage (not mental anguish).
(2) Must be caused by an occurrence/accident.
B. DEFINITIONS
73. *Bodily injury—mental anguish by itself self not enough.
74. *Property damage—tangible and physical.
a) Any injury to property (broader than CGL).
b) Does not cover pure economic loss (but loss of use OK).
c) So should be like CGL tangible injury to physical property (but favor construction that grants coverage so
physical injury to intangible prop like diminution of value maybe be covered).
75. Liability—accident and occurrence.
a) Occurrence (supra) rules apply—look for “natural result.”
C. HOMEOWNERS POLICY EXCLUSIONS
76. Exclusion in HO policy. Two types: Business pursuits & Other exclusions.
a) Intentional injury.
b) Other Premises
c) Business pursuits—ordinary incidental exception.
d) Professional services.
77. *Business pursuits exclusion—valid (biggest difference from CGL).
a) Exclude bodily injury or damages arising out of the business of an insured. look at ongoing nature and the
profit motive.
(i) Activity is continuous and regular activity.
(ii) Motivated by profit (common sense approach, don’t need actual profit)).
(iii) Courts unofficially use the smell test or if it looks like….
b) Exception to exclusion. Activities caused by something ordinarily incidental to non-business pursuits (e.g.
child injured by fence, in a home that has a day care business).
c) *Child Care givers, babysitters, lawn boys. Often uses this exception; if grandma even if pay not motivated by profit; on exam argue rule,
exception and both sides.

(i) No Exception: kid does regularly; makes a profit, many businesses exist that do this all the time.
(ii) Exception Applies: kid not really making a profit; and a teenager/grandmother is not going to go out and by a commercial policy.
(a) But summer lawn-boy not covered under parent’s HO b/c motivated by profit; babysitter…seems unfair.
(b) If don’t give coverage under homeowners then wont have coverage so paradoxical (remember purpose of exceptions is where have
other insurance).

78. *Other Premises Exclusion—bars coverage for premises other than defined in policy.

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a) If you own other premises that don’t meet the definition of an insured location and you don’t tell the insurer you
own this, the exclusion wipes out the coverage. Prevents coverage for premises defects in other properties not
covered in policy (not insured premises).
(i) Arising Out of/Connection TEST:
(a) Was there a causal relationship between the premises and the act or omission giving rise to the liability?
(1) Narrower class of things that will be excluded.

(2) EX: premises defect (puddle of water, hole in ground, ice on sidewalk).
(b) Was there an act or omission that took place on the premises?
(1) Failure to maintain premises is the main class of injuries meant to be excluded.

D. HOMEOWNERS POLICY SUMMARY

79. Covers bodily injury and property damage.
80. Property defined more broadly than in CGL; does not require physical injury to tangible property.
81. Must have an occurrence.
82. Major differences from CGL.
a) Exclusion for business pursuits or damages arising out of business
(i) Exception to the exclusion—activities that are ordinarily incidental to non-business pursuits (daycare cases)
b) Other premises exclusion—exclude coverage for injuries that occur at premises outside your home that insurer
not aware of
(i) Can add other properties with slight increase in premium
(ii) Once it is a insured location exclusion does not apply
(iii) Kicks in when the injury arises out of…not enough that the injury takes place there; must be a causal
relationship; EX: premises defect--the premises must case the injury

Negligence in not reporting molestation is covered.

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83.
VIII. EXTRA CONTRACTUAL CLAIMS—STOWER’S DUTY & BREACH OF THE DUTY OF GOOD FAITH AND FAIR DEALING
A. INTRO
84. Stower’s duty—insurer’s negligent failure to settle a claim (3rd party).

85. Breach of the duty of good faith and fair dealing (1st party).

86. Statutory claims (1st party).

a) Art 21.21 Tex Ins Code (fair claim settlement practice).
b) DTPA (1740 et seq. Tex Bus & Com Code) laundry list violations.
c) Art. 21.55 Tex Ins Code – prompt payment of claims.
B. *STOWER’S DOCTRINE—ONLY EXTRA CONTRACTUAL REMEDY FOR 3RD PARTIES
87. Stower’s duty—when insurer has a duty to settle otherwise insurer’s negligent failure to settle a claim.
a) Stowerize— satisfy elements, give insurer chance to settle and hope they blow it; then assign rights after trial
(before could assign before trial); busts policy limits.
88. *Stower’s Duty Elements:
a) Claim is covered, within scope of coverage (Look for when duty to cover arises).
b) Unconditional offer/demand to settle and fully release insured, including any liens.
(i) Conditions cannot be included in offer to settle.
(ii) Cannot merely state that claim is within all policy limits, must state a sum, including any liens.
c) Demand is within available/remaining policy limits (balance remaining).
(i) Unless insured offers to pay the excess, and tell his insurance company that he is willing to pay the extra in
order to settle. The gap between the offer by third party and the policy limit, the insurer has duty to settle.
(ii) If policy limits have been reduced by prior claims, each successive claim that comes in must be within
remaining available policy limits or won’t meet this element.
(iii) Have right as P to discover how much insurance coverage is available; how much has been eroded by
other claims.
d) It’s a good deal. Ordinarily prudent person/insurer would accept offer in light of the magnitude and probability
of P getting a judgment above the policy limits—balancing test.
89. Damages for Breach of Stower’s Duty. Amount of the judgment against the insured in excess of the policy limits.
Policy limits are generally paid under the contractual limits/limits of the policy.
90. 3rd Parties need assignment.
a) 3 rd
party wants to get money under an insured’s policy. 3rd party must first sue insured.

b) When 3 rd
party P gets a judgment against the insured it becomes a 3rd party judgment creditor and can sue insurer as a 3rd party beneficiary.
3rd party beneficiary to an insurance K is bound by the rights, duties, and obligations of the insured under the terms of the insurance K
between the insurer and insured.

c) Can only sue for the limits of the policy or K damages. 3 rd

party beneficiary must have an assignment from insured after judgment in order
to sue insurer for extra-contractual claims. (Stower’s only).
ROR § 57 when insurer wants to re-litigate

d) *An assignment is invalid if:

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(i) It is made prior to an adjudication of P’s claim against defendant in a fully adversarial trial.
(ii) D’s insurer has tendered a defense, and EITHER:
(a) D’s insurer has accepted coverage, OR
(b) D’s insurer has made a good faith effort to adjudicate coverage issues prior to the adjudication of P’s
claim (i.e., tried to litigate coverage).
[In other words you must give the insurer a reasonable opportunity to defend the claim]
91. Summary.
a) Stower’s = negligent failure to settle a third party claim; contract duty to protect insurer by settling when
reasonable
(i) No duty to make settlement offers
(ii) Only duty to accept reasonable settlement demands
(iii) Damages for breach of Stower’s = total judgment minus policy limits
(iv) Elements of a valid Stower’s demand:
(a) Claim is covered (if reasonable belief not covered then no rule, could argue either way)
(b) An unconditional demand to settle within remaining policy limits
(c) Offer to fully (including any liens) release the insured
(d) Terms of offer must be such that a reasonably prudent insurer would accept it considering likely amount
of damages and exposure to liability (always a balancing test for jury)
C. DUTY OF GOOD FAITH AND FAIR DEALING—1ST PARTY ONLY
92. *Breach of duty of good faith and fair dealing—if insurer does not pay claim (break of K damages) once it knew
(intent) or should have known (negligence) it was reasonably clear that coverage existed (i.e., act or omission).
93. Mental Anguish Damages. (tort/compensatory)Normal damage from breach of duty. Need direct evidence of the
nature, duration, and severity such that it interrupted your daily activities (no bodily injury requirement).
94. Malice Requirement—(for punitives) gross negligence.
a) Objective – extreme (death or financial ruin) degree of risk (balance of risk of harm and probability of harm).
b) Subjective – actual awareness but proceeding anyway. Insurers were actually aware that their conduct would
result in extraordinary harm such as death, grievous physical injury or financial ruin. High standard. Never
been met.

95. Punitive Damages. Punitive damages cannot be had without malice (must have a tort to get punitive damages
distinct from policy’s benefit: must show evidence of compensable mental anguish, pain, bodily injury, etc.).

a) If the only thing insurance company does is not pay then that is actual damages.
b) Punitive damages are for extraordinary harm—gross negligence & “malice” (use malice as term):

(i) Objectively action involved an extreme degree of risk of harm to P.

(a) Inconvenience and mental anguish is not enough for punitive damages.

(ii) Subjectively actor must have actual subjective awareness of the risk involved but proceeds in conscious indifference to the rights,
health, or safety of others.

(a) Knowingly acting in bad faith is not enough unless results in death, grievous bodily injury, or financial ruin.
96. Mental anguish damages. Must show insurer knowingly violated the law (under DTPA and/or 21.21--treble).

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97. Duty of good faith and fair dealing is owed only to the insured named in the policy. Not owed to third party claimants b/c 3 rd
party isn’t in
privity w/ insurer. Insurer can fuck with third party claimant all it wants. Insurer doesn’t even owe duty to its insured with handling a third
party claim. 3rd party cant sue under DTPA or 21.21 b/c not a consumer.

(i) Breach of good faith and far dealing does not occur until actual denial of coverage; so there is no breach for jerking you around
(ii) Insured can get mental anguish damages under Art 21.21 or DTPA for insurer jerking them around if there is a knowing finding

(iii) Duty of insurer is only to the insured NOT the third party
D. SERVERANCE OF BAD FAITH CLAIMS FROM CONTRACT CLAIMS
98. *Offers to Settle. Offer to settle contract claim not admissible for Breach of Duty of Good Faith and Fair Dealing claim.
99. *When evidence needed to prove bad faith would be prejudicial to the breach of contract claim (BOK usually tried before BF), the court
MUST sever the claims. If not prejudicial then at trial courts discretion. If Insurer makes a settlement offer on the contract claim, sever.

100. Test for severing claims:

a) Controversy involves more than one cause of action.
b) Severed claim is one that could be asserted independently in a separate lawsuit.
c) The other claims that they severed actions are not so interwoven with/involve the same facts and issues.
101. Absent an offer to settle then you can try them both together.
102. An offer to settle the undisputed portion is not an offer to settle and will not cause a severance.

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IX. EXTRA CONTRACTUAL STATUTORY CLAIMS

A. POLICY VOIDABLE FOR MISREPRESENTATION BY INSURED IN APPLICATION
103. Art 21.16 Misrepresentation by Policy Holder —test for voiding policy
a) Material misrepresentation by the insured; OR
b) Insured contributes to event.
(i) Both are jury questions.
(ii) EX: insured lied about kid driver but mom has wreck. This lie did not contribute to the wreck. Undisclosed
bad driver material but wrong birth day is not.
c) * 5 elements:
(1) Representation was made.
(2) Representation was false.
(3) Insurance company relied on the representation (i.e., would have charged more or not issued the
policy).
(4) Inured intended to deceive the insurance company (hardest to prove for insurer).
(5) Representation was material to risk or to the loss (21.16 above).
104. Art 21.17 Notice In Reasonable Time. Reasonable: > 90 question of fact; ≥ per se.
a) Notice within 90 days (less OK) is a reasonable time that it has a problem defending or paying insured (applies
to avoiding policy under above).
B. §21.55 PROMPT PAYMENT OF CLAIMS (APPLIES TO 1ST PARTIES ONLY)
105. *Claim: 21.55 only applies to first party claims; not to liability insurance/third party claims (workman’s comp.,
property coverage, UM/UIM etc..
106. Damages. If delay more than 60 days. If any of the deadlines are missed the insurer is liable for attorneys fees
and 18% simple interest.
a) If Insurer wrongfully rejects a claim they automatically violate 21.55.
b) Good faith belief that there is not insurance coverage is not a defense to21.55 (18% penalty).
C. §21.21 UNFAIR CLAIM SETTLEMENT PRACTICES (1ST PARTY CLAIM ONLY) CONSUMER PROTECTION
(LIKE DTPA)
107. 21.21 Unfair and deceptive acts or practices in insurance business not allowed. Subsection 10 covers unfair
claim settlement practices. Applies to 1st party claims, Prohibited under subsection 10:
a) Insurer misrepresenting a material fact or policy provision.
b) Using one claim to force settlement of another claim.
c) Failing to attempt in good faith a settlement of a claim where insurers liability has become reasonably clear (statutory good faith v. common
law one above). Like Stower’s.
d) Must state a reason for denying a claim—why denying claim.

e) Did insurer act in a reasonable period of time to affirm or deny coverage or issue reservation letter. Jury question.
f) You cannot delay or reject settlement on the basis that other parties are available or that other parties are liable/at fault.
g) Attempting to enforce a release when only partial payment has been made (like putting “full and final release” on the backs of checks when
only a partial payment has been made).
h) Refusing to pay a claim if you have not conducted a reasonable investigation.

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i) Delaying or refusing settlement solely because other insurance is available to satisfy all or par of the claim (auto policies only).

j) Asking for income tax returns (like if trying to determine if a business); UNLESS:
(i) Court order.
(ii) Fire loss.
(iii) Lost profits.

D. 21.21 SUBSECTION 11 MISREPRESENTATION OF INSURANCE POLICY (ESP ROR).

108. Making untrue statement or failing to make a statement of material fact.
109. Making a misstatement to mislead a reasonable prudent person to a false conclusion of material fact.
110. Making a material misstatement of law.
111. Failing to disclose any matter required by law to disclose.
*[occurs when drafting reservation of rights letters, cant misstate facts or law]

E. 21.21 SUBSECTION 16 REMEDIES DAMAGES FOR VIOLATION OF

112. DTPA laundry list violations in business of insurance.

113. Actual Damages & Attorney Fees. P may obtain actual damages plus court costs and reasonable and necessary attorneys fees.
a) Distinguished from breach of duty of GF b/c that is a tort and cannot collect attorney fees in with a tort.

114. Treble. Treble damages if knowingly (actual awareness of falsity or fairness of act or practice) committed act (discretion of jury).
a) Knowingly: can be expressed or implied (did objective manifestations indicate that insurer was acting with actual awareness that they were
unfairly handling a claim?).

115. Notice letter. Must wait 60 days after rejection of coverage to file suit (idea is to encourage settlement).
116. Insurance company may compel mediation within 90 days after suit has been filed (rarely ready for mediation in 90 days).
117. Injunction available or any other relief court deems proper.

118. Beaston: Under 21.21 to recover for pure mental anguish must prove insurance co knowingly committed unfair act or practice (can recover
anyway if have other cause like actual bodily injury then claiming mental anguish—but purely upset b/c violation itself must be knowingly
violation).

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