The Texas Supreme Court has just handed down several new rulings on Texas insurance law which are of interest to the
industry.
As always, each different case involves different facts, which may be case determinative. Accordingly, the following summaries of cases are law only as to that case, and further review and analysis of the facts and law of other cases must be conducted before relying upon the rules set out hereinafter.
Coverage cannot be created by waiver or estoppel but prejudice may create liability for the insurer to the insured:
In Ulico Casualty Co. v. Allied Pilots Association, 06-0247 (Tex., August 29, 2008), the Supreme Court dealt with the issue of whether coverage under a claims-made policy can be expanded by the doctrines of waiver and estoppel and in doing so, revisited Texas’ “Wilkinson Doctrine.” The Court adhered to earlier precedent that the doctrines of waiver and estoppel cannot be used to re-write a contract of insurance and provide coverage for risks not expressly assumed in the insurance contract. Accordingly, an insurer does not waive its coverage defenses merely by its assuming the insured’s defense without a reservation of rights.
However, the Court further stated that when an insurer takes control of its insured’s defense without a valid waiver of rights or non-waiver agreement, the insurer can be prevented from denying benefits that would have been payable had the claim been covered where the insured has been actually prejudiced by the insurer’s actions.
The Supreme Court stated that “in sum, if an insurer defends its insured when no coverage for the risk exists, the insurer’s policy is not expanded to cover the risk simply because the insurer assumes control of the lawsuit defense. But, if the insurer’s actions prejudice the insured, the lack of coverage [under the policy] does not preclude the insured from asserting an estoppel theory to recover any damages it sustains because of the insurer’s actions.” (bracketed material added).
Duty to Defend – Trigger for “Occurrence” of Property Damage Under CGL Policy:
In Don’s Building Supply, Inc. v. OneBeacon Insurance Co., 07-0639 (Tex. Aug. 29, 2008), the Supreme Court dealt with certified questions from the United States Court of Appeals for the Fifth Circuit asking: (1) When does property damage ‘occur’ under Texas law for purposes of an occurrencebased commercial general liability insurance policy? and (2) Is an insurer’s duty to defend triggered when damage is alleged to have occurred during the policy period, but was inherently undiscoverable until after the policy expired? The Supreme Court interpreted frequently-utilized CGL insurance provisions, stated that an insurer’s duty to defend is triggered under Texas law “when injury happens, not when someone happens upon it,” and held that “property damage under this policy occurred when the actual physical damage to the property occurred.”
Thus, the Court has now for the first time adopted an “actual injury” or “injury-infact” approach. Where a CGL policy makes no express provision for any particular kind of occurrence, other than to require the property damage to have occurred within the policy period, the “injury-infact” rule applies in Texas courts, rather than a “manifestation” rule, or an “exposure” rule, or a rule which looks “to the date of the alleged negligent conduct.”
The court noted the difficulties sometimes involved in “pinpointing the moment of injury retrospectively,” but declined “to exalt ease of proof or administrative convenience over faithfulness to the policy language.”
Finally, our Supreme Court stated that its ruling in this case is not an attempt to fashion a “universally applicable rule or determine when an insurer’s duty to defend a claim is triggered” since such determination should be driven by contract language, which may vary from policy to policy.
Duty to Defend – “Biological Damages” May Constitute “Bodily Injury” – Economic Damages Do Not Constitute Property Damage Under CGL Policy:
In Zurich American Ins. Co., et al. v. Nokia, Inc., No. 06-1030 (Tex., August 29, 2008), the Supreme Court dealt with whether claims against a wireless telephone manufacturer seeking alleged damages for “biological injury” constituted “bodily injury,” so as to require a duty to defend the manufacturer. Although the class action cases at bar generally alleged that cell phone radiation causes “biological injury,” they sought primarily to require the manufacturer to pay economic compensation “for the cost of head sets.”
The Court discussed its prior rulings that the term ‘bodily injury’. . . unambiguously requires an injury to the physical structure of the human body,” noted that injury at the cellular level was sufficient to constitute “bodily injury,” and held that an allegation of “biological injury” fell within those definitions and rulings. The Court further held that where the pleadings under examination alleged that damages were being sought “because of” the alleged bodily or biological injury, the duty to defend was triggered.
However, where one class action unambiguously sought only damages unrelated to personal injury damages, the Supreme Court held that no duty to defend existed since “the policies exclude coverage for these claims because the only damages sought are economic ones relating to the allegedly defective product.” In other words, the business risk exclusions of the CGL policies at issue, though inapplicable personal injury claims, did eliminate coverage for economic loss claims and, accordingly, there was no duty to defend those cases.”
By H. Norman Kinzy