Texas Insurance Law Newsbrief - April 9, 2024

Texas Insurance Law Newsbrief


In Benitez v. Amguard Ins. Co., No. 4:22-CV-03619, 2024 U.S. Dist. LEXIS 60216 (S.D. Tex. 2024), the court granted summary judgment in favor of insurer, AmGuard Insurance Company, finding that the insured could not recover under the policy due to an exclusion and because the insured did not live at the property, as required under the policy.

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The insured Benitez made a claim under his home insurance policy for water damage. After investigating the claim, AmGuard found no plumbing leaks as the insured suspected, and instead found that the water damage was due to rainwater entering the home through gaps in the exterior wall. AmGuard denied the claim due to a surface water exclusion in the Policy. Benitez then sued AmGuard in state court for breach of contract and violations of the Texas Insurance Code and Deceptive Trade Practices Act. AmGuard removed the case to federal court, and filed a motion for summary judgment, contending the Policy excluded damage from rainwater, the Policy did not apply because the insured was required to live at the property, and the insured breached his duty to cooperate. Benitez did not respond to AmGuard’s argument regarding the surface water exclusion but did argue that AmGuard should be estopped from denying coverage based on its adjuster’s alleged representations that the claim would be covered. This argument was unpersuasive because, under Texas law, estoppel cannot be used to create insurance coverage where none exists.

Through a subpoena of a separate insurance company, it was revealed that Benitez did not even live at the property, and instead rented the home to his daughter, who had previously settled with a contractor after the contractor renovated the pool deck, causing water damage to the home. The policy only covered the insured’s “resident premises”—that is, where the insured resides. As such, the carrier argued Benitez could not recover. Further, the Court found that these previously undisclosed facts triggered the duty to cooperate. In the footnotes, the court also admonished the insured for not disclosing the deficiencies in his claims, noting that the insured forced the court and the insurer to “unnecessarily expend valuable resources.” For these reasons, the court held that AmGuard was entitled to summary judgment as to each of Benitez’s claims.

Interestingly, on the same day this case was ruled on, a judge in the same court also ruled in favor of an insurer based on similar grounds. In Huizar v. Benchmark Ins. Co., No. 4:22-CV-3404, 2024 U.S. Dist. LEXIS 60694 (S.D. Tex. 2024), The Court found that the insurer did not breach its contract in denying the insured’s claim for water damage, when the insured misrepresented living at the insured property and the policy only insured the residence where the policy holder resided at the time. The Court found that no coverage existed under the policy, as the insured was not living in the insured property, and moreover, the property was under construction. Because the Court found that the insurer did not breach its contract in denying the claim, the insured’s extracontractual claims did not survive summary judgment either.

Editor’s Note: Jamie Cooper and Chris Martin of our firm had the privilege of representing the carrier in this case.  We appreciate their willingness to let us get this case ready for trial.  The District Court’s MSJ order was issued on the eve of trial. 

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U.S. District Court for the Southern District of Texas recently ruled in favor of an insurer in its motion for summary judgment, finding that it had no duty to defend the insured, as the claim fell within and “ongoing operations” exclusion.

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In Hiscox Ins. Co. v. Rodriguez, Civil Action No. 4:22-CV-01890, 2024 U.S. Dist. LEXIS 59201 (S.D. Tex. 2024), the insured, Sosa Drywall Specialist, was sued in state court by one of its employees after sustaining injuries from a fall due to a Sosa scaffolding collapsing. Sosa then sought defense and indemnity from the insurer, Hiscox Insurance Company under their general liability insurance policy for the employee’s claims. Hiscox denied Sosa’s request and sought a declaratory judgment that it nether had a duty to defend nor indemnify Sosa in the state-court action. Hiscox then filed the present motion for summary judgment.

Hiscox sought summary judgment on three grounds, arguing that: (1) the Policy’s “ongoing operations” exclusion removes its duty to defend Sosa, (2) that the Policy’s employer liability exclusion removes its duty to defend, and (3) that it has no duty to indemnify Sosa. The Policy included an “ongoing operations” exclusion which excluded bodily injury “arising out of ongoing operations” and which listed “scaffolding operations” as one of the ongoing operations that excluded Hiscox’s duty to defend. Although Sosa attempted to circumvent the exclusion with creative definitions for “arising out of,” “ongoing,” and “scaffolding,” the Court found Sosa’s definitions unpersuasive. Instead, the court found that such words had been defined broadly under Texas law and declined to accept Sosa’s alternative definitions. Although the Court found the indemnity issue to be premature, the court granted Hiscox’s motion, finding that it had no duty to defend Sosa in the underlying state-court action due to the exclusion.

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The U.S. District Court for the Southern District of Texas recently found in favor of the Insurers, finding that the Plaintiff was not a named insured and therefore not entitled to insurance proceeds, and that certain certificates of insurance did not extend coverage to third parties.

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Fiesta Mart, LLC v. Willis of Ill., Inc., Civil Action No. 4:20-CV-03484, 2024 U.S. Dist. LEXIS 59202 (S.D. Tex. 2024) is an insurance dispute in which the plaintiff, Fiesta Mar, brought a breach of contract claim against various insurers after some confusion regarding the payment of insurance proceeds. Fiesta is a supermarket chain which was purchased by ACON Investments in 2015, prompting Fiesta to join a portfolio policy which consisted of several layers of coverage provided by various carriers. This policy was brokered by Willis of Illinois. In 2017, three Fiesta stores sustained flood damage due to Hurricane Harvey. Willis, ACON and Fiesta worked with the Insurers to recover for their damages, and an initial payment of $7.5 million was made to Fiesta at the direction of ACON. In 2018, ACON sold Fiesta, along with other Fiesta subsidiaries, to Bodega Latina Corporation through a Membership Interest Purchase Agreement. Shortly after this sale, the Insurers notified Willis of a second payment for the property damage, and requested instructions as to whom should receive the second payment. ACON, the named insured under the policy, requested the payment to be wired to an ACON-owned entity, however Fiesta sent a letter to the insurers, also claiming to be entitlement to the payment. The Insurers sought confirmation, and ACON once again requested for the payment to be directed to ACON. The Insurers complied and the second payment was sent to ACON. Fiesta was informed that it would only receive payments if ACON were to assign its rights. Fiesta then sued ACON for breach of the MIPA and the parties settled, with Fiesta receiving a majority of the actual cash value that the Insurers had sent in the second payment, and with ACON agreeing to assign any rights it had for depreciation holdback amounts. Fiesta made a claim for these depreciation holdback amounts, but the Insurers denied the claim, stating that Fiesta was not insured under the policy. 

The Court found Fiesta was not an insured under the Policy, reasoning that the plain language of the policy only listed two entities as insured, neither of which was Fiesta. Further, an endorsement identifying Fiesta specifically stated that the named insured was not Fiesta, but rather an ACON entity. Fiesta attempted to argue that it became an insured party via “certificates of insurance” administered by Willis, however this argument was rejected. The Court found that the “certificates of insurance” submitted by Fiesta were not certificates at all, but rather “Evidence of Property Insurance” which had language that made it clear that they did not create any rights independent of the Policy, nor did they alter any coverage afforded under the policy. The Court pointed to several Fifth Circuit cases which also found that certificates of insurance failed to extend coverage to third parties when they had limiting language similar to the language in the “Evidence of Property Insurance” in this case. Although the Court found that ACON did assign its rights to pursue the depreciation holdback amounts, the Court granted the Insurer’s motion for summary judgment as to any damages sought by Fiesta beyond these depreciation holdback amounts.

Editor’s Note: MDJW is privileged to serve as co-counsel for Willis in the bifurcated portion of this suit.

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U.S. District Court for the Southern District of Texas recently found that a controlled substance exclusion precluded coverage under a homeowner’s policy, as the claim had an incidental relationship to the ingestion of drugs.

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In Occidental Fire & Cas. Co. of N.C. v. Zinkweg, No. 4:21-CV-2744, 2024 U.S. Dist. LEXIS 55908 (S.D. Tex. 2024) is an insurance coverage dispute, involving a homeowner’s policy, in which the insurer, Occidental Fire & Casualty Company of North Carolina, sought a ruling that it did not owe its insured a defense in a suit against him. Ryan Zinkweg, the insured, was sued in state court by Christoffer Cox, alleging negligence and gross negligence. While at Zinkweg’s parents house, Zinkweg and Cox ingested LSD, and hours later, Cox fell off Zinkweg’s bed, suffering a spinal cord injury which rendered him a quadriplegic.

Occidental disputed coverage, contending that it was not obligated to pay a portion of Zinkweg’s defense costs due to a controlled substance exclusion in the homeowner’s policy. In making a determination of whether an insurer has a duty to defend, Texas courts follow the “eight corners” rule, comparing the allegations in the pleadings with the language of the insurance policy. While the insured bears the initial burden of showing that the claim is potentially covered, the insurer bears the burden of proving the applicability of an exclusion when denying coverage. Here, the policy contained a controlled substances exclusion which precluded coverage for injuries arising out of the use of a controlled substance, including LSD.

The Court concluded that Occidental was entitled to summary judgment on the duty to defend issue, finding that the allegations in the state court action fell within the scope of the controlled substance exclusion. Specifically, the Court reasoned that a claim need only bear an incidental relationship to the described conduct for an exclusion to apply. Although Zinkweg contended that the exclusion did not apply because the ingestion of LSD was not the basis for Cox’s negligence cause of action, the court found the ingestion of LSD had at least an incidental relationship to the fall and resultant injuries. Accordingly, Occidental did not owe a duty to defend Zinkweg in the state court action.

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The U.S. District Court for the Southern District of Texas recently found that the payment of an appraisal award estops an insured from maintaining a breach of contract claim.

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In Martinez v. State Farm Lloyds, No. 4:23-CV-00641, 2024 U.S. Dist. LEXIS 58306 (S.D. Tex. 2024), The insured, Norma Martinez filed a claim after her home was damaged due to a storm. The insurer, State Farm Lloyds, completed an inspection and issued a damage estimate well below the Martinez’s deductible. Martinez hired counsel and sent a letter alleging property damage in the amount of $16,706.92. State Farm then requested a reinspection but no changes were made to the estimate. Martinez invoked appraisal, and an award was issued in the amount of $14,446.87 on a replacement cost basis and $7,028.93 on an actual cash value basis. State Farm then issued a payment of the actual cash value award, extended the period for Martinez to claim replacement cost benefits, and issued an additional payment for potential interest under the Texas Prompt Payment of Claims Act. Martinez filed a state court suit asserting causes of action for breach of contract, as well as violations of the Texas Insurance Code, and sought attorney’s fees under the Texas Prompt Payment of Claims Act. State Farm filed a motion for summary judgment, arguing that the payment of the actual cash value from the appraisal award estops Martinez from maintaining her breach of contract claim, and therefore also cannot maintain her extra-contractual causes of action.

The Court found that Martinez was estopped by the appraisal award, reasoning that the Fifth Circuit has recognized that under Texas law, when an insurer makes a timely payment of a binding and enforceable appraisal award and the insured accepts it, the insured is estopped from bringing a breach of contract claim. Martinez tried to argue that the appraisal award was not timely, however the Court could not find as a matter of law that 22 days renders a payment untimely. As to the extra-contractual claims, the Court found that because Martinez could not maintain a bad faith claim, State Farm was entitled to summary judgment on Martinez’s claims under Chapter 541 and the common law duty of good faith and fair dealing. Additionally, since there was no merit to Martinez’s bad faith claim, there was no liability for the Deceptive Trade Practices Act claims. Lastly, the Court found for State Farm for Martinez’s claims under the Texas Prompt Payment of Claims Act, since State Farm paid all possible interest to which she was entitled too. Because none of Martinez’s claims survived summary judgment, it follows that no attorney’s fees were available.

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