Texas Insurance Law Newsbrief - August 21, 2025
INSURED’S RECOVERY LIMITED TO “AMOUNTS ACTUALLY SPENT” UNDER LOSS SETTLEMENT PROVISION – SUMMARY JUDGMENT GRANTED FOR INSURER ON ALL CONTRACTUAL AND EXTRA-CONTRACTUAL CLAIMS
The Southern District of Texas recently ruled in favor of an insurer, AmGuard, finding that the insured could not get a second bite at the insurance apple because AmGuard complied with its duties after loss.
Bradshaw v. AmGuard Ins. Co., No. 23-3536, 2025 U.S. Dist. LEXIS 154232 (S.D. Tex. 2025) involved a property claim and subsequent lawsuit arising from storm damage caused by Winter Storm Uri. The insured submitted her claim and AmGuard paid almost $23,000 for the repairs completed, as well as an additional $15,000 to cover personal property losses, and the insured signed a settlement release. Two years later, the insured retained counsel, seeking to recover over $100,000 more from AmGuard, alleging that the repairs were not “adequate”. In response, AmGuard requested documents demonstrating the actual amounts spent on repairs, as required under the policy, and later issued an additional $4,227 payment. The insured’s counsel then sent a demand, seeking over $90,000 for repair costs, per an estimate provided, and $10,000 in attorney’s fees and costs. AmGuard declined to pay and once again requested the documents demonstrating the amounts actually paid to support the claim.
The insured then sued AmGuard alleging breach of contract and asserting several extra-contractual claims. AmGuard moved for summary judgment on all claims. Addressing the personal property claims, the court found that the settlement release signed by the insured released AmGuard from all personal property claims from the loss. The court also found that AmGuard had satisfied all of its duties under the “Loss Settlement” provision of the policy, and that the insured breached the conditions precedent to coverage by failing to cooperate and to provide supporting documentation for their alleged losses.
The court reasoned that under the policy’s “Loss Settlement” provision, AmGuard was to pay no more than the “necessary amount actually spent to repair or replace” the damaged home. The insured provided only four invoices, totaling around $13,000, and there was no evidence that the insured spent additional money to repair her home. AmGuard’s expert opined that the insured’s estimate consisted of duplicative repairs, repairs for damage that did not exist or did not result from the storm and amounts for improvements. Despite the attempts to recover additional amounts, the court found that the policy did not provide coverage for “a do over or for improvements unrelated” to the loss, and that AmGuard had fulfilled is payment obligations under the “Loss Settlement” provision. Additionally, the court found that the insured’s failure to cooperate with the investigation and provide the required documentation of repairs constituted a material breach of the duties owed by the insured under the policy. Lastly, the court also rejected the insured’s argument that the winter storm constituted a force majeure event that excused her failure to comply with her duties.
Editor’s Note: Jamie Cooper, an MDJW Partner in our San Antonio office, had the privilege of defending AmGuard Insurance Company in this lawsuit and we congratulate AmGuard, Jamie Cooper and her team on this significant win!
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INSURER’S DELAY IN NOTICE TO REINSURER ABSOLVED REINSURER FROM ITS DUTY TO INDEMNIFY
The Fifth Circuit recently analyzed a reinsurance treaty in United States Fire Ins. Co. v. Unified Life Ins. Co., No. 24-10392, 2025 U.S. App. LEXIS 20768 (5th Cir. 2025), finding that the reinsurer had no duty to indemnify because the underlying insurer’s failure to provide timely notice prejudiced the reinsurer.
U.S. Fire and Unified Life entered into a reinsurance treaty under which U.S. Fire was to reimburse Unified Life for 25% of net loss in exchange for 25% of the premiums Unified Life received on medical insurance policies issued. In 2016, a claim arose and United Life was sued in Montana, with the plaintiffs alleging that Unified underestimated the charges it would reimburse, and that the repricing software used would systematically over-discount claims. The case was later certified as a class action, and U.S. Fire was not notified of the suit until 2019, after Unified Life’s appeal on class certification was rejected. Unified Life settled the suit, establishing a $8 million class fund, and again did not notify U.S. Fire until months later. U.S. Fire found that the unreasonably late notice was prejudicial and refused to indemnify Unified Life for the settlement and attorneys’ fees granted.
The reinsurance treaty required U.S. Fire to give prompt notice of claims which “in the opinion of” Unified Life, may result in a claim under the treaty. The parties disagreed as to whether this provision required Unified Life to provide notice only upon its subjective belief that litigation may result, or whether it embodied an objective standard. The Fifth Circuit agreed with U.S. Fire’s interpretation and found that the language required an objective reading. First, the court reasoned that an objective standard best interpreted the treaty as a whole in light of background principles of quota share treaty reinsurance. The notice provision enables a reinsurer to assess its exposure. Parties to such treaties are sophisticated and had to assume that the “in the opinion of” standard would be grounded in professional experience and familiarity with potential claims. “Objective reality, in other words, was implicit…” The Fifth Circuit also found that Texas authority and other jurisdictions would agree that an objective standard controls. Under this standard, the court found that Unified Life breached the treaty by providing unreasonably late notice.
The issue then became whether the breach relieved U.S. Fire of its duty to indemnify. To be relieved of such duty, U.S. Fire had to prove prejudice from a material breach of the Treaty. The Fifth Circuit found that U.S. Fire was severely prejudiced in its right to assist in Unified Life’s defense and deprived of its benefit expected from the Treaty’s notice provision. The court also found that the delayed notice weakened settlement negotiations because, unlike Unified Life, U.S. Fire had experience in the area and claims which could have helped their positions when negotiating.
Upon finding that the breach was material and prejudiced U.S. Fire, the Fifth Circuit reversed the district court’s ruling, and held that U.S. Fire was absolved from its duty to indemnify Unified Life.
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ACTION AGAINST ADJUSTER MUST BE DISMISSED IF INSURER ACCEPTS THEIR LIABILITY – INSURER ALLOWED TO INTERVENE
A Texas court of appeals recently issued a memorandum opinion, finding that the trial court abused its discretion in several rulings against an insurer.
In re State Nat'l Ins. Co., No. 13-25-00133-CV, 2025 Tex. App. LEXIS 5974 (Tex. App.—Corpus Christi Aug. 11, 2025, no pet. h.) arises from a lawsuit filed by an insured against J&D Claims Services and one of its adjusters, who investigated the claim. The insurer filed a plea in intervention alleging that it was the only party liable under the policy because, among other things, it had elected to accept whatever liability its agents had under the Texas Insurance Code prior to the suit being filed. The insured, however, alleged that he was only pursuing tort claims against the agents, and not seeking policy benefits. The insurer and the agents filed motions to dismiss the claims against the agents, and both motions were denied. The agents filed a motion for reconsideration of their motion to dismiss, which was also denied. The trial court also denied the insurer’s motion to compel appraisal, and the agents’ motion to quash their depositions.
First, the court of appeals found that the trial court abused its discretion in striking the insurer’s plea in intervention. Under the Texas Insurance Code, if an insurer makes an election to accept the liability of its agents before or after a suit is filed, the court must dismiss the action against the agent with prejudice. An insurer does not have to be a party to the action to elect to accept whatever liability an agent may have to a claimant. The court here found that the insurer possessed a justiciable interest in the lawsuit, allowing it to intervene, because: (a) a judgment in favor of the insured would likely lead to an action against the insurer because of the insurer’s election to accept liability under the Texas Insurance Code; (b) the agents could not invoke appraisal which might defeat the insured’s claim; and (c) the insured’s claims were factually premised on insurance policies and the insurer’s rejection of the claim.
The court of appeals also found that (a) the Texas Insurance Code imposes a mandatory duty on a trial court to dismiss an action against agents when the insurer has made an election to accept the agents’ liability; (b) that the insurer properly invoked appraisal.
The court thus granted the petition for writ in mandamus in part and directed the trial court to vacate its orders granting the motion to strike the insurer’s intervention, denying the motion to dismiss and motion for reconsideration of the motion to dismiss the claims against the agents, and denying the motion to compel appraisal.
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SAVED BY THE CERTIFICATE: COVERAGE ESTABLISHED IN PART BY COI
The United States District Court for the Northern District of Texas recently held that additional insured status can, in some circumstances, be found in part by inclusion on the certificate if insurance.
In Rodriguez v. Frez-N-Stor, Inc, 2025 U.S. Dist. LEXIS 139432 (S.D. Tex. July 22, 2025), Rodriguez worked in a warehouse and on March 20, 2023, while unloading boxes of chicken stacked high on a pallet, hundreds of pounds of frozen chicken fell on him leaving him paralyzed. Luxor Staffing, his employer, had assigned Rodriguez to work for Americold, the owner and operator of the warehouse and Rodriguez filed suit against both seeking recovery for his injuries.
Americold filed a motion for summary judgment, arguing that it was protected from the lawsuit as a subscriber to Texas’ Workman’s Compensation Act, as an additional insured under Luxor Staffing’s Workman’s Compensation policy. Although the contract between Luxor Staffing and Americo required Luxor to list Americold as an additional insured on its Workman’s Compensation policy, Luxor did not do so. Nevertheless, an Americold officer signed an affidavit stating that Americold paid Luxor a markup for the cost of obtaining insurance, and a certificate of insurance that named Americold as an additional insured.
Considering the staffing services agreement, alternate employer endorsement, certificate of liability insurance, and the Americold officer’s affidavit, the Court held that Americold was entitled to summary judgment under Section 408.001(a) of the Texas Labor Code as an additional insured under Luxor's worker's compensation policy and the alternate employer endorsement.
Editor’s Note: It is well accepted that a certificate of insurance alone does not establish coverage, but it does provide some evidence of intent. And when combined with other evidence, coverage may be established.
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MOTION TO COMPEL APPRAISAL DENIED WHEN: 1) INSURED DOES NOT DISPUTE THE AMOUNT OF LOSS, 2) WAIVES CLAIMS TO POLICY BENEFITS, AND 3) SUES ONLY AN INDEPENDENT ADJUSTER AND THE ADJUSTER’S AGENCY FOR EXTRA-CONTRACTUAL CLAIMS
In AmGuard Ins. Co. v. Merrill., No. 7:24-CV-00509 2025 U.S. Dist. LEXIS 130921* (July 10, 2025), the U.S. District Court for the Southern District of Texas, McAllen Division denied AmGuard’s Motion to Compel Appraisal under a home insurance policy when Defendant Raquel Merril sued an adjusting agency and its adjuster in state court alleging only statutory violations.
Because Merrill did not dispute the amount of loss or seek policy benefits, AmGuard could not invoke appraisal to preclude Merrill’s extra-contractual claims against third parties.
The claim arose when Merril’s home and gazebos sustained wind damage in April 2023. AmGuard sent an independent Pilot Catastrophe adjuster to inspect the damage, and he found that the policy afforded coverage. However, the loss was less than the deductible. Merrill hired an attorney and later obtained payment of $6,974.41 from AmGuard. Based on Merrill’s third-party adjuster’s damage estimate of $121,829.03, Merrill’s attorney sent another demand letter. AmGuard sent another Pilot Catastrophe adjuster to inspect again, and an updated estimate of damages resulted in $38,174.25 for the house and $6,950.84 for the gazebos, which AmGuard paid. AmGuard later invoked its right to appraisal under the policy, but Merrill never responded. Instead, she filed suit against Palmer and Pilot in Hidalgo County state court alleging violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act. AmGuard was not named in the suit.
AmGuard proceeded with suing Merrill in federal court, alleging breach of contract and seeking to compel appraisal. Merrill counterclaimed, judicially admitting that she was not seeking policy benefits in her state-court lawsuit and filed motion for summary judgment. AmGuard argued that the parties dispute the amount of covered losses and therefore appraisal is required. Merrill countered that she was not disputing the amount of loss nor was she challenging the validity of the appraisal clause, which does not apply since she sued only Pilot and Palmer. The Court agreed with Merrill and found that AmGuard was not entitled to demand appraisal because Merrill’s claims against Pilot and Palmer fell outside the policy and Merrill did not sue AmGuard. The reasoning was that because appraisal provisions apply only to disputes between the insurer and the insured over contractual obligations, AmGuard could not invoke the clause in order to block her extra-contractual claims against third parties and cited In re Caliber One Indem. Co., 153 S.W.3d 357, 590 (Tex. App.—Amarillo 2004, orig. proceeding). The Court pointed out that Merrill’s judicial admissions waived any contractual claims in the suit brought by AmGuard, denied AmGuard’s motion to compel appraisal, and granted Merrill’s summary judgment.
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DECEPTION FRAUD PROVISIONS IN POLICY LEADS TO THE GRANTING OF A 12(b)(6) MOTION IN FAVOR OF THE INSURER
In Blue Compass RV, LLC v. Twin City Fire Ins. Co., No. 3:24-CV-1987-B 2025 U.S. Dist. LEXIS 130994* (July 10, 2025), the U.S. District Court for the Northern District of Texas, Dallas Division granted a Rule 12(b)(6) motion to dismiss with prejudice in favor of Twin City Fire Insurance Company.
Blue Compass was building a new RV sales and service center and hired SPD Construction as its general contractor. Blue Compass would pay SPD’s invoices by sending money to a funds transfer account. One day in 2022, Blue Compass received a couple of e-mails purportedly from SPD from someone claiming to be from SPD and using SPD’s logo. The content of the e-mails to Blue Compass were for changing the payment instructions. It turned out the e-mails were not from SPD, but from a fraudster. Blue Compass fell for this scheme and ended up issuing payments of $1.25 million. When Blue Compass realized this fraud, it reported it to its insurer Twin City. Four of the insuring agreements were relevant to Twin City’s motion:
1) Insuring Agreement 2 – Forgery or Alteration Including Credit Cards;
2) Insuring Agreement 3 – Theft Inside the Premises;
3) Insuring Agreement 5 – Computer and Funds Transfer Fraud; and
4) Insuring Agreement 9 – Deception Fraud.
The coverage limit of the first three was $2,000,000 but the coverage limit of the Deception Fraud provision was only $100,000. Twin City found that Blue Compass’ claim was covered by the Deception Fraud provision and only paid $100,000 for the loss. Blue Compass sued for declaratory judgment, breach of contract, violation of Chapter 542 of the Texas Insurance Code, violation of the Texas Prompt Payment of Claims Act, violation of Chapter 541 of the Texas Insurance Code, and common law bad faith.
The Deception Fraud provision had an exclusion that read as follows:
This Coverage Part Does not Apply To And The Insurer Will Not Pay For…
(T) Deception Fraud Exclusions
(1) Loss or damage resulting directly or indirectly from Deception Fraud. This exclusion shall not apply to the Deception Fraud Insuring Agreement.
(2) Loss or damage:
(a) resulting from Theft by an Employee;
(b) Resulting from Forgery …
(c) directly related to the use of any computer to fraudulently case a transfer of Money or Securities from inside the Premises or Banking Premises;
(d) resulting from Funds Transfer Fraud;
…
This exclusion shall apply only to the Deception Fraud Insuring Agreement.
The implication was that if Blue Compass’s loss resulted from Deception Fraud, it could only recover $100,000, which hardly came close to the $1.25 million paid to the fraudsters.
Deception Faud was defined in the policy as “the intentional misleading of a person to induce the insured to part with Money or Securities by someone, other than an identified Employee, pretending to be an Employee, owner of the insured or … (1) A Vendor; (2) A Customer; (3) A Custodian; or (4) A Messenger.” A Vendor was defined in the policy as “a business entity that sells goods or services to the insured.”
The Court addressed the breach of contract claim first, dismissing it on an un-pleaded affirmative defense of policy exclusions because the exclusion appeared on the face of the complaint. While a policy exclusion is an affirmative defense, a defendant is not required to plead it when the defense “appear[s] on the face of the complaint.” Alexander v. Verizon Wireless Servs., L.L.C., 875 F.3d 243, 249 (5th Cir. 2017) (quotation omitted). The Court further found that the loss fell only within the Deception Fraud provision and not any of the other Insuring Agreements for the following reasons: 1) Blue Compass was deceived into sending money to someone it thought was SPD Construction; and 2) SPD clearly falls within the policy definition of “vendor” because it sold “services” to Blue Compass under the plain and ordinary meaning of “service”.
Blue Compass asked the Court to deny Twin City’s Motion if there is a “sheer possibility” that Blue Compass can recover. But the Court held that Blue Compass must allege “more than a sheer possibility” in its pleading that a defendant acted unlawfully. Blue Compass also argued that the burden to show an exclusion applies falls on Twin City and it could not show that Blue Compass was induced to pay the money. Rather, Blue Compass argued that the fraudster only enticed it to change its wiring instructions. The argument went on to say that since the Deception Fraud provision required that the insured be induced to part with money, the loss did not result from Deception Fraud. The court did not agree with the second part of the argument. The court found Blue Compass’ interpretation unreasonable because the reason the fraudster shared false payment information was to induce the sending of money to an account, therefore Blue Compass was induced to take an action in which it parted with money.
Next, the Court considered whether any of the other Insuring Agreements applied and found that they did not. If Blue Compass suffered a loss from Deception Fraud, which it did, then the only recovery available for the loss is under that single provision. The policy provided:
This Coverage Par Does Not Apply To And The Insurer Will Not Pay For …
(T) Deception Fraud Exclusions
(1) Loss of damage resulting directly or indirectly from Deception Fraud. This exclusion shall not apply to the Deception Insuring Agreement.
The only way for Blue Compass to recover more than $100,000 was if they suffered a loss from something that was not Deception Fraud and the Court gave examples of forgery, loss of money from theft inside the premises, or computer and funds transfer fraud. The Court further justified finding that the loss exclusively fell under the Deception Fraud provision as being in the interest of promoting cross-jurisdictional uniformity in construing insurance provisions, particularly where courts of other states are looking at identical contract provisions across the jurisdictions.
Next, the Court dismissed the Bad Faith and Texas Insurance Code Claims. First, a claim for breach of the implied covenant of good faith and fair dealing cannot exist absent a breach of contract. Because Blue Compass had not right to any additional benefits under the contract, it would not maintain a common law bad faith claim. Second, because Twin City paid Blue Compass $100,000, it could not maintain its Chapter 542 claim for failure to promptly pay. Third, because Blue Compass did not have a right to any additional benefits under the Policy once Twin City paid its claim under the Deception Fraud Provision, it cannot recover any actual damages for unfair settlement practiced under Chapter 541.
Lastly, the Court dismissed the declaratory judgment claim since the substantive claims were dismissed. The Court added that the pleading defects were incurable such that no leave to amend was granted.
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INSURED’S TESTIMONY USED TO ESTABLISH THAT HOMEOWNER’S INSURER HAD NO DUTY TO DEFEND OR INDEMNIFY
The Southern District of Texas recently ruled in favor of an insurer, finding that the insurer was not liable for defense or indemnity benefits in an underlying lawsuit involving the insured.
In Benchmark Ins. Co. v. Linan, No. 4:24-CV-01884, 2025 U.S. Dist. LEXIS 118264 (S.D. Tex. 2025), Benchmark issued a homeowners policy to the insured for a property located in Katy, Texas. The insured was sued in state court for an incident that occurred on the property. Benchmark then filed the current suit, seeking a declaration that it is not liable for defense or indemnity.
Texas courts follow the “eight-corners” rule when making the determination of whether an insurer owes a duty to defend its insured against third-party claims. Under this rule, the courts focus on the factual allegations of the third-party’s pleadings and compare them to the language of the insurance policy. The Texas Supreme Court has recognized an exception to this, called the Monroe exception, which permits consideration of extrinsic evidence if the evidence: (1) goes solely to the issue of coverage and does not overlap with the merits of liability: (2) does not contradict facts alleged in the pleading; and (3) conclusively establishes the coverage fact to be proved. Here, the court found that the Monroe exception applied and the court could consider deposition testimony of the insured. The testimony established that the insured did not live at the property at the inception of the policy period, which rendered the property as not insured and barred coverage under the policy. As such, the court granted summary judgment in favor of the insurer, finding that it had no duty to defend.
The court further found that the insurer had no duty to indemnify the insured. The duty to indemnify is based on the “actual facts that underlie the cause of action and result in liability.” Because the record established that the policy barred coverage, as detailed above, the insurer did not owe a duty to indemnify.
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NORTHERN DISTRICT GRANTS MOTION TO STRIKE TESTIMONY OF INSURED’S STORM DAMAGE EXPERT AND DISMISSES ALL CLAIMS WITH PREJUDICE
The Northern District of Texas recently ruled in favor of an insurer, granting its motion to strike the testimony of the insured’s expert and dismissing all claims with prejudice.
In Managed Owners Grp. LLC v. Nationwide Gen. Ins. Co., Civil Action No. 3:24-CV-1336-X, 2025 U.S. Dist. LEXIS 122380 (N.D. Tex. 2025), Nationwide issued a property insurance policy to the insured, Managed Owners Group, LLC (“Managed”). Managed filed a claim for damage to their property, allegedly caused by a September 2023 storm. Nationwide initially denied the claim, but upon reinspection, reversed the denial of coverage. However, the estimate was below the deductible and Managed believed that Nationwide underestimated the damage. Managed then filed suit against Nationwide, alleging breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code and Texas Deceptive Practices Act.
First, the court addressed Nationwide’s motion to strike the insured’s expert’s opinions and testimony. Nationwide argued, and the court here agreed, that the expert’s dismissal of other possible storms that could have caused the damage rendered his methodology unreliable. The expert relied on (1) the owner’s statement regarding the date of loss, and (2) “intuition and logic” to rule out any other storms. The court found that, not only was it not “scientifically valid to rely on the statement of the property owner for causation,” but to allow the expert’s testimony would “bootstrap fact witness testimony into expert testimony without any reliable methodology.” Accordingly, the court granted Nationwide’s motion to strike the expert’s testimony.
The court also addressed the breach of contract claim and granted summary judgment in favor of Nationwide. In Texas, the insured has the burden to segregate covered and uncovered claims. Failure to do so is fatal to recovery. If covered and uncovered claims are inseparable, causation is concurrent, and the policy’s exclusion applies, meaning that the insurer owes no coverage for the loss. Because Managed failed to present any evidence to segregate the damage, Nationwide was entitled to summary judgment as to the insured breach of contract claim.
Consequently, because the breach of contract claim failed, the insured’s extra-contractual claims also failed. Under Texas’ “no-recovery rule,” an insured cannot recover any damages based on an insurer’s statutory violation if the insured has no right to receive benefits under the policy and sustained an injury independent of a right to benefits. The insured here did not have a right to receive benefits and failed to establish an independent injury. As such, the court granted Nationwide’s motion for summary judgment and entered a final judgment dismissing all claims and causes of action against Nationwide, with prejudice.
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IF YOU WANT TO COMPEL ARBITRATION, DON’T GIVE CONFLICTING DISPUTE RESOLUTIONS—AND INTENTIONALLY DEFEND THE POLICY, TOO
Texas’s First District Court of Appeals in Houston recently sided with an insured and denied an insurance company’s motion to compel arbitration based on potentially conflicting provisions in the insurance contract.
In Indep. Specialty Ins. Co. v. Blossoms Montessory Scho. Inc., 2025 Tex. App. LEXIS 3825 (Tex. App.—Houston [1st Dist]), Blossoms alleged wind and hailstorm damage to its commercial building in Spring, Texas. Independent Specialty denied Blossom’s property damage claim, then Blossom filed this lawsuit, alleging that Independent Specialty violated the Insurance Code, the insurance contract, and its duty of good faith and fair dealing. Independent Specialty filed a motion to compel arbitration rather than settle this dispute in court, based on the insurance policy’s arbitration clause.
To continue the lawsuit, Blossoms asserted that the arbitration agreement was unconscionable and that the insurance policy contained conflicting dispute resolution provisions. The trial court agreed with Blossoms and denied Independent Specialty’s motion to compel arbitration, and Independent Specialty appealed to the court of appeals in Houston. Unfortunately for Independent Specialty, it did not in its appellate brief address the issue of the conflicting dispute resolution provisions. Therefore, the appellate court had to accept as true that there were conflicting provisions, and allow this dispute to be resolved judicially, rather than via arbitration.
Editor’s Note: This case emphasizes not only the need for careful insurance policy drafting, but careful lawyering in defending insurance contracts as well.
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U.S. DISTRICT COURT GRANTS SUMMARY JUDGMENT FOR INSURER DESPITE INSURER’S 500-DAY-DELAYED PAYMENT OF APPRAISAL AWARD
The United States District Court for the Western District of Texas recently found that an insurance company’s payment of an appraisal award, even after a significant delay, barred a breach of contract lawsuit arising out of that delayed payment.
In Hurst v. Liberty Mut. Ins. Co., No. 1:22-CV-1093-DAE, 2025 U.S. Dist. LEXIS 103324 (W.D. Texas [Austin Division] May 29, 2025), Chester and Sherry Hurst filed a claim for hail damage under their Liberty Mutual homeowner’s policy in August 2021. Following an initial denial by Liberty Mutual, the parties proceeded through appraisal, resulting in an umpire-issued award for nearly $250,000. Liberty Mutual did not tender payment until more than 500 days later and, after the Hursts filed a lawsuit against Liberty Mutual for breach of contract. Importantly, this payment included statutory interest in addition to the appraisal amount. The Hursts rejected Liberty Mutual’s payment and chose to instead proceed with litigation.
Eventually, the trial court granted Liberty Mutual’s Motion for Summary Judgment, finding that Liberty Mutual’s payment of the appraisal award estopped the breach of contract claim and that the Hursts failed to present evidence of independent injury to support the application of the “benefits-lost-rule” under Texas case law. Subsequently, the Hursts moved for reconsideration of the summary judgment order, arguing that Liberty Mutual’s delay in paying the appraisal award rendered estoppel inapplicable. Liberty Mutual, on the other hand, asserted that an appraisal award sets the amount of loss only and does not establish a party’s liability for breach of contract, meaning that Liberty Mutual’s delay in payment did not give rise to a breach of contract claim.
Ultimately, the court agreed with Liberty Mutual and upheld the summary judgment. The court began by acknowledging that Texas case law makes plain that there is no contractual obligation to pay an appraisal award, and an insurer has every right to continue to dispute coverage and liability even after an appraisal award is issued. Then, the court reasoned that since the penalty for the timing of an appraisal payment is not a finding of breach of contract, the only penalty to be assessed against Liberty Mutual for the delayed payment is the imposition of prompt payment penalties under the Texas Insurance Code. However, since Liberty Mutual already took the timeliness of its payment into account by including the penalty interest in its payment to the Hursts, the court concluded that the insured’s claims against Liberty Mutual were estopped, and thus barred, by Liberty’s payment of the appraisal amount plus interest. Moreover, since the Hursts did not complete any repairs to their damaged property, the court found that the amount owed is limited to the actual cash value of their damages, which was correctly determined by the umpire-issued appraisal award. Accordingly, the court denied the Hursts’ motions and dismissed their case against Liberty Mutual in its entirety.
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U.S. DISTRICT COURT GRANTS SUMMARY JUDGMENT DISMISSING INSURED’S UM/UIM CLAIM DUE TO INSURED’S FAILURE TO DEMONSTRATE LINK BETWEEN THE ACCIDENT AND INJURIES CLAIMED
The U.S. District Court for the Southern District of Texas recently granted summary judgment to an Uninsured/Underinsured (“UM/UIM”) insurance carrier due to the Plaintiff’s failure to introduce evidence linking the accident to their claimed injuries.
In Vinhhuy Ho v. Elephant Ins. Co., Civil Action No. 4:24-cv-01763, 2025 U.S. Dist. LEXIS 100655 (S.D. Texas [Houston Division] May 28, 2025), an insured driver and one passenger alleged that they suffered personal injuries when an unknown driver struck their vehicle and fled the scene. The Insured then filed suit against the unidentified driver and Elephant Insurance, their auto insurance carrier, seeking a declaratory judgment that they are entitled to recover under the UM/UIM portion of their automobile policy. After the close of discovery, Elephant moved for summary judgment, arguing that since the Insured did not produce any admissible evidence to link the alleged accident to their alleged injuries, the Insured’s claims against Elephant should be dismissed.
Ultimately, the court agreed with Elephant. The court began by considering one fundamental characteristic of UM/UIM contracts firmly grounded in Texas case law: benefits are conditioned on the Insured’s legal entitlement to receive damages from a third party. It would therefore follow, according to the court, that a UM/UIM insurer’s contractual obligation to pay benefits does not arise until liability and damages are determined. Since the Insured in this case failed to create a genuine dispute of material fact regarding whether they incurred damages arising from this car accident, the court granted Elephant’s motion for summary judgment, holding that because the Plaintiffs failed to establish that the accident at issue resulted in damages, they are incapable of showing that they are entitled to policy benefits.
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EMPLOYER’S LIABILITY EXCLUSION AND INSURED’S FAILURE TO COMPLY WITH NOTICE PROVISIONS OF POLICY PRECLUDED COVERAGE FOR $6.2 MILLION JUDGMENT
The Northern District of Texas recently granted an insurer’s motion for default judgment, finding that the insurer owed no duty to defend or indemnify, or satisfy a final judgment entered against its insured.
In Canal Ins. Co. v. Titan Transp. Corp., Civil Action No. 3:24-CV-1561-K, 2025 U.S. Dist. LEXIS 87025 (N.D. Tex. 2025), the insurer, Canal Insurance Company (“Canal”), moved for an entry of default judgment after its insured failed to respond to Canal’s complaint in this suit. The case arises from an underlying suit in which the insured, Titan Transportation Corporation (“Titan”), was sued by its employee after being injured while in the course and scope of his employment with Titan. The underlying lawsuit was tried to a jury, where a verdict was entered in favor of the employee, and a judgment was entered against Titan for over $6.2 million. Titan did not provide Canal with notice of the underlying lawsuit or final judgment, and Canal only became aware of the underlying lawsuit when the employee’s attorneys sought to enforce the judgment against the Canal policy.
Canal then filed this declaratory action against Titan and the employee, seeking a declaration that Canal had no duty to defend or indemnify Canal because coverage was precluded under an exclusion, and because of Titan’s failure to comply with policy conditions. The Policy issued to Titan contained an Employee Indemnification and Employer’s Liability exclusion, which precludes coverage for bodily injury to an employee of the insured arising out of and in the course of employment of the insured. The Court here found that this exclusion precluded coverage since the claims involved a Titan employee who was in the course and scope of his employment with Titan. The Policy also contained a condition requiring the insured to provide prompt notice of any accident or loss and to send copies of any documents concerning the claim or suit. Because Titan failed to do so, and Canal was not notified of the lawsuit until over three years after the incident, the Court found that Canal was prejudiced. For these reasons, the Court granted Canal’s motion for default judgment against the employee, concluded that Canal had no duty to defend or indemnify Titan, and found that Canal had no duty to satisfy the final judgment in favor of the employee.
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SOUTHERN DISTRICT FINDS THAT INSURED MUST ESTABLISH ENTITLEMENT TO UIM BENEFITS TO BRING BREACH OF CONTRACT CLAIMS AGAINST INSURER AND RECOVER ON EXTRA-CONTRACTUAL CLAIMS
The Southern District of Texas recently found in favor of an insurer in claims related to uninsured/underinsured motor vehicle coverage under their policy.
In Lafleur v. State Farm Mut. Auto. Ins. Co., No. 5:25-cv-17, 2025 U.S. Dist. LEXIS 86881 (S.D. Tex. 2025), an insured submitted a claim to its insurer, State Farm Mutual Automobile Insurance Company (“State Farm”), seeking UIM benefit under the State Farm policy. The insured had sustained injuries as the result of a crash and filed a claim against the other driver’s insurance policy but alleged that he was not fully compensated for his losses. The insured then filed this lawsuit against State Farm, for his claim under the UIM policy, seeking a declaratory judgment, alleging breach of good faith and fair dealing, and breach of contract. State Farm sought to abate the insured’s non-contractual claims pending the resolution of the contractual claims.
First, the court, sua sponte, analyzed the insured’s breach of contract claims. In Texas, UIM coverage provides payment for amounts that an insured is “legally entitled to recover as damages” from owners or operators of underinsured motor vehicles. Texas courts have interpreted this phrase to mean that the insured must establish both fault on the part of the underinsured motorist, and the extent of the damages before becoming entitled to recover UIM benefits. In this case, the insured settled with the underinsured driver and, though he sought a declaratory judgment establishing the underinsured driver’s fault and his entitlement to benefits, he had not yet obtained such judgment. As such, the court found that the insured had not complied with the condition to make him eligible for UIM benefits and therefore could not demonstrate that State Farm had breached a contractual duty to pay. Accordingly, the Court found that the insured’s breach of contract claim was not yet ripe and dismissed the claim for lack of subject matter jurisdiction.
As a result of the dismissal, the Court granted State Farm’s motion to abate the extra-contractual claims. Texas courts have found that before an insured can recover on extra-contractual claims against its insurer for failure to pay or settle a UIM claim, the insured must first establish that the insurer is liable on the contract. And since liability was not yet established, the Court found it proper to abate the extra-contractual claims. The Court found that State Farm should not be required to engage in discovery of extra-contractual claims before the UIM liability was established because such discovery could be rendered moot.
The Court also noted that although Texas courts often sever or bifurcate extra-contractual claims in addition to abating, federal courts are not bound to follow this procedural posture. The Court reasoned that abatement can, as in this case, best serve judicial economy in not having to sever the case, and open a new case or order a separate trial. Abatement without severance or bifurcation, the court reasoned could save the court, and the parties, time and money.
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WESTERN DISTRICT FINDS THAT SEEKING A DECLARATION AS TO COVERAGE OWED IS A LIVE CONTROVERSY SUFFICIENT TO SURVIVE MOTION TO DISMISS
The Western District of Texas recently ruled in favor of an insurer, denying an insured’s motion to dismiss the insurer’s claims.
Amerisure Ins. Co. v. Cody Pools, Inc., No. 1:24-cv-00786-DAE, 2025 U.S. Dist. LEXIS 86196 (W.D. Tex. 2025) arises from a coverage dispute in which the insurer, Amerisure, filed suit seeking a declaratory judgment that it owed no coverage under the policies. Amerisure issued five commercial general liability policies to the insured, under which the insured submitted five pre-suit settlement claims. These claims arose from alleged cracking and damage, caused by an alkali-silica reaction due to improper mixing, to pool shells constructed by the insured’s subcontractors.
First, the insured moved to dismiss the case for lack of subject matter jurisdiction, arguing that the issues in Amerisure’s complaint were not ripe because no underlying lawsuits had been filed. However, the court found that under the Declaratory Judgment Act, whether a policy provides coverage is a “live controversy” and therefore justiciable. In this case, Amerisure sought determination of coverage under the policies. As such, an actual controversy was alleged, and the insured’s motion was denied. Second, the insured moved to dismiss, arguing that Amerisure failed to plausibly state a claim for relief. The court once again found that because a live controversy exists, Amerisure established a claim for declaratory relief, and the Court denied the insured’s motion.
The Court also concluded that a discretionary stay was warranted. The Court found that Amerisure’s request for determination of coverage was akin to a request for the Court to determine its duty to indemnify. The duty to indemnify, however, is determined by facts actually established in the underlying lawsuit and because no suits had been filed, it would be premature to grant Amerisure’s request for declaratory relief. As such, the Court granted the insured’s motion to stay the case, pending potential future lawsuits or settlements that could clarify or even moot the coverage issues presented.
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