The Texas Supreme Court issued three opinions On March 27, 2009 in insurance coverage cases. Two of the cases involve the enforceability of notice of claims provisions in claims-made policies while the third case involves potential “stacking” of uninsured/underinsured motorist policies.
Prodigy Communications Corp. v. Agricultural Excess & Surplus Insurance Co., _____ S.W.3d ______ (Tex. March 27, 2009) and Financial Industries Corp. v. XL Specialty Insurance Co., _____ S.W.3d ______ (Tex. March 27, 2009).
In Prodigy, the precise issue before the court was “whether, under a claims-made policy, an insurer can deny coverage based on its insured’s alleged failure to comply with a policy provision requiring that notice of a claim be given ‘as soon as practicable,’ when (1) notice of the claim was provided before the reporting deadline specified in the policy; and (2) the insurer was not prejudiced by the delay.” The court answered the inquiry in the negative, holding that coverage could not be denied in those circumstances, even where the “as soon as practicable” provision is labeled as a “condition precedent” to coverage on the face of the policy.
In coming to this conclusion, the Prodigy court noted earlier decisions favoring coverage where insureds’ violations of policy conditions were not found to be material breaches of the insurance contracts. In response to the argument that timeliness of notice is more important in a claims-made policy than in an occurrence-based policy, the court responded that as long as claims-made insurers receive notice within the reporting period of their policies and are not prejudiced by the reporting delays, the insurers are not “denied the benefit of the claims-made nature” of their policies.
Notably, three justices dissented in Prodigy, accusing the majority of rewriting an otherwise clear policy provision. The dissenters would have held that because the “as soon as practicable” provision is clearly labeled as a “condition precedent” to coverage, it should be treated as a mandatory obligation under which coverage is forfeited when there is noncompliance.
Financial Industries also involved an “as soon as practicable” provision in a claims-made policy, but apparently one that was not labeled a “condition precedent” to coverage. The court, unanimously, found that a reporting delay that did not prejudice the insurer was not grounds for a coverage denial where the claim was eventually reported within the policy period.
Progressive County Mutual Insurance Co. v. Kelley, _____ S.W.3d ______ (Tex. March 27, 2009).
Kelley involved an unusual fact pattern. A woman was seriously injured when the horse she was riding was struck by a car. She settled the claims against the driver of the car for $100,000, the driver’s policy limits. She then recovered an additional $500,025 in underinsured motorist benefits from Progressive, her parents’ insurer. Not having been made whole, she attempted to recover an additional $500,025 from Progressive, arguing that it had issued two separate policies to her parents and that she was entitled to recover separately under both.
There were, in fact, two policy numbers because her parents had insured five vehicles and Progressive’s internal software was designed so only four vehicles could be listed on any one declarations page. Accordingly, an additional declarations page, with an additional policy number, was produced for the fifth vehicle. However, there was no additional policy fee and the single vehicle on the “separate” policy was rated for a multi-car discount. Progressive produced evidence that even though there were two policy numbers, the polices were intended and treated as one.
The Kelley court went through the evidence and concluded that the matter was improperly resolved on summary judgment because a fact issue was presented as to whether one or two polices were in existence. As such, the matter was remanded back to the trial court. Notably, the court did not address Progressive’s argument that a separate recovery was improper even if there were two policies by virtue of a “two or more auto policies” clause that states that an insured’s recovery cannot exceed “the highest applicable limit of liability under one policy” where one is insured under multiple polices, determining that the question was not yet ripe for adjudication.
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