Articles Posted in Bad Faith

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September-1
New Law Limiting Your Rights Under Your Policy Goes Into Effect September 1

The Texas Legislature passed a law, effective September 1, called the “Hailstorm Bill.” This new law severely limits your rights under your commercial property insurance policy. Here are a few of the new changes.

-Statutory Penalties: The current law provides a penalty of 18% for failure of an insurance company to pay a claim timely and fairly. The new law lowers that amount to 5% higher than the Texas Pre-judgment interest rate which is now 5%. So the penalty will effectively drop from 18% to 10%.

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wrong-nameOne issue I frequently encounter is a commercial property insurance policy that has the wrong named insured. This usually causes a few minutes of sheer panic followed by the relief that Texas jurisprudence does allow for common sense remedies. That’s because even when the “wrong party” is listed as the insured the courts will look beyond that designation if the party listed has an “insurable interest” in the insured property.

An ownership interest is different from an “insurable interest.” Texas courts have long recognized this important distinction and given wide latitude to the term “insurable interest.” The seminal case in this area is Jones v Tex. Pac. Indem. Co., 853 S.W.2d 791 (Tex. App. – Dallas, no writ).

But the most interesting and expansive opinion on the matter is Dana O’Quinn v. General Star Indemnity Co., a case out of the United States District Court for the Eastern District of Texas. That case was about a fire loss which occurred at a nightclub called Alibi’s, the most perfectly named property for an overly suspicious insurance carrier.  Alibi’s  was founded by Brian O’Quinn, who was also President and Director of Cahoots Entertainment, Inc., which owned the business and entered into a lease with the owner of the premises.

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towersIn Coreslab Structures (Texas), Inc. v. Scottsdale Insurance Company, the plaintiff appealed after an insurer’s summary judgment motion was granted. His lawsuit had made claims for bad faith, breach of contract, and violations of the Prompt Payment of Claims Act. The case arose when a tower in Houston suffered water damage in two rain events. Two lawsuits were brought, and the claims for damages were more than $38 million. Claims were made by Memorial Hermann Hospital System, which owned the tower, against Coreslab Structures and its subcontractor. The lawsuits were consolidated.

Coreslab asked the subcontractor to defend it in connection with the lawsuits, demanding a defense as an additional insured under the subcontractor’s insurance policy. Scottsdale Insurance Company was the insurer that had issued the subcontractor’s commercial general liability policy. It notified Coreslab there was no additional insured coverage for Coreslab on the subcontractor’s policy.

Once Scottsdale refused to pay for Coreslab’s defense, Coreslab’s own insurer, Lexington, paid Coreslab’s defense attorney. Coreslab sued Scottsdale, claiming that it was an additional insured under the subcontractor’s policy. It asked the court for a declaratory judgment that Scottsdale owed it a duty to pay off the defense costs in the lawsuits, and it claimed statutory bad faith, breach of contract, and a Prompt Payment of Claims Act violation. The two lawsuits settled, and the trial court severed Coreslab’s claims so that they proceeded in a separate lawsuit.

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