Insurer not liable under life insurance policy when premium was not paid and grace period for reinstatement had expired

CONTRACT FORMATION GENERALLY 

Whether an alleged agreement constitutes an enforceable contract is generally a question of law. Searcy v. DDA, Inc., 201 S.W.3d 319, 322 (Tex. App."Dallas 2006, no pet.). The elements of a valid and enforceable contract are: (1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution and delivery of the contract with the intent that it be mutual and binding. Id.

INSURANCE POLICY IS A CONTRACT 

Insurance policies are contracts and are controlled by the same general rules that govern contract construction. See Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987); Columbia Cas. Co. v. CP Nat'l., Inc., 175 S.W.3d 339, 343 (Tex. App.-Houston [1st Dist.] 2004, no pet.). The elements of a valid contract are (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. See Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.-Houston [1st Dist.] 2002, pet. denied). To establish a valid contract, a plaintiff must prove that the parties agreed on all of the essential terms of the contract and the essential terms were sufficiently certain so as to define the parties' legal obligations. See Nickerson v. E.I.L. Instruments, Inc., 874 S.W.2d 936, 939 (Tex. App.-Houston [1st Dist.] 1994, writ denied). To establish a claim for breach of contract, a plaintiff must prove (1) the existence of a valid contract between the plaintiff and the defendant, (2) the plaintiff's performance or tender of performance, (3) the defendant's breach of the contract, and (4) the plaintiff's damages as a result of the breach. See Prime Products, 97 S.W.3d at 636.


SOURCE: HOUSTON COURT OF APPEALS - No. 01-12-00168-CV. - 2/27/2014 

INSURANCE COVERAGE TERMINATED BECAUSE PREMIUMS WAS NOT PAID 

As a matter of law, the insurance provided by the Policy "end[ed]" and was not "in force" after the end of the grace period. See MacIntire v. Armed Forces Benefit Ass'n, 27 S.W.3d 85, 89 (Tex. App.-San Antonio 2000, no pet.) (stating that when grace period passes without payment of defaulted premium, insurance policy lapses and terminates); P.M. Baker v. Penn. Mut. Life Ins. Co., 617 S.W.2d 814, 816 (Tex. Civ. App.-Houston [14th Dist.] 1981, no writ). Moreover, by its express terms, the lapsed Policy terminated upon the death of Dr. Lombana.

An insurance policy constitutes a contract for the period of time that is covered in the contract. See Hartland v. Progressive Cnty. Mut. Ins. Co., 290 S.W.3d 318, 322 (Tex. App.-Houston [14th Dist.] 2009, no pet.); Zuniga v. Allstate Ins. Co., 693 S.W.2d 735, 738 (Tex. App.-San Antonio 1985, no writ); Harrington v. Aetna Cas. & Sur. Co., 489 S.W.2d 171, 176 (Tex. App.-Waco 1972, writ. ref'd n.r.e.). Thus, the Policy insured Dr. Lombana's life only during the policy period. And, for an insurance contract to be renewed, the insurer's renewal offer must be accepted by the insured completely and unequivocally. Hartland, 290 S.W.3d at 322.

It is well settled that the payment of premiums is a condition for acceptance of an insurance contract, necessary for contract formation. See id. Thus, under Texas law, the payment of premiums is a condition precedent to the existence of liability of the insurer. See id.; Walker v. Federal Kemper Life Assur. Co., 828 S.W.2d 442, 449 (Tex. App.-San Antonio 1992, writ denied). If an insured fails to meet the condition of premium payment, the policy expires. Southland Life Ins. Co. v. Hopkins, 244 S.W. 989, 990 (Tex. Comm'n App. 1922, judgm't adopted) (holding that failure to pay premium "would ipso facto terminate all liability" under insurance policy); Hartland, 290 S.W.3d at 322; Walker, 828 S.W.2d at 447; Zuniga, 693 S.W.2d at 738. Here, Lombana presented no evidence that she paid the premium due on April 28, 2008 or at any time during the thirty-one day grace period that followed. In fact, Lombana admitted that she did not pay the premium and acknowledged that the Policy had lapsed for nonpayment of the premium as of April 28, 2008.

Because Lombana did not pay the Policy premium, the condition for acceptance of the contract was not met. See Walker, 828 S.W.2d at 447; Viking Cnty. Mut. Ins. Co. v. Jones, No. 05-91-01815-CV, 1992 WL 211068, at *3 (Tex. App.-Dallas Aug. 31, 1992, no writ) (mem. op., not designated for publication) (offer by insurer to renew insurance contract must be accepted completely and unequivocally by insured to constitute new contract); Zuniga, 693 S.W.2d at 738 (renewal policy never came into existence because insured did not make payments in accordance with policy terms); So. Farm Bureau Cas. Ins. Co. v. Davis, 503 S.W.2d 373, 377 (Tex. App.-Amarillo 1973, writ ref'd n.r.e.) (offer for renewal of auto insurance could not come to fruition until premium was paid); Trinity Universal Ins. Co. v. Rogers, 215 S.W.2d 349, 352 (Tex. App.-Dallas 1948, no writ)(contract not completed when insured did not indicate acceptance of renewal policy). Thus, by its own terms, the Policy lapsed and the insurance "end[ed]" when Lombana failed to pay the premiums by the end of the thirty-one day grace period. See Hopkins,244 S.W. at 990; Hartland, 290 S.W.3d at 322; Walker, 828 S.W.2d at 447; Zuniga, 693 S.W.2d at 738.

In sum, because Lombana failed to pay the requisite premiums as per the terms of the Policy, the Policy lapsed, the insurance ended, and the Policy terminated upon the death of Dr. Lombana on April 30, 2009. Dr. Lombana's life had not been insured since April 29, 2008, for just over twelve months prior to his date of death. Therefore, Lombana cannot establish an essential element of her breach of contract claim, i.e., the existence of a valid contract. Accordingly, we hold that the trial court did not err in granting AIG summary judgment on Lombana's claim for breach of contract.

We overrule Lombana's second issue.

SOURCE: HOUSTON COURT OF APPEALS - No. 01-12-00168-CV. - 2/27/2014 

The 8-corners Rule

The eight corners rule (insurance litigation)

The rule takes its name from the fact that only two documents are ordinarily relevant to the determination of the duty to defend: the policy and the pleadings of the third party claimant. GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006). Under that rule, we determine whether a liability insurer has a duty to defend by comparing the allegations within the four corners of the claimant's pleadings to the language within the four corners of the insurance policy. Nat'l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). If the claimant's factual allegations potentially support a covered claim, the insurer must defend its insured. GuideOne Elite Ins. Co., 197 S.W.3d at 310. We give the allegations in the petition a liberal interpretation in favor of the insured. Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 643 (Tex. 2005); Gehan Homes, Ltd. v. Employers Mut. Cas. Co., 146 S.W.3d 833, 838 (Tex. App.-Dallas 2004, pet. denied). If the pleading "does not state facts sufficient to clearly bring the case within or without the coverage, the general rule is that the insurer is obligated to defend if there is, potentially, a case under the [pleading] within the coverage of the policy." Merchs. Fast Motor Lines, 939 S.W.2d at 141. In other words, if there is doubt as to whether the claimant has pleaded a cause of action within coverage, the doubt is resolved in favor of the insured, and the insurer must defend. Id.
 
SOURCE: DALLAS COURT OF APPEALS - No. 05-07-01255-CV - 12/4/2008

Litigating insurer's duty to defend policy-holder

 
COVERAGE DISPUTE – INSURANCE COMPANY'S DUTY TO DEFEND

An insurer has a duty to defend when a third party sues the insured on allegations that, if taken as true, potentially state a cause of action within the coverage terms of the policy. GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 310 (Tex. 2006). Even if the allegations are groundless, false, or fraudulent, the insurer is obligated to defend. Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex. 2008). The duty to defend is independent from the duty to indemnify and can exist even when no obligation to indemnify is ultimately found. Farmers Tex. County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex. 1997).

THE EIGHT CORNERS RULE: Pleadings and Policy - Four corners each  

  

In determining whether an insurer has a duty to defend, we follow the eight-corners rule, also known as the complaint-allegation rule: ―an insurer’s duty to defend is determined by the third-party plaintiff’s pleadings, considered in light of the policy provisions, without regard to the truth or falsity of those allegations.‖ Zurich, 268 S.W.3d at 491 (quoting GuideOne, 197 S.W.3d at 308). When applying the eight-corners rule, we  construe the allegations in the pleadings liberally. Nat’l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). We resolve all doubts regarding the duty to defend in favor of the insured. King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002). If the pleadings do not contain factual allegations sufficient to bring the case clearly within or without the coverage terms, the general rule is that the insurer is obligated to defend if there is any potential claim under the pleadings that falls within the coverage of the policy. Merchs. Fast Motor Lines, Inc., 939 S.W.2d at 141 (citing Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965)); Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 848 (Tex. 1994). In the case of ambiguity in the underlying petition, the court may not read facts into the pleadings, look outside the pleadings, or ―imagine factual scenarios which might trigger coverage.‖ Merchs. Fast Motor Lines, Inc., 939 S.W.2d at 142. However, the eight-corners rule does not require us to ignore those inferences logically flowing from the facts alleged in the petition. Gen. Star Indem. Co. v. Gulf Coast Marine Assocs., Inc., 252 S.W.3d 450, 456 (Tex. App.—Houston [14th Dist.] 2008, pet. denied) (citing Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 645 (Tex. 2005) (inferring a profit motive from the insured’s leasing of her property for limestone mining even though the pleadings made no reference to any pecuniary interest)). A liability policy obligates the insurer to defend the insured  against any claim that potentially could be covered. Heyden Newport Chem. Corp., 387 S.W.2d at 26.
 
SOURCE: HOUSTON COURT OF APPEALS – 14^TH DISTRICT - 14-11-00049-CV – 1/5/12 

Is an insurance company under a duty of good faith and fair dealing in Texas?

 
DOES A POLICY-HOLDER HAVE A CAUSE OF ACTION AGAINST INSURER WHO ACTS IN BAD FAITH IN DENYING A CLAIM?

Texas law recognizes a duty of good faith and fair dealing in the insurance context. Arnold v. Nat’l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). The duty arises from the special relationship that is created by the contract between the insurer and the insured. Id.; see also Viles v. Security Nat’l Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990) (recognizing that the duty arises "not from the terms of the insurance contract, but from an obligation imposed in law" as a result of the special relationship).
 
NOT THE SAME AS BREACH OF INSURANCE CONTRACT
 
A claim for breach of the duty of good faith and fair dealing is separate from any claim for breach of the underlying insurance contract, Viles, 788 S.W.2d at 567, and the threshold of bad faith is reached only when the breach of contract is accompanied by an independent tort. Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 17 (Tex. 1994).

ELEMENTS OF CLAIM (breach of duty of good faith and fair dealing)

To prevail, the insured must prove that the insurer had no reasonable basis for the denial or delay in payment of a claim and that the insurer knew or should have known of that fact. Id. at 18; Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 213 (Tex. 1988). An insurer does not breach its duty merely by erroneously denying a claim. Moriel, 879 S.W.2d at 17. An insurer may demonstrate its entitlement to summary judgment on this type of claim by demonstrating that there is "a good faith dispute as to coverage." United States Fire Ins. Co. v. Williams, 955 S.W.2d 267, 268 (Tex. 1997); see also Perotta v. Farmers Ins. Exch., 47 S.W.3d 569, 575 (Tex. App—Houston [1st Dist.] 2001, no pet.) (affirming summary judgment on insured’s good faith and fair dealing claim because the evidence demonstrated that the insurer "had a reasonable basis for denying the claim based on [the insured’s] own breach of the policy").

The insured can also establish that an insurer breached the duty of good faith and fair dealing by demonstrating that the insured "wrongfully cancel[ed] an insurance policy without a reasonable basis[]" and "the insurer knew or should have known of that fact." Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 283 (Tex. 1994); see also Rice v. Metro. Life Ins. Co., 324 S.W.3d 660, 672 (Tex. App.—Fort Worth 2010, no pet.) (reversing summary judgment on breach of good faith and fair dealing claim because "there is more than a scintilla of evidence that MetLife wrongfully canceled Larry’s new coverage without a reasonable basis and knew or should have known of that fact").

The supreme court has held that, while an insured’s failure to timely submit documentation will not always defeat a claim that an insurer breached its duty of good faith and fair dealing, in certain cases "failure to comply with the policy’s requirement as to proof of loss may constitute a reasonable basis for denial of the claim." Viles, 788 S.W.2d at 567. "Whether there is a reasonable basis for denial, however, must be judged by the facts before the insurer at the time the claim was denied." Id.

TWO YEAR LIMITATIONS PERIOD  

  

Negligence and breach of good faith and fair dealing claims are also governed by a two-year limitations period. Tex. Civ. Prac. & Rem. Code § 16.003(a) (West Supp. 2011). Limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy. Kenneco Energy, 962 S.W.2d at 514. “[A] plaintiff’s cause of action for bad-faith breach of a first-party insurance contract accrues at the time the insurer denied the insured’s claim.” Knott, 128 S.W.3d at 221 (citing Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex. 1990)).

  

SOURCE: HOUSTON COURT OF APPEALS - 01-10-00672-CV - 12/1/11