(Note: This Guest Blog is by Javier Delgado, an attorney with Merlin Law Group in the Houston, Texas, office. This is the eighth in a series he and fellow attorney Tina Nicholson will be writing on Texas property insurance issues).
Often times, an insurance adjuster fails to properly investigate the damages to the insured risk and does not properly evaluate the obvious insurance exclusions for many reasons. After suffering a loss, the insured a business owner is making decisions to get the business up and running as soon as possible, and many of those decisions are based upon the representations of the adjuster, or the lack of information given by the adjuster. The business decisions of whether to move to new location, lease more of the building to offset the additional costs or debt, replace or repair the improvements and betterments installed by a tenant, hire security to protect the premises, purchase a new policy that will cover theft and vandalism on a vacant building thought to be insured under the existing policy, etc., have a significant impact on the amount of money the insured will pay out of pocket and may never recover under the policy.
What is a waiver in Texas? It is an intentional relinquishment of a right actually known, or intentional conduct inconsistent with claiming that right; estoppel prevents one party from misleading another to the other’s detriment or to the misleading party’s own benefit.
If the insurance adjuster does not identify the coverage issue when presented with it and leads the insured into believing that he/she is insured for the loss, and in reliance on it, the insured makes business decisions that result in more of a loss from additional damages to the property or additional out of pocket expenses, has the insurance company waived the exclusions or is it estopped from denying coverage?
In Texas, the Supreme Court explained the law on waiver and estoppel:
If an insurance contract covers certain risks but the policy contains exclusions or limitations of coverage, when the insured makes a claim for loss from a covered risk, the insurer must assert any applicable exclusion or limitation to avoid liability. Ulico Casualty Company v. Allied Pilots Association, 262 SW 3d 773, 778(Tex. 2008); citing to Employers Cas. Co. v. Block, 744 SW 2d 940, 943-44 (Tex. 1988).
Earlier decisions in Texas are consistent with the analysis above. Republic Ins. Co. v. Hope, 557 SW2d 603 (Tex. Civ. App. 1977); T.I.M.E., Inc. v. Maryland Casualty Company, 157 Tex. 21, 300 S.W.2d 68, 73 (1957); Camden Fire Ins. Ass’n v. Moore, 206 S.W.2d 104, 107 (Tex.Civ.App. Galveston 1947, writ ref. n. r. e.).
In Hope, the insured was a builder for 20 years and was in the process of building a home when vandals stole thousands of dollars worth of equipment. Republic argued the vacancy provision, stating the property was not occupied for 90 days, so theft and vandalism were excluded causes of loss. The Court reasoned that when several instruments form one overall contract, the court will assume in its construction of the contract that the parties honestly intended the terms of the various instruments should be effective to accomplish their purposes, and will reconcile apparently conflicting provisions to give effect to all of them, if possible. The Court construed the instruments in question to provide plaintiffs Builders’ Risk coverage on the structure of the house at an increasing value as construction progressed until thirty days after construction was completed. Having construed the insurance policy as an “all risk” policy, in failing to plead the vacancy exclusion, the court held Republic waived the vacancy exclusion.